Nexgram acquisition of Ire-Tex Corp, market consensus a positive boost

20th Nov 2015, Kuala Lumpur, Malaysia – Nexgram Holdings Berhad (“NEXGRAM”), part of entrepreneur Larry Tey Por Yee’s Malaysia investment vehicle, today announced that it has proposed to acquire packaging company Ire-Tex Corporation Bhd (“IRETEX”) which could cost over RM50 million is expected to boost its group financial performance in the long run.

In a statement to Bursa Malaysia on Friday, Nexgram had announced that it planned to do this through an equity swap based on 40 sen per Ire-Tex share, 1 sen per warrant and 5 sen per irredeemable convertible unsecured loan stocks (Iculs).

Based on market consensus, the deal is expected to close within the next two months, subject to regulatory and shareholders approval. This acquisition will increase NEXGRAM’s total assets under the group to over RM450 million, elevating NEXGRAM’s consolidated sales and profit to double in year 2016, or estimated RM250 million and RM20 million respectively.

Senior investment banker familiar with M&A dealings, commented: “This acquisition gives Nexgram an excellent opportunity to accelerate Ire-Tex’s growth strategy in Malaysia, which is already the country largest high-end packaging specialist serving American Fortune 500 customers, especially in renewable energy and aviation industries. Ire-Tex having their own research and development (R&D) lab stands out among conventional players. Malaysia’s Ringgit vs US Dollar arbitrage gave Ire-Tex pricing advantage, where most of their clients are from America, and regional orders would expect to experience healthy growth over the next few years which, fueled by growth in global renewal energy products demand, clearly indicates an increasing demand for industrial product packaging services.”

The banker added: “The professionalism and commitment of Ire-Tex’s consultants in earning their customers’ trust are impressive. Their success highlights that there is a market need for professional product packaging advice and logistic planning. Nexgram would likely aim to build on their strong foundation over the coming years and bring their technology and services to Nexgram’s presence across Asia. Both Nexgram and Ire-Tex will benefit and further enhance their success by leveraging on each other’s clientele and expertise in cross selling products and services, having instant access to each other’s world class clientele.”

Incorporated in year 2002, Ire-Tex currently has over 478 staff strength, and recently went through facilities consolidation and corporate restructuring plan in order to facilitate higher demand from multi-national customers. Book orders have been increasing the last few quarters. Despite a failed investment in LED project, the overall business growth is in line with market trend. The group hired professional consultants to improve the new factory process flows which went through smoothly under current management. The investment is expected to recover in coming year, together with kitchen sinking strategy to be implemented within year 2015, where market perceive as a smart move for a fast growing company which practices good corporate governance.

“When good solutions to cut down cost and slim down processes is implemented, there are savings to be made, which also means some interest parties may not be happy as money taken away from the system. That’s all about when comes to restructuring, nothing so special”, commented a senior partner of business consultancy firm.

As part of normal restructuring process, Ire-Tex management had hired independent professionals to study and audit on some dubious allegation believed to be pure corporate sabotage, with satisfactory results. An audit specialist commented “Ire-Tex attracts envy and jealousy where they stands out among other players having cutting-edge technology and outstanding customer services. It’s over done that they even hired professionals to do extra review to fine tune their own operation, but now it’s clear that every steps are within their plan, nothing to shout about when comes to commercial decision as long financial results could justify.” According to the review report, there is no financial impact along the house keeping process, despite the budget over run due to increase of capacity requirement on factory construction, which is normal for most custom-build factories. Other capital expenditures were already approved before the company went though a Right Issue exercise, hence there is no further approval required except update reports, and these are all normal operation matters and it’s procedural. “The good news is, the extra report just reassured their investors the company is on track to grow the business. It’s a smart choice that their investors invested in the team, market believes the long term reward would be exponential”, added the specialist.

A senior investment firm officer said “We are in a low business margin yet fast changing era and there are no pure solutions for achieving a well-diversified business model and fatal to rely on single source of income. Therefore, some cross industry investing is beneficial. With this transaction extending the reach of International clientele here in Malaysia, I believe Ire-Tex would look forward to leveraging Nexgram global expertise to bring the merged company to be a strong player in pursing sustainability in today’s competitive business environment.”

 

Other references:

http://klse.i3investor.com/blogs/nexgramgrouptracker/86710.jsp

http://www.thestar.com.my/Business/Business-News/2015/11/20/Nexgram-launches-takeover-of-Ire-Tex-Corp/?style=biz

 

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