KUALA LUMPUR (Sept 17): ACO Group Bhd, a distributor of electrical products and accessories, plans to buy a 49% stake in Focus Electrical Malaysia Sdn Bhd (FEMSB) for RM7.35 million.

Its group managing director Tang Pee Tee @ Tan Chang Kim said the proposed acquisition will help the ACE Market-listed company expand its market reach into more States across Peninsular Malaysia.

Currently, FEMSB has five sales outlets and one distribution centre in Pahang, Selangor and Terengganu. It serves a diverse customer base which include electrical contractors, industrial maintenance, resellers and end-users.

“The addition of FEMSB’s operational facilities in the East Coast region into the ACO Group will further improve our leadership position in the distribution of electrical products and accessories industry,” said Tang in a statement today.
 
In a separate bourse filing today, ACO Group said its wholly-owned subsidiary ACO Holdings Sdn Bhd has entered into a conditional share sale agreement with Wong Kim Lian, Ong Teik Leong and Tan How Ching for the proposed acquisition, which will be satisfied by a combination of RM5.88 million cash and the remaining RM1.47 million via the issuance of new shares in ACO Group.

Upon completion of the proposed acquisition, ACO Group and the current shareholders of FEMSB will collectively inject new capital amounting to RM13 million by way of subscribing for new shares in FEMSB. The capital injection will be contributed in proportion to their respective shareholdings and as a result, ACO Group will inject new capital worth RM6.37 million into FEMSB.

To finance the proposed acquisition of FEMSB and the subsequent working capital injection, ACO Group is proposing to raise RM22.6 million via a private placement of up to 56.5 million new shares, representing 18.83% of its total issued shares.

This is based on an indicative issue price of 40 sen per placement share, representing a discount of 1.48% to the five-day volume-weighted average market price of ACO shares of 40.6 sen as at Sept 15, 2020.

The proposed acquisition is supported by a profit guarantee amounting to RM4 million for the financial year ending April 30, 2021 (FY21) and RM6 million for FY22.

Tang said the additional income generated from the proposed acquisition will enhance ACO Group’s future profitability and returns on shareholders’ funds.

"Moreover, ACO Group will benefit from the future prospects and earnings potential of FEMSB, riding on the latter’s future plans to increase its number of sales outlets to further expand its market position in the state of Terengganu and Kelantan," he added.

Already, ACO Group and FEMSB share distributorships with several same brand principals. With the proposed acquisition, they may be able to collectively negotiate for better incentives, rebates, payment discounts and payment period terms through bulk purchases, said Tang.

"These could potentially lead to cost savings and increased competitiveness via lower selling prices."

The proposed acquisition and private placement exercise are expected to be completed by the fourth quarter of this year.

In a recent interview with The Edge weekly, ACO Group executive director Sean Tan Yushan was quoted as saying that the group was exploring further growth opportunities through mergers and acquisitions (M&A) in a bid to enhance its earnings prospects. He added that it plans to tap the capital markets as one of the options to raise funds for its M&A pursuit. As at end-May, ACO Group had a net debt position of RM13.21 million, with RM16.72 million in cash while borrowings totalled RM29.93 million.

ACO Group shares closed down 2.5 sen or 5.75% at 41 sen today, bringing it a market capitalisation of RM123 million. A total of 3.65 million shares were traded.