GSME Acquisition Partners I (stock symbol: [t]GSMXF[/t]), which raided $36 million when it went public in November 2009, completed its IPO on November 20, 2009, has announced that it has signed an agreement to acquire Plastec International Holdings Limited, a China-based plastic injection molding business:
GSME Acquisition Partners I to Merge with Plastec International Holdings Limited, a China-based Plastic Injection Molding Business in $73.4 Million Transaction
Press Release Source: GSME Acquisition Partners I On Monday August 9, 2010, 9:00 am EDT
SHANGHAI--(BUSINESS WIRE)--GSME Acquisition Partners I (OTCBB: GSMXF - News, GSMEF - News, GSMWF - News):
Highlights
Merger consideration
-- GSME will issue 7.3 million of its ordinary shares in exchange for 100% of Plastec
-- Earn-out provision of up to 9.6 million shares upon achievement of certain net income growth targets over the next three fiscal years
-- Transaction valuation yields a trailing P/E multiple of 6.5x based on GSME share price of $10.00 per share
Plastec International Holdings Limited is a well-capitalized and profitable high-precision plastic injection molding and secondary finishing business
-- Growing market position and poised for growth due to $75 million capital investment during economic downturn over the past three years
-- Long-standing relationships with globally recognized manufacturing companies
-- Well-known private equity firm, Cathay Capital, invested $13 million in 2005 and remains a significant long-term investor
Unaudited Financial Results for FY ended April 30th
-- Revenue and net income doubled from FY 2005 to FY 2008
-- Despite difficult market conditions in the global electronics industry, FY 2010 year-over-year revenues increased 5.8% to $123.9 million
-- FY 2010 adjusted net income of $11.3 million
-- FY 2010 EBITDA up 8.9% to $27.6 million
Growth Opportunities
-- Turnaround expected in both global and China’s plastic components sector
-- Plastec expects to utilize capital from transaction and public status to pursue attractive acquisition opportunities of China-based molding companies
GSME Acquisition Partners I (OTCBB: GSMXF - News, GSMEF - News, GSMWF - News) (“GSME”), a special purpose acquisition company formed for the purpose of acquiring an operating business having its primary business operations in the People’s Republic of China, and privately-held Plastec International Holdings Limited (“Plastec” or the “Company”) today jointly announced that the companies have entered into a merger agreement whereby GSME will issue 7.3 million ordinary shares and Plastec will become a wholly owned subsidiary of GSME, subject to GSME shareholder approval.
The Transaction
Under the terms of the transaction, GSME will acquire 100.0% of Plastec in exchange for 7.3 million newly issued ordinary shares of GSME (representing a total transaction value of approximately $73.4 million based on an agreed upon share price of $10.00). After the closing, GSME is expected to have approximately 11.2 million basic shares outstanding, based on a share price of $10.00 (not taking into account any conversions into cash by GSME shareholders or purchases of GSME shares in connection with the GSME shareholder meeting). Plastec’s current shareholders, which consists of management, high-net worth individuals, and private equity firm Cathay Capital, will then own approximately 66% of the total issued and outstanding shares in the pro-forma company on a fully diluted basis.
In addition, Plastec’s shareholders may earn additional share consideration of up to an aggregate of 9.6 million shares for achieving certain adjusted net income growth targets for the fiscal years ending April 30, 2011, 2012, and 2013, as outlined below:
Issued at Closing
Adjusted net income: $11.3 million
Shares issued: 7.3 million
FY 2011
Adjusted net income: $17.0 million
Shares issued: 2.8 million
Implied year-to-year growth: 50.2%
FY 2012
Adjusted net income: $22.9 million
Shares issued: 3.4 million
Implied year-to-year growth: 34.7%
FY 2013
Adjusted Net Income: $32.5 million
Shares Issued: 3.4 million
Implied YoY Growth: 42.0%
The aggregate number of shares to be issued to Plastec’s shareholders in the transaction, including the earnout shares, is derived from Plastec’s estimated 2010 adjusted net income and will be adjusted upward or downward based on Plastec’s actual 2010 net income as set forth in Plastec’s audited financial statements for its fiscal year ended April 30, 2010, which are to be completed and delivered to GSME on or prior to September 15, 2010.
The transaction is subject to approval by the shareholders of GSME and other customary closing conditions. The closing of the transaction is anticipated to occur in October 2010, and simultaneous to the closing of the merger, Plastec will seek listing on a US national securities exchange.
The senior management of Plastec is expected to remain unchanged following the transaction and will become the senior management of GSME. Following the transaction, GSME’s board of directors will be comprised of 3 executive Directors and 2 non-executive Directors appointed by Plastec, one Director appointed by Cathay Capital, and one Director appointed by GSME, of which it has chosen Eli D. Scher, GSME’s Chief Executive Officer and Director. A majority of the Board will be independent non-executive members.
