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Making Sense of MindChamps’ Acquisition of Buangkok Preschool

MindChamps PreSchool Ltd (SGX: CNE), a leading operator of preschools, has been on a buying spree. The company had already made a few major acquisitions this year. In April, the group made an announcement about its intention to acquire eight learning centres in Australia.

And most recently, MindChamps announced that it has entered into an agreement to acquire a Buangkok preschool from one of its franchisees. Here’s what investors need to know about the acquisition.

Purchase consideration

MindChamps will acquire the preschool for S$3.2 million from franchisee Zhau ShuZhen. The book value of the target at the time of acquisition was S$495,130 and its net tangible asset was S$438,950.

According to management, the consolidation of the franchisee-owned preschool to become a company-owned and operated preschool will be earnings-accretive and the company said that it was an ordinary course of the expansion of its business.

How the purchase will be funded

In its announcement, MindChamps said that the purchase will be funded through a mix of cash and debt. As of 31 March 2019, MindChamps was in a net cash position of S$10 million. However, at that time, the company had yet to account fully for the acquisition of the eight preschool centres in Australia.

Together with the purchase of the Buangkok preschool, MindChamps would be left in a net debt position when all the deals are completed.

Making sense of it all

Investors who were hoping that MindChamps would take advantage of its strong cash position to grow its business will certainly be pleased by the group’s recent acquisition spree. MindChamps has also been generating healthy cash flows from operations, which should help it to pay off its additional interest costs.

However, the announcement made by the company excluded important details such as the profitability of their acquisitions and the expected earnings accretion per share. Investors will have to keep a close watch on upcoming results to get a better idea of the acquisition’s overall impact on its balance sheet and earnings.

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