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Global Invacom pushes ahead with Tactilis acquisition despite dissent

The Business Times by LYNETTE TAN

Singapore

SATELLITE communications equipment provider Global Invacom Group is pressing on with its proposed acquisition of Tactilis, valued at US$200 million, despite three dissenting directors on its board of seven.

Queried on that during an interview this week, Global Invacom executive chairman Anthony Taylor said: "I'm not totally clear on that and I think you'll have to ask them. We've presented them with the facts and at the end of the day, they decided to vote against."

The three members who voted against the transaction - independent directors Cosimo Borrelli and Basil Chan and non-independent director Kenny Sim - declined to comment.

The company, on the Singapore Exchange (SGX)'s watch list, believes the acquisition will be a game-changer for it, citing the sophistication of Tactilis' technology, its pipeline of customers and potential to attract new investors.

"Many of our shareholders have expressed frustration that while we've been doing a pretty reasonable job... the share price has been moving in the wrong direction - and we really need to move the dial," said Mr Taylor.

Acquiring Tactilis "opens up to us a new multi-billion dollar marketplace", he added. "They have a really, really strong pipeline of customers going forward".

He also believes biometric card systems maker Tactilis is a good fit for the company. As to the consideration given before venturing into a new industry: "We had two to three weeks of looking at the opportunity, visiting the factory, understanding the technology and looking at the pipeline."

The company said Tactilis' customer pipeline includes a global non-governmental organisation and veterans' association but declined to name any due to "sensitivities".

"I don't understand the marketplace but I do understand the electronics of the technology", Mr Taylor said, citing 17 years of experience with semiconductors.

Tactilis' nominal past revenues, mere fractions of its US$200 million valuation by Frost & Sullivan, have also come under the spotlight.

It made US$31,925 in 2017 and US$3,600 in 2016 but chalked up losses of US$2.36 million and US$1.2 million in those years respectively.

To that, Mr Taylor said: "You look at tech businesses pre-profit and the valuation of some of them is astronomical. So, it doesn't surprise me that when you have a novel technology like this, in a huge total available market, that it has a large valuation."

However, it appears that similar technology has been present in the market, through the likes of IDEX Biometrics, Fingerprint Cards AB and Gemalto, among others.

Furthermore, the proposed acquisition states that should Tactilis achieve at least US$25 million in net profit before net interest expenses, tax, depreciation and amortisation in financial year 2019, Global Invacom will pay additional consideration up to US$50 million.

But there will be no clawback or repayment of consideration if Tactilis does not hit that profit target.

Despite all those, Global Invacom said there is an agreement that allows them to "walk away from the transaction if, for example, the due diligence is not completed successfully or there is a breach on the part of Tactilis". They can also re-negotiate with Tactilis if their independent valuation is at least 15 per cent less than the US$200 million set out. None of those events trigger the US$20 million break fee, said the company, whose current market capitalisation is S$17.7 million.

Global Invacom also mentioned they are "commencing more thorough due diligence".

Finally, Tactilis will end up owning more than 30 per cent of Global Invacom's enlarged share capital if the deal goes ahead. Consultant Advance Capital Asia Partners Pte Ltd (ACPAM) is also expected to receive over 73 million new shares (representing 4 per cent of the valuation).

Currently, the largest shareholder is EGCP II Satellite Holdings LLC with over 24 million shares or 8.96 per cent stake. Mr Taylor and the board members each hold less than 5 per cent.

Global Invacom responded that the fee is not only for ACPAM's services during the proposed acquisition, but also in relation to the proposed unsecured redeemable structured convertible notes issuance and proposed target convertible notes subscription.

The Business Times also found that an ACPAM non-executive director, Bernard Ong, is also an investor in Tactilis. ACPAM founder Tan Choon Wee, who was also at the interview, replied that Mr Ong "is going to step down".

The deal has also attracted a flurry of queries from SGX. Following regulator approval, the deal will have to be approved by Global Invacom shareholders at an extraordinary general meeting.