This article first appeared in The Edge Malaysia Weekly on September 2, 2024 - September 8, 2024

CATCHA Digital Bhd (KL:CATCHA) — an ACE Market-listed digital media and advertising group controlled by techpreneur Patrick Y-Kin Grove — aims to grow its businesses organically while leveraging earnings-accretive mergers and acquisitions (M&A) to fuel its future growth, and thus capture a bigger share of the digital economy.

Taking into account the current deals in the pipeline and existing business performance, group CEO Eric Tan Leong Yit says Catcha Digital will be raising and allocating about RM80 million for M&A over the next 24 months.

He points out that Catcha Digital’s acquisitions typically fall into two categories: platform acquisition; and add-on acquisition.

“A platform acquisition will see us acquiring a business with sufficient scale at [the time of] acquisition or will reach scale through a focused buy-and-build strategy. As for add-on acquisitions, these are acquisitions that are made for a platform acquisition as part of growing and scaling the company,” Tan, 31, tells The Edge in an interview.

According to him, in a platform acquisition, Catcha Digital will look for companies with profit after tax of RM500,000 to RM10 million. Meanwhile, in an add-on acquisition, the group will eye companies with promising operating metrics and are on track to generate sustainable profits.

“To ensure that our deals are accretive to earnings, all of them have to meet a 20% internal rate of return (IRR). In other words, these deals will be valued at four to nine times price-earnings ratio (PER), growing their free cash flow at 5% to 20% a year and with payment tranches between 24 and 48 months tied to profit guarantee,” says Tan, who has 376,000 shares, or a 0.11% stake, in Catcha Digital.

A good case study of a platform acquisition is iMedia Asia Sdn Bhd — a main asset in the group’s digital media business — which was acquired by Catcha Digital for about RM44 million at a PER of 12 times in 2021.

In the financial year ended Dec 31, 2021 (FY2021), iMedia generated RM23 million in revenue and about RM3.7 million in profit after tax and minority interests (Patmi), implying a Patmi margin of 16.2%. In FY2023, iMedia recorded about RM30 million in revenue and about RM5.9 million in Patmi, representing a Patmi margin of 19.9%.

“We aim to continue to extend and replicate the success of iMedia in all the businesses that we are involved in. We will continue to rely on M&A to keep growing,” says Tan.

“While we expect all our existing businesses to continue to grow organically, we will also utilise M&A to expand our existing businesses, be it to acquire a new independent platform asset to enter a new category or an add-on acquisition to expand our existing businesses.”

At the moment, Catcha Digital has signed letters of intent (LOIs) with shareholders of eight target companies — six in media and two in enterprise software — to conduct due-diligence exercises.

“For the six companies in the media space, we are looking to expand our online advertising business and also enter the offline advertising space, such as out-of-home advertising, event or exhibition marketing and experiential marketing,” says Tan.

To fund the upcoming acquisitions, Catcha Digital’s plan is to raise external capital via equity by way of rights issue and private placement, as well as debt financing from financial institutions.

“We believe that funding our M&A via a combination of internally generated funds, equity financing and debt financing is the most efficient, so that we can maximise shareholder value,” he says.

As at June 30 this year, Catcha Digital’s cash and cash equivalents stood at RM10.865 million. It has no material local or foreign borrowings.

Over the past six months, Catcha Digital’s share price had gained nine sen, or 28%, to close at 38.5 sen last Thursday, giving it a market capitalisation of RM170.6 million. The counter is currently trading at a PER of about 40 times.

It should be noted, however, that Catcha Digital’s share price has fallen 35%, down from its five-year high of 59.5 sen last September, as the company completed its regularisation plan and exited Guidance Note 2 (GN2) status — a classification for cash companies that have sold their key assets.

Tan says that, from the company’s perspective, he is not in a position to comment on the movement of the share price, as his focus is on continuing to build the company and acquiring profitable digital businesses that will generate sustainable cash flow.

“Ultimately, our philosophy on creating long-term shareholder value is all about long-term consistency in delivering performance. And we have been very fortunate to have many supportive shareholders with us so early in this journey.”

