KUALA LUMPUR (Aug 2): Pecca Group Bhd is buying a 51% stake in healthcare products distributor Rentas Health Sdn Bhd for RM100 million in a cash and stock deal to venture into the healthcare-related business, to expand its revenue stream.

The 51% stake purchase shall be satisfied via a combination of RM50 million cash and the issuance of 11.99 million new Pecca shares at an issue price of RM4.17 apiece to Teoh Zi Yuen, the daughter of Pecca's founder and managing director (MD) Datuk Teoh Hwa Cheng.

Zi Yuen holds 99.99% in Rentas Health, said the car-upholstery specialist in a Bursa Malaysia filing, adding the proposed acquisition is deemed a related party transaction. Hwa Cheng currently holds a 49.63% stake in Pecca. Post-acquisition, his stake in Pecca will shrink to 46.58%.

The deal comes with a profit guarantee, where Rentas Health guarantees it would achieve an audited profit after tax (PAT) of no less than RM23 million for the financial year ending June 30, 2022. Of this, the profit attributable to Pecca is RM11.73 million, calculated based on the 51% equity interest to be acquired by Pecca.

Rentas Health, which started its business operations on March 20, 2020, is primarily involved in the supply of medical equipment that include Covid-19 test kits and personal protective equipment (PPE). It is the distributor of two face mask brands, namely Rentas Health and Callie, as well as an appointed agent for BioSewoom Real-Q 2019-nCoV Detection Kit.

Through the proposed acquisition, the group said it will be able to tap into the existing customer base and distribution networks of Rentas Health to attain a wider customer outreach and to achieve business synergy between its existing healthcare business and Rentas Health's business.

"We are a dynamic company that is quick to acknowledge that business conditions have significantly changed because of the Covid-19 pandemic. We saw immediate need to embrace new ways of doing business in order to ensure that we remain relevant in the new business environment. This dynamism and agility led us to the diversification into the healthcare business, which we believe would be the business of the future," said Hwa Cheng in a separate statement.

"We believe the demand for masks, PPE and other Covid-19 products will be here to stay as more officials describe Covid-19 as an endemic, similar to the likes of HIV and Hepatitis C. To continue maintaining our competitive edge, we will dedicate efforts to R&D (research and development) which has always been the ingredient of success for our group for more than 25 years. We are optimistic to make new R&D breakthroughs in the short to medium term. With this new business added into our group, we are now ready to roll out our vision for Pecca 2.0, our new growth ecosystem that will pave Pecca to new heights," he added.

Pecca has appointed independent adviser FHMH Corporate Advisory Sdn Bhd to advise Pecca's non-interested shareholders on the acquisition, which is expected to be completed in the fourth quarter of 2021. The cash portion of the price tag will be funded using internal funds and bank borrowings.

Pecca will also seek shareholders' approval on its proposed diversification into healthcare, as it expects the business to divert 25% or more of the group's net assets as well as contribute over 25% of the group's net profit in the future.

The trading of Pecca shares, which was halted today prior to the announcement, will resume tomorrow. The stock was last traded at RM4.14, giving it a market capitalisation of RM778 million.