Manufacturer and supplier of agricultural and industrial chemicals, Ancom Bhd’s wholly-owned subsidiary, Ancom Crop Care Sdn Bhd has today announced the proposed acquisition of 80% equity interest each in Shennong Animal Health (Malaysia) Sdn Bhd and Vemedim Sdn Bhd respectively (collectively known as the Shennong Group) for purchase considerations of RM16.6 million and RM7.3 million respectively, or a total consideration of RM23.9 million, to be satisfied in cash (Proposed Acquisition).
Shennong Group is principally involved in the manufacturing and trading of chemical and animal health products which encompass livestock-related antibiotics, feed additives, supplements, and disinfectants mainly for the domestic market. On a proforma basis, Shennong Group recorded Profit After Tax (PAT) of RM3.8 million on revenue of RM23.7 million for its financial year ended December 31. The Proposed Acquisition also comes with a profit guarantee of RM4.6 million in PAT a year for Shennong Group’s financial years 2022 and 2023. The RM23.9 million valuation translates to a price-to-earnings multiple of 6.5 times based on the profit guarantee of RM4.6 million.
Group CEO of Ancom Bhd, Lee Cheun Wei said, “ As global economies cope with the rising inflation and food prices, we believe businesses that are critical in helping to sustain and secure supply of livestock, such as Shennong Group, are primed for growth. Locally, we are witnessing initiatives by the Government to improve the country’s self-sufficiency level. Based on market research, Malaysia’s animal health and nutrition market is poised to grow at a compounded annual growth rate of 4.3% between 2020 and 2025. In line with the prospects of the industry, the Proposed Acquisition also comes with a profit guarantee of RM4.6 million in PAT a year for 2022 and 2023.”
“Overall, the Proposed Acquisition is a synergistic move for us. As Shennong Group is also involved in the agricultural chemicals business, we see synergistic benefits where we could leverage our distribution network to boost the market reach of our new addition. At the moment, Shennong Group is mainly serving the domestic market, but with Ancom’s experience, resources as well as an extensive geographical footprint in more than 40 countries, we are confident in elevating the new business to a higher level. We look forward to working closely with the founders of Shennong Group, who will maintain their 20% stake in the company and continue to play an active role in the growth of the business,” Lee concluded.
The Proposed Acquisition is expected to be funded fully through a combination of bank borrowing and internally generated funds. Barring any unforeseen circumstances, the Proposed Acquisition is expected to be completed by the fourth quarter of Ancom’s financial year ending May 31 2022.