KUALA LUMPUR: Ancom Crop Care Sdn Bhd (ACC), a wholly-owned subsidiary of Ancom Bhd, has acquired an 80 per cent equity interest in Shennong Animal Health (Malaysia) Sdn Bhd (SAH) and Vemedim Sdn Bhd (VSB) for RM16.6 million and RM7.3 million in cash, respectively.
Ancom group chief executive officer Lee Cheun Wei said the company aims to expand its market footprint in the agricultural chemicals space from core plant-related chemicals to include livestock chemicals.
"This is in line with our goal to position Ancom as an integrated solutions provider in the food supply chain," he said in a statement today.
Both SAH and VSB, collectively known as Shennong Group, are involved in manufacturing and trading chemical and animal health products that encompass livestock-related antibiotics, feed additives, supplements, and disinfectants mainly for the domestic market.
On a proforma basis, Shennong Group recorded a profit after tax (PAT) of RM3.8 million on revenue of RM23.7 million for its financial year ended 31 December 2020.
The acquisition also comes with a profit guarantee of RM4.6 million in PAT a year for Shennong Group's financial years
2022 and 2023.
The RM23.9 million valuation translates to a price-to-earnings multiple of 6.5 times based on the profit guarantee of RM4.6 million.
"As global economies cope with the rising inflation and food prices, we believe businesses that are critical in helping to sustain and secure supply of livestock, such as Shennong Group, are primed for growth.
"Locally, we are witnessing initiatives by the government to improve the country's self-sufficiency level," he said.
Based on market research, Malaysia's animal health and nutrition market is poised to grow at a compounded annual growth rate of 4.3 per cent between 2020 and 2025.
In line with the industry's prospects, the acquisition also comes with a profit guarantee of RM4.6 million in PAT a year for 2022 and 2023.
"Overall, the acquisition is a synergistic move for us. As Shennong Group is also involved in the agricultural chemicals business, we see synergistic benefits where we could leverage on our distribution network to boost the market
reach of our new addition.
"At the moment, Shennong Group is mainly serving the domestic market, but with Ancom's experience, resources as well as and extensive geographical footprint in more than 40 countries, we are confident in elevating the new business to a higher level.
"We look forward to working closely with the founders of Shennong Group, who will maintain their 20 per cent stake in the company and continue to play an active role in the growth of the business," Lee said.
The acquisition is expected to be funded fully through a combination of bank borrowing and internally generated funds.
The acquisition will be completed by the fourth quarter of Ancom's financial year ending 31 May 2022.