Seeing red

ANOTHER special-purpose acquisition company (SPAC) has failed to live up to expectations. Red Sena Bhd, which has a focus on food and beverage (F&B), said it failed to find a qualifying acquisition (QA) within the permitted timeframe of Dec 10 and will start winding up.

Sadly, Red Sena was seen as the most promising among SPACs to go on and graduate as a full-fledged listed company. The other SPACs were in oil and gas and got derailed by the oil price crash which led to turmoil in the sector.

Red Sena’s SPAC listing was approved on the grounds that it would catalyse a rationalisation of the F&B manufacturing sector in the country.

However, they could not secure a deal that would have enabled it to start generating profits.

So what happened? Were the promoters of the company conservative in securing a QA in the F&B sector?

Nevertheless, the promoters would get full marks for efforts in trying to secure a QA in the F&B sector.

Towards this end, it is believed that Red Sena had vetted numerous deals and yet were unsuccessful in signing a sale and purchase agreement.

Red Sena had attributed the failure to factors such as uncertainties over deals and unrealistic valuation.

Another reason is also due to the structure of SPACs where the threshold for shareholder approval is high – at 75%. Hence the scrutiny on asset quality is stringent.

Deals in the F&B sector do not come cheap.

Just this week, DKSH Holdings Bhd announced its proposed acquisition of Auric Pacific (M) Sdn Bhd, a company involved in the distribution of chilled and frozen products and food services channel in Malaysia.

PublicInvest Research in a report noted that the acquisition cost at S$157.7mil (RM480.9mil) appeared to be expensive at about 18 times price earnings ratio based on annualised FY18 earnings, but this may be justified by Auric’s relatively high profit margins of around 7% compared to DKSH’s 1%-2%.

In the case of Red Sena, it was looking for a cheap and compelling asset that would make shareholder approval easier. But the promoters could not make it happen.

Why they were not able to secure a QA is something shareholders would want to hear at the upcoming EGM on Jan 16 where the main agenda is to seek approval to liquidate its business.