In this article, we focus on the final two M&A investment themes: ‘Merger For F&B Brand Value’ and ‘Optimising Shareholding Structure To Maximise Returns’.

Investors Takeaway: ‘Merger For F&B Brand Value’ & ‘Optimising Shareholding Structure To Maximise Returns’

⦁ F&B – Premium In Brand Value

As seen from past takeovers and privatisations of OSIM, Eu Yan Sang, Super Group, Auric Pacific and Courts Asia, companies with strong brand equity are highly sought after as acquisition targets. Among the F&B plays, SunMoon, QAF and Delfi stand out in building their brand premiums. As such, DBS thinks that these companies could be on the radar screen of acquirers.

SunMoon is a global distributor and marketer of fresh fruits, vegetables and products with an asset-light consumer-centric and brand-focused business model. It leverages on its strong brand equity and expanding distribution network across Asia and the Middle East. Moving forward, SunMoon is looking to leverage on Alibaba’s network, infrastructure and logistics in China through its parent YiGuo, which is backed by Alibaba. SunMoon has a unique opportunity of expanding both upstream and downstream, and further strengthen its B2B channels and B2C ambitions to fast track its expansion plan into China.


Another takeover target in the F&B field is Delfi. The company had previously spun off its upstream cocoa processing business. At the moment, Delfi runs a strong branded consumer business in Indonesia that has 50 percent market share of branded chocolates in Indonesia. It holds a strong competitive advantage for its extensive network coverage across Indonesia. This will be an attractive value proposition for investors who are keen to dominate the chocolate space in Indonesia.

Spider Web Listing – Optimising Structure To Maximise Returns

Cross holdings among listed companies is a common sight in Singapore as it offers benefits such as retaining greater control of the group. However, DBS thinks that cross holdings leads to a smaller free float which could hinder these entities from reaching a wider audience especially when fund raising. As a result, the individual entities within cross holdings are not deriving the full benefits of a listed status.

mm2 Asia / UnUsUaL / Vividthree

Using a sum-of-the-parts (SOTP) valuation, DBS estimates that the market is undervaluing mm2’s core production and cinema segment at 2x P/EBITDA. Its peers are trading at around 5.5x P/EBITDA. One reason for the undervaluation is because of the spider web listing structure that limits the free float of mm2. This was after mm2 took on debt to acquire the Cathay cinema business in Singapore in 2017.

To alleviate this spider web listing structure to maximise returns, mm2 have multiple options: (1) A spinoff / dilute its stake in the cinema business; (2) Divest its stakes in UnUsUaL and Vividthree; (3) Bring in strategic investors. If any of the three options are successfully executed, mm2 will be able to enjoy a re-rating.

ComfortDelgro / Vicom / SBS Transit

Another group of companies that saw its share prices suffer because of the spider web listing is ComfortDelgro and its subsidiaries. ComfortDelgro is a major shareholder in both Vicom (67 percent) and SBS Transit (74.5 percent). Both Vicom and SBS Transit have been generating consistent revenue and profits in the last five years. Their share prices have also been on an uptrend. However, these have not been reflected in the share price of ComfortDelgro as the competition with transport aggregator like Grab has overshadowed ComfortDelgro’s share price.

Related Article:

6 Investment Themes To Ride On The M&A Wave (Part 2)

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