With reference to the news dated 10th Nov 2021 of Nordic Group launched an acquisition of Starburst Holdings Limited. The announcement was for Nordic Group to acquire Starburst with a pre-conditional voluntary offer. The offer shall only be triggered when it has satisfied or waived off the pre-condition on or before 10th February 2022. Should the deal go through, the offer will be S$0.238/share in cash to all Starburst Holdings Limited's shareholders.
As a shareholder of Nordic Group since 2014, this piece of news really caught me off guard. Firstly, Starburst Holdings Limited is not a competitor of Nordic Group in term of business. While Nordic Group's business is mainly focused on O&G or O&M sector, Starburst on the other hand is focused on the military related business. Not even a bit of overlap and that really puzzled me about the news. Another concern is the financial impact after the acquisition for Nordic Group.
NTA (as at 30th Jun 2021) shall be reduced from 16.9 cents to 10.7 cents
NAV (as at 30th Jun 2021) shall be reduced from 24.5 cents to 22.3 cents
EPS (as at 30th Jun 2021) shall be increased from 2.0 cents to 3.9 cents
Net Cash (as at 30th Jun 2021) shall be from +S$12.5M to -S$48.3M
Gearing (as at 30th June 2021) shall be from -0.13x to +0.56x
The last two are the concerning points as the company will swing from a net cash to a net debt, a swing of S$60.8M.
There will be plus points to the proposed acquisition, if not why go ahead. So what's the benefit of it ? The followings are the rationale for the acquisition as according to the company :-
1. Business synergy
Starburst's business and operation is a strategic fit for the company as the engineering competencies, know-how and resources of both companies are complementary. Starburst will add civil and mechanical form structure products and services to Nordic Group. Nordic Group's client base will be enlarged due to Starburst and a strong potential for cross-selling of Nordic Group's mechanical, electrical and instrumentation, insulation and scaffolding services to Starburst Group.
2. Potential for Continued Growth
Starburst Group's business could be considered a niche sector meaning there shall be less competition and growth's trajectory should be very well defined. After all, military expenses globally is very difficult to see sudden reduction. Even if in bad economy situation, military spending from countries to countries don't seem to be drastically effected.
From the above, the technical knowledge of Starburst should be that little overlap. Another factor based on personal analysis could be foreseen declining revenue in the O&G or O&M sector and the company in need another growth sector for the company in the long run. Kep Corp already sold off the rig building business to Sem Mar and in the past few years, couple of O&M companies like Swiber and Ezra also running into problems.
Given the benefit of doubts the company is making the right decision for the acquisition, the question as a shareholder is what's the time frame the company have to revert back to net cash position and what kind of growth trajectory is expected of Starburst ?
As a precaution, have sold off 30.12% of holding at S$0.355/share. However, would consider that as locking in that 30.12% at the price of S$0.355 rather than divestment. My overall holding price is S$0.10/share, so have that buffer to wait and see and regard this locking in as a strategic move.
