SNF, which incurred losses in 2006 and in the third quarter of 2007, will benefit through the deal from access to Singapore's lucrative healthcare sector, as well as enhanced profitability and market profile, according to an announcement filed by the company on the Singapore Exchange website.
ôThe medical industry in Singapore and the region is growing,ö says Low Shion Jin, chief executive officer of SNF Corporation. ôThe proposed agreement could represent a good opportunity for SNF shareholders to tap into this regional growth industry. We are also looking to bring the Healthway name beyond Singapore to create greater returns for our shareholders.ö
The acquisition is being effected to allow SNF to move into an area of higher growth and profitability. HMS recorded a net profit after tax of S$14.9 million in 2006. The deal will also potentially increase SNF's market capitalisation on the Singapore Exchange.
Healthway is a recognised Singaporean brand with 15 years experience operating in the healthcare sector. With 80 medical clinics, it is one of the countryÆs largest private out-patient medical service providers. Following the acquisition, SNFÆs business will be principally that of HMS, states the SNF announcement.
Prior to the transaction, SNF will undertake a share consolidation, in which every two existing shares will be converted into one consolidated share. These will rank pari passu with all existing shares. Following this, 2.6 billion consolidated SNF shares will be issued at a price of S$0.20 per share (amounting to a price of S$525 million), and effectively resulting in the reverse takeover of SNF by HMS. When completed, the transaction will lead Universal Healthway to own approximately 96.94% of SNF group, with a change of control effective immediately upon completion of the deal.
The valuation was based on 25 times the estimated proforma net profit before tax of S$21 million for HMS and its subsidiaries. According to a press release by SNF, comparables including Parkway Holdings, Raffles Medical Group and Thomson Medical Centre are trading at approximate price-to-earnings ratio of 33 times, 23 times and 18 times respectively.
The price is subject to adjustments based on the results of due diligence which SNF is yet to undertake. The deal is subject to regulatory approvals.
According to industry background provided by SNF, population and healthcare trends are likely to significantly stimulate SingaporeÆs healthcare sector in the coming years. The Singapore government proposes to grow its population at a rate of 2.5% per annum by welcoming skilled immigrant workers. Limited public healthcare will allow private healthcare providers to benefit from this increased demand.
Medical tourism will also prove a significant boost to the industry, with the government targeting one million foreign patients a year. This is expected to generate S$3 billion in revenue, and create at least 13,000 jobs.
Via the reverse takeover SNF is hoping to reinvent itself by changing its business profile and moving into a business area with healthy profits and prospects. SNFÆs share price gained 9.7% on the Singapore Exchange yesterday following the announcement, suggesting shareholders endorsed the rationale underlying its move.