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Would Select Group Limited Become A Private Company Soon?

Credit: University of Exeter

OSIM International Ltd (SGX: O23) has been capturing plenty of media attention lately as a result of its privatisation deal. But, there are companies in Singapore’s stock market that are also dealing with their own privatisations at the moment.

One such company is Select Group Limited (SGX: 5FQ). The main shareholders of the food caterer and restaurant operator have joined forces with a local private equity fund to take the company private.

According to documents released last month, major shareholders of Select Group – Tan Chor Khoon, Tan Choh Peng, Pek Poh Cheng, Chua Chye Teck and Tay Bock Hiang – had formed a private vehicle together with Dymon Asia Private Equity Fund LP to take Select Group private.

Some of the individuals involved in the offer are important insiders of Select Group. For instance, Tan Chor Khoon and Tan Choh Peng are currently directors in Select Group’s board.

The consortium had offered S$0.525 per share in cash to Select Group’s other shareholders, valuing the company at around S$75 million in total. The price also represents 10 times Select Group’s trailing earnings and 3.9 times its tangible book value.

At the time the deal was first announced (23 March 2016), the investment vehicle looking to take Select Group private had collectively owned 34.92% of the company. But, there were also other shareholders of Select Group who had pledged to accept the offer at that time, bringing the investment vehicle’s control of Select Group to 53.57%.

On 8 April 2016, it was confirmed that the takeover offer had become unconditional and the offer period had been extended to the end of the trading day on 20 May 2016.

For investors who have been invested with Select Group since the close of its first trading day as a listed company in 2004, the privatization offer represents a total return (with dividends reinvested) of 187%. That works out to be an annual return of nearly 10%.

Select Group’s business appeared to have run into some severe difficulties during the global financial crisis period when it made losses in 2007, 2008, and 2010. But, the company seems to have turned its business around of late. In fact, Select Group has grown its revenue and net profit by 12% and 22.5% annually since 2011.

As mentioned, the Dymon Asia-led consortium’s offer price for Select Group gives the company a price-to-earnings ratio of 10. For perspective, the SPDR STI ETF (SGX: ES3) – an exchange-traded fund which tracks Singapore’s stock market barometer, the Straits Times Index (SGX: ^STI) – had a price-to-earnings ratio of 11.9 as of 15 April 2016.

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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 writer Stanley Lim doesn’t own shares in any companies mentioned.