This article first appeared in The Edge Malaysia Weekly on December 25, 2023 - December 31, 2023

Time dotCom Bhd’s sale of a stake in AIMS Data Centre Holding Sdn Bhd to DigitalBridge Group Inc that was completed in April this year was packaged as a strategic partnership between the two parties.

This is because even with a smaller stake in AIMS, Time will still have the opportunity to leverage a global player in the data centre industry to accelerate the scaling up of its data centre business in new markets in the Asean region and beyond.

Given the resilient demand for data centres, Time concluded after a review of its data centre business that it had to partner with someone to accelerate its growth and capture opportunities in this space.

“There were significant opportunities present in underserved markets across Asia that required significant investments as well as a deep understanding of how these markets operated,” according to its 2022 annual report.

It found a partner in DigitalBridge, a leading global investment firm dedicated to digital infrastructure with a 25-year track record of investing in and operating businesses across the digital ecosystem.

Time and DigitalBridge envisioned an expansion of data centre facilities in primary and secondary Asean cities, with a focus on providing best-in-class services to multinational corporations, large enterprises, content providers, internet infrastructure providers and financial institutions.

The proceeds of RM2 billion from the sale would also improve Time’s net cash position, giving it the flexibility to deploy capital to other parts of its business or region, and pay shareholders a special dividend.

To recap, there are two parts to the deal, announced on Nov 22, 2022. The first involved the sale of 49% of the ordinary shares and 100% of the irredeemable convertible preference shares (ICPS) in AIMS. The sale of 21% of the ordinary shares in AIMS Data Centre (Thailand) Ltd formed the second part of the deal.

Notably, the first part of the deal represented the sale of a majority stake of 70% of the total issued share capital of AIMS once the ICPS are fully converted within two years. The deal valued AIMS at an enterprise value of RM3.2 billion.

The stake sale was chosen as the Best Merger & Acquisition deal because  it was well timed, amid a data centre boom in the region driven by rising demand for data storage as business processes migrated to the cloud on the back of growth in digitalisation as a result of the pandemic.

Time booked a gain of RM2.5 billion from the sale of the stake in AIMS. The company said it would pay shareholders RM1 billion in a special dividend and reinvest the balance of the proceeds in the group to further grow shareholder value.

New York-listed DigitalBridge manages a portfolio of more than US$48 billion in digital infrastructure assets.

Credit Suisse, now part of UBS Group, acted as financial adviser to Time in the transaction. Ernst & Young Consulting Sdn Bhd acted as due diligence provider, while CIMB Investment Bank Bhd and Redpeak Advisers Pte Ltd also acted as financial advisers to Time. 

Deutsche Bank, which acted as adviser to DigitalBridge, says that the transaction aligned the objectives of both parties, “creating a win-win scenario” where DigitalBridge gains a strong foothold in the Asean data centre market while Time secures a strategic partner that would allow both to “harness the expertise and resources needed to drive aggressive growth and expansion in the Asean region and beyond”.

Notable mentions

Farm Fresh Bhd’s purchase of a 65% stake in the country’s largest home-grown ice cream chain, The Inside Scoop Sdn Bhd (TIS), for RM84 million in a cash-and-shares deal deserves a mention as it made sweet sense and was good for both parties.

The deal enabled Farm Fresh, a home-grown dairy product specialist, to enter the ice cream market and own one of the fastest-growing local artisanal ice creameries. It also allowed the group to leverage the competency and experience of the two founders of TIS — Edmund Tan Jun Hua and his wife Lim Shiew Li — who are now spearheading Farm Fresh’s ice cream division and leading its foray into the highly promising over RM1 billion consumer packaged goods ice cream market.

The deal, announced on Feb 15 and completed on May 31, involved Farm Fresh first acquiring a 53% stake from TIS shareholders for RM68.5 million — of which RM20 million was paid via the issuance of 13.16 million new Farm Fresh shares at an issue price of RM1.52 apiece. It subsequently acquired 12% of the enlarged issued TIS shares for RM15.5 million cash.

Following the transaction, Tan — a former investment banker who started TIS in 2013 with Lim, an actuary — holds a 35% stake in TIS, allowing him to continue building the business with the support of Farm Fresh’s capital contribution and distribution. It was what some might call an entrepreneur’s dream. Tan previously held a 61% stake.

His partners Derrick Wu and Harsh Rajpal, who had held 37.9% and 1.1% equity interest in TIS respectively, cashed out.

Tan was also granted a put option that gives him the right to require Farm Fresh to purchase his remaining shares in TIS. According to Maybank Investment Bank, the principal adviser to Farm Fresh, this incentivises Tan to align his interest with that of Farm Fresh in further growing the business as the exit valuation for the put option depends on TIS’ future financial performance.

Analysts say the transaction value, at 9.5 times TIS’ FY2022 enterprise value (EV) over its earnings before interest, taxes, depreciation and amortisation (Ebitda), fell within the range of comparable transactions of between 8.2 times and 14.2 times. It was also below the comparable transactions’ average EV/Ebitda of 10.4 times.

Meanwhile, Yinson Holdings Bhd’s US$341.1 million acquisition of floating, production, storage and offloading (FPSO) vessel Atlanta also receives a notable mention under the M&A category.

Yinson had acquired the entire equity interest in FPSO Atlanta’s holding company AFPS BV (AFPS) from Atlanta Field BV (AFBV), part of Brazilian oil firm Enauta Group, through the exercise of a call option for US$22.2 million, after deducting US$63.6 million in indebtedness on the books of AFPS.

The FPSO is currently under construction and is expected to be completed by the first half of 2024 and to be chartered by Enauta in the same year. The vessel will operate in the Atlanta deepwater oilfield off Brazil.

The balance consideration of US$318.9 million — funded by AFBV as a loan to complete the vessel’s construction — will be paid back to AFBV throughout the firm charter period.

Following the acquisition, Yinson’s scope of operations for the Atlanta project was expanded to a 15-year period, from just two years, with a firm contract value of US$1.7 billion comprising vessel charter and an operations and maintenance (O&M) agreement. The contracts also come with extensions of up to five years for another US$402 million.

The call option to acquire the FPSO was a good tool in place as it allowed Yinson to monitor the progress of the project and the riskier operating landscape in Brazil, before making a decision to increase its exposure to the Atlanta field for the long term and thus increase its order book to US$22.6 billion at end-March 2023.

The call grantor’s loan by AFBV, with a fixed interest rate of 6% per year, also allows Yinson to fund the construction of the vessel from the future cash flow of the long-term charter, in line with the group’s strategy to ring-fence the financing of its projects.

AmInvestment Bank was the principal adviser for Yinson for the exercise.

With nine vessels in its fleet, the Atlanta deal is part of Yinson’s strategy to accelerate its growth, which allowed it to capture the upside of the FPSO market and the wider oil and gas industry when it bottomed out from the previous downturn.

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