SERIAL SYSTEM has entered into a conditional sale and purchase agreement with Swift Value Business, which Serial expects will contribute about S$4.8 million to its net profit after tax over 2015-2017.

derek_gDerek Goh, executive chairman & CEO of Serial System. File photo.The S$4.8 million is the amount after deducting 20% of the projected net profit after tax of Swift Value as profit sharing with the Swift Value vendor, Ms Neo Siew Wah.

The S$4.8 million works out to an average of S$1.6 million a year. For perspective, Serial reported US$16.1 million in net profit after tax for FY2014.

The 20% profit sharing is part of the purchase consideration of Swift Value which also consists of a payment to Ms Neo based on Swift Value's Net Tangible Assets (NTA) plus a premium of S$10 million. 

The NTA will be based on the value to be fixed as at 30 April 2015 but for reference, as at 31 Dec 2014,  Swift Value's unaudited NTA amounted to S$3,013,000.

Thus Ms Neo will likely receive S$13 million or so plus 20% profit sharing for the next three years.

Who is Swift Value?

Swift Value was incorporated in Singapore, and is principally engaged in the business of distribution of printer accessories such as ink cartridges and toners. Its unaudited pre-tax profit for the year ended 31 Dec 2014 was S$3,219,000.

Rationale for acquisition?

Serial System is of the view that the Swift Value's businesses are complementary to Serial’s business of the distribution of consumer electronic products.

The proposed acquisition "provides an avenue for Swift Value to leverage on Serial’s extensive expertise in distribution, wide distribution networks and customer base, as well as operational synergies and economies of scale, to expand and improve the business, operations and financial performance of Swift Value," according to Serial.

"The proposed acquisition is in line with the Group’s strategy to acquire companies which may capitalise on the Group’s competitive strengths and extensive distribution networks, and expand the Group’s product lines and ranges and customer base."

For more info, see Serial's announcement.

Past acquisitions

Serial has made one other earnings-accretive acquisition in the recent past -- a 20% stake in an industrial laundry business in Australia.

For FY2014, Serial reported a US$617,000 profit contribution from SPL Holdings (Australia) whose 20% stake was acquired on 20 March 2014. 

Serial has made two other acquisitions but these were historically loss-making ventures --  a 49% stake in Achieva acquired on Sept 2014 and a 100% stake in the distribution and trading entity of GSH Corp on 31 Dec 2014. 

Serial will attempt to turn them around by integrating 
their supply chains and operations with the Group's, cutting costs and reducing the overlap of resources such as warehousing and administration, while seeking to improve their revenue and economies of scale.

Serial's share price recently traded at 19 cents, up about 33% since the company reported a sterling set of FY2014 results about a month ago. The trailing PE is about 7.6X based on earnings per share of 1.80 USD cents per share.

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