The privatisation offer for Singapore Medical Group ("SMG") finally materialised after a few years of waiting. Unfortunately, the offer price of S$0.37 per share was only a 19% premium to the average price of S$0.310 over the past 3 years. This is a very sad exit outcome for all retail investors as SMG has dropped from S$0.490 mid-2019 and languished ever since then. If based on median PE of different medical groups, the PE is around 20 times plus which worked out to a fair value of S$0.516 per share instead of the pathetic S$0.37 per share being proposed by the Offeror. This is no doubt a very low ball offer by the Offeror, TLW Success Pte Ltd, to buyout existing shareholders. For longer term focused investors, there is an alternative offer of 1 for 1 share in the new investment holding Company being offered in lieu of cash consideration. However, liquidity and lack of regulator direct supervision will be key issues for those who opted for taking up the new share option in TLW in lieu of cash, as upon SMG being privatised, it will be delisted from the SGX.
1. Offeror background- Shareholders are current Chairman/Directors of SMG
 |
| Shareholders of the private consortium |
c |
| Directors of the current "Company"- SMG |
As seen from above, the new company is formed by the existing SMG Non-Executive Chairman, CEO and another Executive Directors. Those bigger shareholders like the Korean Medical Group CHA and Silver Mines Global Limited have undertaken to take up the new shares consideration instead of cash electives with a long term focused view.
2. Rationale for the offer per Dr Beng Teck Liang (Executive Director and CEO) and his offeror TLW.
(a) Uncertainty in the short to medium term
SMG faces significant headwinds compromising a challenging marco-economic and operating environment driven by operational cost increases and shortage of skilled healthcare labour.
(b) Subdued historical share price performance
The Offeror is of the view that the historical price performance of the Shares has generally been relatively subdued despite the Company having consistently demonstrated a strong track record of profitability and operational execution. This includes delivering record levels of revenue and profitability for FY2021 and continued organic expansion through the opening of new clinics and by growing the number of specialist doctors within the Company. Accordingly, this has constrained the Company’s ability to utilise its Shares effectively for acquisitions or fund raising.
(c) Opportunity to realise investment in SMG at an attractive price and substantial premium
The Cash Price represents a premium of approximately 18.1%, 18.8%, 16.0% and 18.0% over the volume weighted average price ("VWAP") per Share for the one (1)-month, three (3)-month, six (6)-month and 12-month periods respectively, up to and including 8 September 2022, being the last full Market Day.
Parting thoughts
I am rather disappointed by the rationale given by TLW and the director of SMG. In 2019, Dr Beng himself and some other directors sold off a number of their shares to the Korean medical group CHA at a record price of S$0.605 per share that is not available to other shareholders. But currently, when they buy out existing shareholders, they only offer S$0.37 per share despite the growth of the revenue from S$22.9Mil in FY2013 to S$100.8Mil for FY2021 which is an impressive growth rate of 20% per annum over the past 8 years.
Personally, as a retail investor, I would not want to take up the risk of the alternative option of new shares in the Offeror's company as their management to me has a terrible track record of putting their own interest first rather than all shareholders no matter how well they sugar-coat this whole exercise. This will also subject oneself to their mercy where there are many possibilities on how they can play investors out after delisting. Will be closing off my current holdings (please see my recent investment portfolio updates) in SMG and bidding farewell to them.
I am also sure that this is not the last time we see or hear from the soon to be ex-SMG management. They will probably re-package the business and then launch an IPO in another 3-5 years time at 2 to 3 times their cost of this buy-out. Good luck also to Dr Beng, Dr Wong and Mr Tony who seems to be ok with their reputation going down the drain with the low ball offer.
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