Interestingly, Catcha Digital had in June announced that it would team up with Khairy Jamaluddin (KJ) and Shahril Hamdan — founders of podcast Keluar Sekejap Sdn Bhd — to set up KS Lagi, a new digital media business.

KJ is a former health minister and Shahril is a former information chief of Umno.

Catcha Digital says the company intends to assume the commercial and business responsibilities of the existing Keluar Sekejap business and KS Lagi.

KS Lagi will also create and distribute new media content across Catcha Digital’s existing network, which reaches about 20 million Malaysians every month.

Catcha Digital has two indirect major shareholders — Grove and Lucas Robert Elliott, who control a combined 51.98% stake in the company held through Catcha Group Pte Ltd (38.48%) and Catcha Investments Ltd (13.5%).

Grove is non-independent non-executive chairman of Catcha Digital and Elliott is a non-independent non-executive director.

Meanwhile, iCreative Asia Sdn Bhd — jointly owned by Voon Tze Khay, Loh Ken Wei, Tee Choon Wee and Brian Alexis Antonisamy — is the second-largest shareholder of Catcha Digital, with a 12.25% stake.

Catcha Digital independent non-executive director Datuk Justin Leong Ming Loong — grandson of the late Tan Sri Lim Goh Tong — has a 0.65% stake in the company.

Tan says Catcha Digital’s board of directors and management team consist of serial entrepreneurs and experienced operators in the digital sector with a collective ownership of more than 65% equity interest.

“Specifically, our major shareholder Catcha Group is a digital group led by Patrick, who has a strong track record in private and public capital markets, as well as scaling digital companies across Southeast Asia and Australia, with six IPOs (initial public offerings) and 92 M&A transactions over 25 years,” he elaborates.

Grove, an Australian citizen, is the 49th-richest man in Malaysia, with an estimated net worth of US$335 million (RM1.44 billion), according to Forbes. He has a history of founding tech companies and securing successful exits through some high-profile sales.

For instance, iProperty Group — an online real estate site founded by Catcha Group in 2006 — was acquired by Rupert Murdoch’s Australia-listed REA Group Ltd for A$751 million between 2015 and 2016.

Subsequently, in 2021, REA Group sold its operating entities in Malaysia and Thailand, whose sites include iProperty, to Singapore real estate start-up PropertyGuru Pte Ltd.

Also in 2021, iCar Asia — an Australian-listed digital automotive portal operator, also founded by Catcha Group in 2012 — was acquired for US$200 million by Malaysia’s first unicorn and integrated car e-commerce platform Carsome.

Grove himself had in 2014 co-founded on-demand video service iflix, which operates in more than 25 countries in Southeast Asia, South Asia, North Africa and the Middle East. It was sold to Chinese tech giant Tencent Holdings Ltd in June 2020.

In fact, Catcha Digital had slipped into GN2 status in August 2017, following the sale of its then digital asset, Rev Asia Holdings Sdn Bhd — an online media and publishing house — to Media Prima Bhd (KL:MEDIA) for RM105 million.

After a six-year wait, Catcha Digital has finally exited the GN2 list. Last year, the group completed the acquisition of the entire equity interest in iMedia Asia for RM43.92 million. iMedia Asia is a digital media firm involved in advertising solutions for brands and advertising agencies.

Tan reiterates that Catcha Digital will always focus on building the company as well as acquiring profitable digital businesses and generating sustainable cash flow, which will allow the group to keep this “acquire-build-grow-scale flywheel” going.

Driven mainly by iMedia Asia’s earnings contribution, Catcha Digital returned to the black with a net profit of RM2.06 million in FY2023, compared to a net loss of RM1.2 million in FY2022. The group continued to generate profits of RM2.174 million in the first half ended June 30, 2024 (1HFY2024).

Tan says Catcha Digital is aiming for annual double-digit growth in its top and bottom lines. “Part of the growth will be fuelled [organically by] the group’s current businesses, driven by [an expanding] sector and [excellent] execution by the team. We also expect M&A to contribute to our growth story as we continue to acquire great profitable digital companies in the years to come.” 

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