PANTECH (FV RM0.595 - TRADING BUY) Corporate News Flash: A Fitting Acquisition

THE BUZZ

Pantech Holdings Group Bhd (Pantech) announced  yesterday that it entered into a Share Purchase Agreement (SPA) on 7 March 2012 to acquire 100% equity of UK-based niche manufacturer and supplier of pipes, fittings, and flanges (PFF) Nautic Group, for a total consideration of GBP9.5m, or approximately RM45.5m.

OUR TAKE

Positive move.  We are positive on the acquisition in general as it will widen the company’s product range and client network. With this acquisition, Pantech is expected to strengthen its  expertise in exotic products such  as  pipe fittings and  flanges for sea water systems and acidic environments  which  are designed to operate under highly corrosive conditions and extreme temperature. The acquisition will also enable Pantech to  acquire the  technical knowhow  to  manufacture  niche products to  complement  itsexisting capability in  producing carbon steel fittings, and stainless steel pipes and fittings.

Opportunities abound  for  high value-added products. Over the past 34 years, the Nautic Group has established a reputation as a reliable specialist manufacturer of niche steel  products comprising duplex and super duplex stainless steel, copper nickel and alloys.  The Group has  also  attained  product certification from different international bodies and enjoys  strong  relationships with oil majors like Qatar Petroleum, Kuwait Oil Company, Petronas, BP, Esso, Shell and the Brazilian Navy. As such, Pantech will be able to leverage on the Nautic Group’s network to market its existing products directly to the large oil players.

Founder stays on during transition period. Pantech signed the SPA with the founder of Nautic Group, who  will be  required to  stay on for a year to ensure a smooth  post acquisition transition as part of the  agreement.  Such  a condition  will  help  shorten  the learning curve as well as the time-to-market for Pantech’s thrust into the stainless steel, copper nickel and alloy PFF markets.

Profit sharing and  EBITDA earnings guarantee. Apart from retaining the founder in the company for  a  year, the agreement also  includes a clause stipulating  that under certain conditions, Pantech will share a pre-determined amount of profit with the founder while the latter will provide an earnings guarantee of GBP950,000 at the EBITDA level to Pantech. We see this as a win-win arrangement for both parties as Pantech can avoid the hassle of re-establishing the Nautic Group’s operations, while the founder will ensure that the transition is smooth and that the company continues to be profitable.

Source: OSK188