Expanding into the US through an accretive acquisition
We believe this acquisition would significantly improve the network andpenetration in the US for MDG. With consolidation of financials expected in4Q16, we also anticipate cost savings from the integration with existing salesplatform in the US. On valuation, the USD65m deal translates into a PEmultiple of 11x based on 2015E core earnings with mid-single-digit to 10%growth. As the acquired company is an established local player in the US, webelieve MDG could leverage on the acquired brand name and customer baseto further penetrate its products from China, a strategy that has been provensuccessful in previous deals. We continue to believe M&A would be the majorgrowth driver for the company, and Europe is likely to be the next priority.
What’s new? MDG acquired 100% stake of RTFP Dental
On June 7, MDG announced the acquisition of 100% of RTFP Dental, acompany which engages in dental prosthetic restorations in North America.According to the announcement on HKEx, RTFP Dental generated revenue ofUSD67m in 2015 with approximately 5% growth. In 2015 and 2014, the netloss of the RTFP Dental was USD9m and USD11m, respectively. However theloss was mainly due to the expenses of the corporate headquarters of theacquired company, which would not recur after the deal. If we were to excludenon-recurring items, RTFP Dental generated core operating profit of USD5.9mand USD5.6m in 2015 and 2014, respectively.