Commenting on the transaction, Mr. Scher stated, “We launched our search for a merger partner with a focus on finding a well-managed, profitable, growing company with a unique niche. In Plastec, we are merging with a company that has a proven track record of profitability in varying economic cycles, strong financial controls, and is a valued portfolio company of the well-regarded private equity firm, Cathay Capital. Further, the Company’s infrastructure expansion during difficult economic conditions over the past two years has it well positioned for immediate and long-term growth. We believe our merger with Plastec represents a favorable P/E multiple (FY2010 P/E: 6.5x basic) and offers the potential for substantial appreciation. We have developed a close working relationship with Plastec’s management team and look forward to being actively involved in the growth of the Company for years to come.”
Mr. Kin Sun Sze-To, Chairman and CEO of Plastec, stated, “We are very excited at the prospect of going public through this merger with the management at GSME, and believe that Plastec is properly positioned for growth. Our firm has an industry-leading market position in the plastic injection molding industry in China, located near raw material suppliers and long-standing customers, and has a stellar reputation within our market. This merger and subsequent US national securities exchange listing will increase our flexibility and access to capital while also increasing our visibility within our industry. We feel there are numerous avenues for potential growth, including expansion into new industries such as auto and industrial applications, either organically or through complementary acquisitions. Our goal is to continue to build upon our unique blend of experience, customer relations, and disciplined operations.”
Cohen & Co. Securities LLC is acting as financial/investment banking advisor to GSME and Graubard Miller is acting as legal advisor to GSME on this transaction.
More detailed financial information regarding the transaction and Plastec’s financial information and operations can be found in the Report of Foreign Private Issuer on Form 6-K to be filed by GSME with the Securities and Exchange Commission shortly after this announcement, and which can be obtained without charge, at the Securities and Exchange Commission's internet site (http://www.sec.gov).
Plastec History
Originally founded in 1993 by Chairman and CEO, Mr. Kin Sun Sze-To, Plastec is a plastic injection molding and finishing business. Injection molding is a design and manufacturing process in which plastic resins are transformed into the templates used in the mass production of items such as consumer electronics, home appliances, and telecommunications equipment.
With over 4,600 employees, Plastec currently operates 5 separate, high-output, low-defect facilities (over 159,000 square meters) in the Guangdong province in Southern China and Jiangsu Province in Eastern China. These facilities consist of state-of-the-art injection and precision tooling machines, and are strategically located near the Company’s manufacturing customers. The Company has a dedicated team of over 125 design engineers and technicians, and has the ability to produce approximately 100 to 120 molds per month with a highly competitive lead time.
Plastec’s customer base is global, the largest percentage of which are based in Japan, Korea, Europe, and the United States. Plastec’s customers are universally recognized manufacturers of products such as consumer electronics, home appliances, telecommunication devices, and children’s educational products. For its fiscal year 2010, Plastec created molds that it estimates were used to create hundreds of thousands of products. The Company has a history of precision quality control, with an industry-leading low customer return rate of 0.2 – 0.7%. This low-default rate, quick turnaround time, and competitive pricing has led to relationships with its large, multi-national customers that average over 5 years, with several lasting over a decade.
Capital Investment and the Opportunity for Plastic Molding in China
The global plastics market grew from 2005 – 2009 at a CAGR of approximately 3.4%, while China’s plastic component demand grew at 17% during this same time period. Key drivers for the growth in Asia included shorter production cycles, growth in the domestic electronics manufacturing industry, and more expansive support by the Chinese government.
However in 2007, the overall outsourcing consumer electronics industry began to decline globally, despite continuing to grow locally in China. This significantly affected Plastec’s domestic competitors in the plastic component industry, eliminating many smaller companies. During this time, Plastec’s management made a strategic decision to invest in capital expenditures in advance of a turnaround in the Asian and global market. During its fiscal years 2008 – 2010, the Company invested approximately $75 million in state-of-the-art machinery, tooling, and general expansion.
Financial Results
The Company’s estimated total revenues for the 12-month period April 30, 2009 to April 30, 2010 increased 5.8% from $117.1 million to $123.9 million and its adjusted net income was $11.3 million and EBITDA was $27.6 million during such time period. See the attached tables at the end of this press release for additional summary financial information regarding Plastec.
Plastec’s financial information and data contained in this press release is unaudited and may not conform to SEC Regulation S-X. Accordingly, such information and data may be adjusted and presented differently in GSME’s proxy statement referred to below.
This press release includes financial information (EBITDA) not derived in accordance with generally accepted accounting principles or international financial reporting standards. Accordingly, such information may be materially different when presented in GSME’s proxy statement to be used in connection with obtaining shareholder approval. GSME and Plastec believe that the presentation of such financial information provides more useful information to investors as it indicates more clearly Plastec’s future performance. EBITDA was derived by taking earnings before interest, taxes, depreciation and amortization as adjusted for certain one-time non-recurring items and exclusions.
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