CATALIST-LISTED $ Metal Component: 5DX -27.78% ' s (MCE) shares plunged 1.9 Singapore cents or 21.1 per cent to 7.1 cents as at 3.37pm on Tuesday after it agreed to acquire about 85.1 per cent of shares in a loss-making healthcare and e-commerce firm for about S$4.3 million.

 

Payment for shares of the firm, Gainhealth Pte Ltd, will be made with cash (S$3.8 million) and the issuance of up to 13 million new shares (S$481,000) at 3.7 Singapore cents per share. This represented a discount of about 44.8 per cent to the volume-weighted average price of 6.7 cents for trades done on Monday, the last trading day before the agreement was signed.

 

Amid heavy trading on Monday, shares of MCE had surged 5.3 cents or 143.2 per cent to close at nine cents. The company had during the Monday midday trading break put out a holding statement noting the substantial increase in trading volume and share price, and said it was " considering a potential acquisition" .

 

The net loss attributable to MCE' s shares of Gainhealth for the period of June 26, 2020 (the date Gainhealth was incorporated) to April 30, 2021 is about S$99,630, MCE said.

 

The sellers in the deal are two of Gainhealth' s seed round investors, and founder and director Jagannathan Padmaja Sakthi. She held about 96.7 per cent of shares in Gainhealth prior to the acquisition agreement, and will hold 13.9 per cent once the sale closes.

 

Separate to the sale price, a performance bonus of up to S$5.1 million will be payable to the sellers based on the valuation of Gainhealth. The sellers will receive the bonus if the firm obtains a valuation of S$11.6 million or more within a year of the sale closing.

 

The bonus, which will be paid with cash and the issuance of new shares, will be adjusted based on a formula if the valuation target is not hit, MCE said.

 

Assuming the acquisition was completed on Dec 31, 2020, and had included the payment of the performance bonus, MCE' s net tangible assets per share would be 1.75 Singapore cents versus 4.02 cents pre-acquisition. Loss per share would widen to 0.6 Singapore cent versus 0.49 cent before.

 

Post-issuance of new MCE shares related to the deal, Ms Sakthi would hold about 5.9 per cent of the enlarged share capital, while the two seed round investors would hold 0.7 per cent and 0.9 per cent.

 

The arranger for the deal, Tan Ker Sin, will as part of her fee, receive S$212,500 worth of new MCE shares at 3.7 Singapore cents per share and hold 2.8 per cent of MCE' s enlarged share capital post-acquisition.

 

Gainhealth has 15 staff based in Singapore and Malaysia while its management team includes three doctors.

 

It operates a general practitioner clinic with an in-house pharmacy and an e-commerce arm that operates multiple online portals. Its products are also available on e-commerce platforms like Lazada, Shopee and foodpanda.

 

The Covid-19 pandemic " may have an adverse impact" on MCE' s business operations and operating results, and the acquisition is part of the group' s objective to find sustainable revenue streams, it said.

 

The metal stamping company will hold an extraordinary general meeting to obtain shareholder approval for the acquisition, it added.