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Alliance Healthcare to make S$3.5m investment in startup Jaga-Me
CATALIST-LISTED Alliance Healthcare Group announced plans on Thursday to take a majority stake in a loss-making digital healthcare platform startup for about S$3.5 million in cash, in a deal that raised the bourse operator's eyebrows.
By buying over shares owned by 17 vendors and also subscribing to new shares, Alliance Healthcare will get a 55 per cent stake in Singapore-registered startup Jaga-Me, which offers an app for consumers to schedule and pay for the delivery of medical goods and services.
The board said the tie-up "will allow the group to leverage Jaga-Me's mobile health capabilities and scalable digital platform" for growth, adding that chairman and chief executive Barry Thng had approached Jaga-Me's founders after identifying the firm as a suitable acquisition target.
"There were no known prior relationships between the board, key management of the company and the vendors before this approach," it disclosed in its announcement.
Still, the Singapore Exchange (SGX) later issued a set of five queries for Alliance Healthcare over the planned purchase, such as whether Alliance Healthcare has the expertise to manage, maintain and enhance the Jaga-Me platform.
It also asked for the Alliance Healthcare board's consideration and due diligence in reaching a valuation of S$6.37 million for Jaga-Me despite its net tangible assets of just S$388,000 and the lack of an independent valuation of the target company.
Meanwhile, the company's pro forma analysis showed that, had the Jaga-Me transaction been done on July 1, 2018, Alliance Healthcare would have seen its earnings per share decline from 0.19 Singapore cent to a loss of 0.04 Singapore cent for FY2019.
But Alliance Healthcare, in its replies, referred the SGX to various sections of its announcement.
While Jaga-Me rang up a net loss of about S$682,250 in the year to Dec 31, 2018, the board said in its announcement that it finds it "more appropriate to consider the potential earnings prospects of Jaga-Me rather than adopting an asset-based valuation approach".
Alliance Healthcare also has a put and call option to buy out Jaga-Me's shareholders - excluding its founders and employee shareholders - if the startup's net operating profit after tax crosses S$1.5 million and/or its operating revenue is at least S$4 million, by June 30, 2023.
Alliance Healthcare plans to fund the transaction with S$1.05 million in proceeds from its initial public offering (IPO) - that is, about one-third of the remaining IPO proceeds - as well as a bank loan.
Dr Thng said in a statement that the deal, which he dubbed a strategic investment, will let Alliance Healthcare "seamlessly deliver quality healthcare to all patients, including rapidly ageing population, which is (in) line with our growth strategy".
"We look forward to exploring in-depth synergies with Jaga-Me as we continue to provide differentiated and cost-effective healthcare solutions for diverse medical needs, such as hospitalisation, critical illness care and chronic care," Dr Thng added.
Alliance Healthcare shares last traded on Dec 6 at S$0.14.