Citaglobal Bhd is taking up a 30% stake in submarine cable systems company iFACTORS Sdn Bhd for RM25.2 million. The deal is expected to be earnings accretive for the group with the acquisition coming with a two-year net profit guarantee of RM21 million, and the company having an order book of RM528 million.
Citaglobal also has the option to purchase another 21% of iFACTORS once the profit guarantee of RM21 million has been met.
iFACTORS is principally involved in the business of maintenance and services of telecommunication equipment and components. Incorporated in 1997, it provides niche solutions in the maintenance and implementation of optical submarine cable networks, particularly in the area of repeaterless submarine cable systems.
For this acquisition, Citaglobal has entered into a subscription agreement to subscribe for 157,894 new ordinary shares comprising a 5% stake in iFACTORS Sdn Bhd, for RM 4 million in cash.
In addition, a share purchase agreement (SPA) has been entered with the vendor, Encik Abu Bakar Sutan Taharudin, for the acquisition of 789,475 iFACTORS shares comprising a 25% stake for RM21.2 million.
This SPA will be satisfied in the following manner:
a) RM10 million in cash; and
b) RM11.2 million via the issuance of 7,466,666 new ordinary shares in Citaglobal at an issue price of RM1.50 per consideration share. This price is based on the five-day volume weighted average price (VWAP) of Citaglobal’s shares up to 25 October 2023, with 25 October 2023 being the market day preceding the execution of the SPA.
Upon the completion of these proposals, Citaglobal will hold a 30% stake in iFACTORS.
The remaining 70% equity interest in iFACTORS will collectively be held by the vendor, Encik Abu Bakar, and Puan Vivi Anah Madzlan. Encik Abu Bakar and Puan Vivi Anah Madzlan are the existing shareholders of iFACTORS.
In conjunction with this proposed acquisition, the vendor has agreed to a profit guarantee, where the audited profit after tax (PAT) of iFACTORS is not less than RM21 million for the two financial years ending December 31, 2024 and December 31, 2025.
The profit guarantee of RM21 million translates to an average profit guarantee of RM10.5 million per financial year, and an implied price-to-earnings (P/E) multiple of approximately 8 times forward earnings.
As a security for the profit guarantee, the vendor has agreed that the consideration shares will be pledged with a stakeholder.
Among iFACTORS’ secured projects, key ones include an RM149 million concession contract for the construction and leasing of a high-speed connectivity subsea fiber optic system between offshore Peninsular Malaysia and the client’s data center for a period of 20 years.
iFACTORS has also recently secured a US$60 million (approximately RM287 million) contract for the construction of a subsea fiber optic cable system between Tawau, Malaysia, and Parang, a municipality in the Philippines.
This deal is targeted to be completed by the first quarter of 2024.
