Multimillion-dollar markup for HotApps US sale

Listed construction and technology player Singapore eDevelopment has announced a $700 million acquisition agreement with US-based Fragmented Industry Exchange, in a bid to establish a foothold in the US market for its instant messaging business HotApps, which it purchased in August for $98,000.
Written by Leon Spencer, Contributor

Singapore-listed property development and technology company Singapore eDevelopment has announced that it has signed an agreement with United States-based company Fragmented Industry Exchange (FIE) to sell its instant messaging (IM) software business HotApps for $700 million.

The proposed deal is aimed at resulting in the purchasing company acquiring all of HotApps, realigning its business focus wholly on the instant messaging platform, while the selling company will attain nearly 100 percent control over the Delaware-incorporated buyer.

Singapore eDevelopment (SeD) said in a Singapore Stock Exchange statement (PDF) that the deal has been struck as a "prelude to a launch of the IM applications in North and South America".

According to SeD, its subsidiary, HotApps, is a developer of instant messaging and e-commerce applications.

Meanwhile, New York City's Nasdaq exchange describes FIE — formerly known as Ontarget Staffing Inc — as a "development-stage financial acquisition intermediary which will serve buyers and sellers for companies that are in highly fragmented industries".

The company has filed for the quotation of its shares on the Over-The-Counter Bulletin Board (OTCBB), an electronic inter-dealer quotation system facilitated through the Financial Industry Regulatory Authority, and intends to subsequently conduct an initial public offering on the Nasdaq exchange.

Under the terms of the deal, according to SeD, Delaware-incorporated FIE will issue 1 million new shares at $10 each ($10 million) and $690 million worth of perpetual preferred shares to acquire HotApps International, which SeD bought from its own CEO Chan Heng Fai in August for just $98,000.

Upon completion, the Singapore Exchange Catalist-listed SeD will receive 13.8 million perpetual preferred shares to be converted to 69 million common shares in FIE — subject to HotApps acquiring approximately 9.43 million users for its application.

SeD said that assuming full conversion of the shares, it would own 94.43 percent of FIE, which will, in turn, hold 100 percent of HotApps.

FIE has only one director, its CEO — as listed by the Nasdaq exchange — Mary Ellen Schloth, wife of the company's controlling shareholder William Schloth, who is the sole owner of Global Bridge Partners, one of 40 shareholders of FIE. The other 39 shareholders are individuals.

If the sale and purchase agreement reaches completion, SeD will be able to nominate a representative to the board of directors of the US company.

"The injection of HotApps into a US OTCBB-bound company will not only allow it to tap the US capital market, but also increase its profile among consumers in the US," said Heng. "We are confident HotApps' unique and highly customisable IM platform will give it an edge over many existing players, allowing it to secure a healthy subscription rate."

The Singaporean company first announced the proposed acquisition on September 4, and on October 3 responded to a number of queries by the Singapore Exchange (SGX) relating to the proposed HotApps acquisition.

In response (PDF) to the SGX's query as to how an acquisition consideration of $700 million was found in the wake of SeD's purchase of HotApps for $98,000 in August from Heng, the Singaporean company said that the price was based on an external valuation.

"The consideration of $700 million for the disposal to FIE was negotiated and based on a valuation of HotApps prepared by a third-party valuer, which was commissioned by HotApps for in-house analysis.

"The difference between these considerations was the basis upon which they had been negotiated: The company purchased based on estimated development costs whilst the company negotiated the selling consideration based on future growth potential," it said. "After the acquisition of FIE, it is expected that FIE would channel its resources into launching and continuous development of HotApps."

SeD also said that its shareholding interest in FIE following the completion of the proposed acquisition could be up to 99.84 percent, effectively assuming complete ownership of the US-based company.

According to the Singapore Exchange, SeD reported a gross loss of SGD$7.7 million ($6.15 million) for the financial year ending June 2013, and a loss before interest, tax, depreciation, and amortisation (EBITDA) of SGD$22.5 million ($18 million).

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