Privatisation will help Sunningdale to pivot faster as suppliers reshore

Singapore

THE strategy of manufacturing in low-cost economies and exporting to more developed markets may no longer work in the current economic landscape as some businesses begin to move production closer to where their markets are, said Sunningdale Tech's chairman Koh Boon Hwee in an interview with The Business Times.

While firms typically seek out low-cost suppliers, there is now a growing emphasis placed on "resiliency and security" as a result of current geopolitical tensions as well as the onset of the Covid-19 pandemic that had earlier upended supply chains everywhere.

Firms are therefore looking to ensure suppliers are closer to their home countries or consumer markets, a practice known as onshoring.

"These fundamental changes are here to stay," said Mr Koh. "This means that Sunningdale needs to pivot from its former strategy. And it needs to pivot fast," he added, citing this as one of the key reasons for the recent offer to take Sunningdale private.

Amid brewing tensions between the world's two largest economies as well as the long-drawn-out pandemic, Mr Koh said that manufacturing companies across the industry will have to start shifting away from a "predominantly Asian low-cost footprint" to regions such as the US or Europe.

He expects the new demand for more resilient suppliers to drive further investments and acquisitions in high-cost countries. "It's going to be a quite a challenge for many of us because these are markets we sell to," he said. "They're not markets that we manufacture in." His main focus is to ensure that Sunningdale is able to make that transition successfully.

However, it is still too early to determine how large of a footprint is required in each market. "I only know that you can't have everything just here in China and Asia," he said.

With the exception of Mexico and Latvia, Sunningdale's manufacturing facilities are predominantly in Asia.

It had in November 2020 completed its first US acquisition, buying Arizona-based injection moulder Moldworx via its wholly owned subsidiary Sunningdale Tech Inc in Michigan for US$4 million.

Establishing a footprint in the US, said Mr Koh, is a very different model from the one Sunningdale had been pursuing for the past 30 years. But it is a move that needed to be made "in order to sustain the future of the company".

Such a transformation will inevitably come with short-term pains. Mr Koh cited AEM Holdings as an example, saying that the firm had to suffer losses and give up dividends for several years before getting to where it is today.

"That's the reason why I think (restructuring) is easier done in a private company, with shareholders who understand what this journey is (about)," he said. "This is unlike a public market, where prices change every single day, and respond to what I may think of as a short-term sacrifice - but (the view) may not be shared by everybody."

For those who are prepared to stomach the company's transition period, they can choose, in lieu of the cash consideration, to be issued with shares in the holding company of the acquiring vehicle.

Mr Koh and Novo Tellus PE Fund 2 made an offer in November 2020 for Sunningdale at S$1.55 in cash per share via a scheme of arrangement. The offer price was raised last month to S$1.65 per scheme share after activist investor Quarz Capital Management said the initial takeover price was "too low" and "significantly undervalues" the company.

Ahead of its Feb 19 scheme meeting, Sunningdale on Thursday said in a bourse filing that its independent financial adviser Provenance Capital has deemed the financial terms of its takeover bid as "fair and reasonable", and has advised the group's non-conflicted directors to recommend that shareholders vote in favour of the impending takeover scheme.

Sunningdale said its revised scheme consideration of S$1.65 per scheme share is final as "both a commercial and a legal reality".

The offerer and Provence Capital considered Sunningdale's price-to-earnings (P/E) ratio and enterprise multiple (EV/Ebitda) to be "more appropriate" metrics for valuing the company, said the firm.

"At S$1.65, the offer is about 26 times. It's on the high end of comparable transactions and former transactions," said Mr Koh.

Some of the capital required for the offer will be contributed by Novos Tellus Capital Partners - a technology buyout fund headed by Sunningdale's non-independent director Loke Wai San, who is also a non-executive chairman of AEM.

"When I decided to make an offer for the company, it was, to be very frank, beyond my personal capacity in terms of the amount of money I had to come up with," said Mr Koh.

He added that choosing to work with Mr Loke was a strategic choice for the firm as Mr Loke brings more than just finances to the table, noting that "you can get money from almost anybody, but what you want is somebody who can help you with the whole process".

Mr Loke first joined Sunningdale's board of directors in 2018 as an independent director, and was later on redesignated as a non-independent director after he agreed to be part of the offer.

A virtual dialogue session facilitated and moderated by the Securities Investors Association (Singapore) is due to take place on Feb 8 at 6pm. Mr Koh will deliver a presentation on the acquisition during the session, which will be exclusive to the company's shareholders.

Shares of Sunningdale ended Thursday at S$1.64, up S$0.01 or 0.6 per cent.