Crisis Investing 1.0
Dear Family, Friends and Partners,
1. During 2021, in the midst of the pandemic lockdowns, we came across a retail company called Perdanis Distribution which was badly affected by the lockdown. This company has barely started with the new retail business of selling garments with a new brand and was in the midst of renovation and opening stores. Talk about bad timing.
2. However, despite the pessimism on the retail industry and economy, we proceeded with the due diligence on the company because we like the management team. They are experienced and have a good track record. Still, it took us 6 months to deep dive into this investment opportunity before we are convinced of the potential.
3. We offered to take up 50% of the company at a cost of RM5m, giving a valuation of RM10m to the company. We deemed the entry price as very attractive with no premium given. This is crisis investing at its best. Our bid was accepted because the management knew we can add value.
4. As Omni Capital Partners has just started on July 2020 after the first lockdown, we were in the midst of fund raising and the environment was extremely challenging. No one is feeling confident. At the end, we missed the opportunity as we failed to raise the funds to take up the 50% stake. We were so disappointed as the audience is simply not interested in any retail story.
5. However, we were not deterred. Instead of waiting for the durians to fall, we initiated on our merger and acquisition strategy and we found our target company Redina with a stroke of luck. Due to the severe downturn of the retail industry and with no successor, the owner was willing to sell it cheap and quick. Battered by the pandemic, the company was suffering successive falls in revenue and earnings losses too. However, we have strong faith in the recovery once the pandemic is over. We bargained hard and bought the company at a 45% discount to net equity. What a steal!
6. With the deal clinched, we tried another fund raising in 2022 (Please refer to our article “Rising of the Phoenix” written on 7th March 2022). This time, the valuation has moved up to 30m with the acquisition. Again, we offered 15m for the 50% stake. We thought it was another fantastic opportunity with stronger foundation. However, we failed for the second time and were extremely disappointed because most professional investors could not see the value we pitched very hard.
7. Eventually, we closed the acquisition with borrowed mezzanine financing. With the end of the lockdowns and businesses reopened at the end of 2022, strong recovery happened as anticipated. Revenue surged from 32m to 49m with losses of 3m turning into profits of 5m. Astounding? Not really. We expected that.
8. On December 2023, a public listed company announced buying 51% of Redina for a valuation of RM70m which we believe is a fair valuation. If we had invested 5m for the 50% stake in 2021, our stake will be valued at 35m today. Within 2 years, we would have made 30m or 600% on this investment.
9. We felt vindicated but heartache. This is what crisis investing is all about. You profit from disruptions. You buy cheap and sell it when good times are back. We understand it but most don’t because they tend to be overwhelmed with fears. Value creation is hard but very rewarding. We guess we will work harder on the next opportunity.
10. If we approach you on the next investment opportunity, please hear us out. You might regret again if you don’t even give us a chance. We know what we are doing. And we are good at doing it.
Best Regards
Scott Lim
Founding Partner
31st December 2023
