THERE is growing concern that ACE Market firms are increasingly being seen as platforms for new owners to bring in businesses which fail to deliver value in the end.
These exercises often bypass the traditional reverse takeover (RTO) route.
For example, a new owner will first gain control of a target company by acquiring shares in it.
Once in a strong position, the new owner would then give the impression of turning around the company with a new business, thereby creating some excitement around the firm’s shares.
This typically results in the shares of the listed target moving up to reflect the perceived value of the new assets.
However over time, many of these assets don’t deliver the earnings value that they are supposed to.
A keen market observer opines that often, some of these target companies are used for the injection of “junk or low-quality assets”.
“At times, these small firms are used for consecutive asset injection, increasing their market value in a short span of time, after which the new owners will cash in on the inflated value of the firm,” notes the observer.
He says all these defeat the original purpose of the ACE Market which is a platform for young entrepreneurs to raise funds for their businesses.
“Now it looks like people are using companies as a quick route to access the capital markets.”
Notably, in certain circumstances, there are even no assets injected as in the case of GPRO Technologies Bhd.
Recall in GPRO’s case, there was talk in 2012 of foreign market personality Christian Kwok-Leun Yau Heilesen injecting assets into the loss-making firm when he took over it, but nothing to that end, materialised.
Save for a name change to G Neptune Bhd, the company remains loss-making today.
Generally, companies which are targets for these kind of thing are small, struggling ACE market firms that hardly attract any investor attention. In contrast to a new owner merely taking over a target firm by acquiring shares, RTOs are generally safeguarded in the sense that when a party wants to take over a firm, firstly it has to have assets to inject into the company.
The regulators have to vet the assets and study thoroughly the valuations.
To this end, shareholders are protected from low-quality assets going into a firm.
An example of a fairly recent RTO is IT firm Jag Bhd, formerly known as Infortech Alliance Bhd, buying over profit-making Jaring Metal Industries Sdn Bhd (JMI) which is involved in the recycling of E-waste last year.
With JMI injected into its stable, the initially loss-making Jag was immediately pushed into the black, recording a net profit of RM1.7mil on revenue of RM35.5mil for the fourth quarter ended Dec 31,2013 after bleeding red ink for quarters on end.
It has since completed several rounds of corporate exercises to reward shareholders.
Another example is PUC Founder (MSC) Bhd which was taken over by London’s AIM Market-listed Resource Holding Management Ltd.
PUC’s RTO exercise which was completed in January involved Resource Holding injecting the core business of its unit, Red Media Asia Ltd Group (RMA Group), into PUC for RM90mil.
For the six months ended June 30, PUC which core business involves supplying biometrics security products and providing electronic publishing and management information systems to publishers announced a net profit of RM4.7mil on revenue of RM28.3mil compared with a net profit of RM1.05mil on revenue of RM11.5mil earlier.
Following the injection of Resource Holding’s assets into PUC, there has been consolidation of additional earnings from the Malaysian-owned Resource Holding’s core businesses which are media brokerage services and financial related services.
All said and done, investors should be discerning enough to know the difference between an RTO and the scenario where a new shareholder emerges in a company with new, unsubstantiated plans.
IvyYiStock: Are you referring Instaco to GPRO case? Lots of promises but delivered none.
1star0.08 and then zzzzzz for long time......better throw
gaussI used to invested INSTACOM 1 year ago, following this thread for about 1 year and cut lose at 0.23, made a investment lost by 5% of my 10% fund. I notice that seem like this thread is now loaded with fully fresh investors. =)
zu1967Instaco may see active trading towards extraordinary meeting which will take place on 30 th dec 2014. Trade at yr own risk.