Rowsley shareholders are celebrating their “victory” as Peter Lim sells his stake in Thomson Medical to his public entity Rowsley.
While the hype surrounds how much Rowsley skyrocketed, there are lessons to be learnt from Peter Lim’s sale of Thomson Medical to public-listed Rowsley.
Beneath the surface of the deal, these are four things that investors can learn from the deal.
1. A healthcare sector boom is in the making
Thomson Medical is one of Singapore’s leading providers of healthcare services for women and children.
The other company that is part of the proposed acquisition is TMC Life Sciences Bhd, a healthcare company, which mainly operates through Tropicana Medical Centre, its flagship hospital.
Upon the completion of the deal, Rowsley will turn into one of the major healthcare players in Singapore.
According to Rowsley chairman Ng Ser Miang, the deal allows Rowsley to tap into the “big and growing” healthcare market due to “ageing demographics, longer lifespan, major trends to increase birth rates, and growing affluence”.
Statistically, Singapore has been increasing its healthcare spending in recent years as our population age. The deal between Rowsley and Sasteria appears to confirm that a healthcare sector boom is on the cards.
2. The market is not ripe for an IPO
Less than a year ago, Thomson Medical announced plans to list on SGX via an IPO.
However, fast forward to today, the supposed IPO deal fell through. Instead, the market is looking at an acquisition deal between Sasteria and Peter Lim-owned investment vehicle Rowsley.
While the market is rejoicing the resurgence in the IPO market, it seems that Peter Lim feels that the market isn’t quite ripe for an IPO.
Would Thomson Medical have fetched a valuation of $1.9 billion in today’s IPO market? Maybe it would fetch a much lower valuation, even as the market gets hyped over recent IPOs.
3. More value to come from Thomson Medical?
Another possibility why Peter Lim is not selling Thomson Medical to the public could be that the acclaimed investor believes more value can be unlocked from Thomson Medical in the future.
While Peter Lim do not own more than 51 percent of Rowsley, he still commands a significant controlling interest of 46 percent in the company.
Instead of giving up control over Thomson Medical and subjecting himself to the fees of an IPO, why not sell it to Rowsley where he can still be part of any capital appreciation in Thomson Medical?
Moreover, the move to sell Thomson Medical from his private ownership to the shareholders of Rowsley allows him to free up more capital to make more shrewd investments in the future.
4. Investing in the right stocks
The single most important lesson that I have learned from Peter Lim is the importance of investing in the right stocks.
A few years ago, Peter Lim paid a 62% premium over Thomson Medical’s last traded price when he bought it from Dr Cheng Wei Chen and his family. At that point of time, the price paid by Peter Lim values the company at an estimated value of $513 million.
Critics at that time would have been criticising Peter Lim for forking out such a hefty premium for Thomson Medical. However, today he is selling it at 3.8 times the price he paid to shareholders of Rowsley at $1.9 billion.
Warren Buffett once said that he would rather pay an ‘OK’ price for a good piece of business than to pay a low price for an ‘OK’ piece of business. That is literally what Peter Lim did when he acquired Thomson Medical.
At 62% premium over its valuation at the time of acquisition, $513 million for Thomson Medical’s business was not low. But it was an ‘OK’ price for the quality of business that Thomson Medical represents.
Rather than chasing the next hot stock for 10-30% short term gains, why not buy and hold the right stocks for it to appreciate threefold in seven years’ time without worrying about the volatility of stock price movements?
Note: The CAGR of Thomson Medical is approximately 21% based on the selling price of $1.9 billion and buying price of $513 million.