There are many sectors of Asia's financial markets that have failed to live up to their potential and the Singapore management buy out (MBO) market is a perfect example. However a deal announced last week by SembCorp Industries shows that these deals can happen with willing buyers, sellers and private equity backers.
The deal saw SembCorp Parks Holdings selling its buildings materials companies to a new company called T.M. Tarah. This company comprises Crosby Asset Management (90%) and the existing management of Chew Song Kim (6%) and Martin Teo (4%). T.M. Tarah is buying thirteen separate companies as well as the loans and advances of these companies for S$39 million ($22.5 million).
The price paid comprises a S$17 million cash portion that will be paid over three years. The remaining $22 million is the value of receivables that will be forthcoming as well as assets of which the new management will dispose.
With 33% of the consideration coming from equity and the remaining 66% coming from debt, including preference shares, the deal is structured to lock in the prospects of T.M. Tarah with that of SembCorp, which will remain the company's biggest customer as well as creditor.
"SembCorp Industries has made it clear for some time that the buildings materials companies under RDC represent a non-core business for them," says Chew Song Kim. "The RDC management team felt it was important to seek a solution that would secure the future of RDC for the benefit of all parties, including SembCorp who will remain as an important customer of the company."
The divested companies include building materials companies in Singapore, China, India, Vietnam and Indonesia. These companies together lost some S$11 million in 2002, which mainly was the result of poor trading conditions in Singapore. The company claims that it is enjoying good growth in the other countries in which it operates.
But it is still the first sale through an MBO that SembCorp has undertaken on its long awaited divestment programme. "This is the first time that SembCorp Industries has made a non-core assets sale through the MBO route," affirms Wong Kok Siew, CEO of SembCorp Industries. "The management of the RDC is confident enough of the long-term future of this company to put their own money down to buy and run it."
For Crosby it is the first MBO the company has done in Singapore. Its role in the deal is as adviser to the management as well as funding source for the acquisition. The money raised for this deal came from outside investors and is the first stage of a buyout fund that the firm is setting up. According to Ian Gibbs who has been managing the deal, the T.M. Tarah asset will be injected into this fund once it is set up.
"As the Temasek Linked companies continue to divest non-core businesses, Crosby would expect to see a number of similar transactions over the foreseeable future, where financial backing is provided to enable management teams to lead a buyout of their business on terms that are attractive to the current owners," says Gibbs.
