Tuesday 24 October 2023

Vertex Holding: Making a Bad RTO and Possibly Destroying Shareholder's Value

Vertex Holding, currently a shell SGX listed company ready for ROT has announced plans to merge with a game company.

Like many other "Tech names", the live streaming company, i7life is touted as high margin with a large addressable market to break into; however, this is further than the truth.

Truth: Company is Loss Making and Cash Flow Burning

The financials says it all: In page 2 and 3, it shows the company has done a financial engineering to create a one-off gain to make it look as though it is profitable before doing the RTO with Vertex. In Page 3, it shows the company operations is cashflow burning which makes sense why it needs money from Vertex to shore up its own balance sheet. 

The target company, i7live, while mentioned as No 1 in taiwan and Japan has limited growth. Both China and Singapore has a well built live streaming market which means that it can only grow internally within its 2 established countries. 

While i7live has touted about the aspect of live commerce, this is an existing technique used by the established e commerce platforms in the countries it operates in such as Rakuten, hence there is no unique market proposition of i7live.

My View

Overall, its a bad acquisition and why Vertex is doing this is to protect the reputation of its RTO shell management. This is because Vertex is nearing the end of its acquisition period, till now it has not found a good acquisition and if it does not do any acquiring, it will be required to close down and return the money to investors. The management is probably trying to show they have done something to prove their money and in this case, haste makes waste.

2 comments:

  1. Agreed. Also the valuation is not in sync with current market realities..

    ReplyDelete
  2. An announcement published by Vertex SPAC two days ago stated that they would be taking all the accrued interest from the escrow accounts to pay for the professional fees related to the RTO. This means that shareholders who (rightly) think that this deal is crap and wish to redeem their shares are effectively subsidising those who do not redeem their shares. This Temasek subsidiary is essentially screwing over minority shareholders who do not wish to go along with their bad RTO.

    More importantly, it creates an incentive for those who wish to redeem their shares to vote No on the acquisition, since if the acquisition is not approved, the SPAC has to be liquidated by Jan 2024, and redeeming shareholders will get back more of their money.

    ReplyDelete