Singpost (SGX: S08) - A jagged acquisition of Jagged Peak?

On 15 Feb 2019, Singpost announced acquisition of remainder of 21.1% shares in Jagged Peak as the owners have decided to activate their put option. The consideration to be paid for the shares are   US $10.59 million + US $1.75 million (only if a customer debt is recovered).

	Stake	Amount Paid in USD	Book Value	Net Tangible Asset Value	Price paid per % of Jagged Peak in USD
First Acquisition by Singpost (9 October 15)	71.1%	15.8 million	2.9 million (26 June 2015)	-0.7 million (26 June 2015)	0.22 million
Second Acquisition by Singpost (15 Feb 19)	28.9%	10.59+1.75	-0.6 million (31 December 2018)	-3.8 million ( 31 December 2018)	0.3664 to 0.4270 million

              

Key Takeaways

1. Jagged Peak has become a company with negative book value over the time span (Increased liabilities more than Equity)

2. The acquisition of 28.9% of shares in Jagged Peak is more costly than the initial acquisition of 71.1%.

Food for thought

In the Annual Report 2017/2018 it is stated that 'The consideration for the 28.9% under option is dependent on the audited average earnings before interest, tax, depreciation and amortisation (“EBITDA”) of JP for the 3 consecutive financial years ending 31 December 2015 to 31 December 2017. The fair value of the consideration at the acquisition date was estimated at S$13,809,000 based on a multiple of forecasted average EBITDA for the relevant financial years and estimated net debt of S$6,731,000, discounted at 2.9% per annum. The maximum amount that the Group is expected to pay to the key stockholders of Jagged Peak will be S$33,163,000 if the above mentioned criteria are met.'

However in the acquisition the maximum amount to be paid is only USD 12.34 million or SGD 16.74 million (US $1 to SG $1.36 )

While it would be difficult to run the numbers as the exact method of deriving is not told, it can be said that the amount paid is close to half of the maximum. I won't think that the performance is ideal. If it was the put options might not have been exercised as well.