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What Does Q&M Dental Group’s Latest Strategic Partnership Mean for Its Shareholders?

The largest dental outfit in Singapore, Q & M Dental Group (SGX: QC7), had just announced last week that it would be entering into a “strategic partnership” with a privately-held conglomerate, the IMC Group.

Is this an important development for Q&M Dental and what might it mean for shareholders of the company?

Details of the deal

In light of the partnership, Q&M Dental has agreed to grant a call option to Heritas Helios Investments, a healthcare-related private equity fund sponsored by the IMC Group. The option allows Heritas Helios to subscribe for 63 million new shares of Q&M Dental at an exercise price of S$0.48 per share. The option will be open for 2 years. By way of comparison, the company had 605.5 million shares in total at last count and was trading at a price of S$0.49 just prior to the announcement of the partnership.

Concurrently, Quan Min Holdings, the main shareholder of Q & M Dental, together with fellow substantial shareholders Dr. Kelvin Koh and Dr. Felicia Koh, have agreed to sell shares collectively equivalent to 10% of the company to Heritas Helios.

Who is IMC Group?

IMC Group is a conglomerate that first built its reputation in the shipping industry as International Maritime Carriers Ltd. In the 1970s, the company started expanding into other businesses and was actually one of the developers of the Suntec City commercial and retail building. The company’s investments now include interests in mining, oil & gas, plantations, lifestyle, real estate and many more. The group hopes to help Q&M Dental expand further, especially in China. If IMC Group ends up exercising all its options, it will end up being an 18% owner of Q&M Dental.

What does it mean for Q&M Dental?

If IMC Group does indeed exercise its options, existing shareholders of Q&M Dental must be prepared to see their stake in the company be diluted by around 9.5%.

However, the dilution comes with positive effects as Q&M Dental would be able to strengthen its finances by raising around S$30 million from those options. Prior to the deal with the IMC Group, Q&M Dental had S$19.1 million in cash on hand with S$9.1 million in total borrowings. The possible injection of S$30 million of fresh cash is pretty significant for Q&M Dental.

In addition, IMC Group has a strong network in China which might help Q&M Dental achieve its growth targets in that massive market.

Foolish Summary

Q&M Dental’s shares are now exchanging hands at S$0.50 each, a slight increase from the price of S$0.49 just prior to the announcement of the partnership with IMC Group. At that price, the company’s valued at 45 times trailing earnings. It seems that the market has already factored in any potential for growth with the company.

With high expectations (as seen from Q&M Dental’s high valuations) comes risks and investors should be mindful of that when it comes to making any decisions with Q&M Dental.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.