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Aoxin Q&M to acquire clinic in China; gains new deputy CEO, previously from Q&M

CATALIST-LISTED Aoxin Q&M Dental Group is proposing to fully acquire Youxin Dental Clinic in China for an aggregate purchase consideration of 19.6 million yuan (S$3.9 million), it announced on Dec 31 after the market closed.

Aoxin Q&M, which was spun off from Q&M Dental Group and listed in April 2017, said that the deal is in line with its expansion of its dental business in North China, and allows it to add a fully operational clinic. Youxin Dental Clinic is based in Jinzhou city in China's Liaoning province and has been operating since 1995.

The vendor, You Zhongjiang, will restructure the clinic into a limited liability corporate entity named Jinzhou Aoxin Youxin Dental Hospital Co, with Aoxin Q&M then acquiring 100 per cent of the shareholdings in the new entity. Following the restructuring, the book value and net tangible asset value of the clinic will be at least one million yuan. No independent valuation was conducted.

Of the purchase consideration, 1.1 million yuan will be paid in cash for the share transfer; three million yuan will be invested into Aoxin Youxin as working capital; and 15.5 million yuan will be paid in cash to the vendor for entering into a non-compete agreement with Aoxin Q&M and the clinic. The cash component will be funded using internal cash resources.

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Based on the clinic's latest management accounts, the clinic's net profit after tax was about 1.3 million yuan for the financial year ended Dec 31, 2017, and 0.6 million yuan for the period ended June 30, 2018. The agreement includes a profit guarantee for 12 financial years.

As announced on May 18, Aoxin Q&M and Mr You had earlier entered a binding memorandum of understanding (MOU) for the deal. In Monday's announcement, Aoxin Q&M said that its subsidiary Shenyang Xin Ao Hospital Management Co had on Dec 29 entered into a master agreement and further definitive agreements for the proposed acquisition, with the terms in conformity with the MOU.

The acquisition is expected to be completed by June 30, 2019.

As part of the conditions for the deal, Mr You will subscribe for 5.88 million yuan's worth of new shares in Aoxin Q&M. The issue price of 23 Singapore cents represents a 4.5 per cent premium and 5.8 per cent premium to Aoxin Q&M's weighted average price per ordinary share for trades on May 14 -- when the MOU was entered into -- and Dec 26 respectively. The subscription shares shall be under moratorium for a period up till Sept 30, 2022.

Separately, on Tuesday evening, Q&M Dental Group announced that Ryan San had ceased to be its business development director as of Dec 31, and has joined Aoxin Q&M as deputy chief executive officer and executive director as of Jan 1. Mr San, 41, had been Q&M's business development director since March 2017. He is the brother-in-law of Q&M's director and group CEO Ng Chin Siau.

Aoxin Q&M shares last closed up 1.5 Singapore cents or 6.98 per cent at 23 Singapore cents on Dec 31, before the news. Q&M shares last closed down 1 Singapore cent or 1.96 per cent at 50 Singapore cents on Dec 31.