The impact of Covid-19 on the media, entertainment and events landscape has earned multiple cover stories here at The Edge Singapore. With film sets and concerts suspended for years, executives from local production company mm2 Asia 1B0 and China’s GHY Culture and Media XJB — listed in December 2020 during the pandemic — were forced to consider revenue-generating pivots to allay the fears of staff and shareholders alike.
The move was first announced with a memorandum of understanding (MOU) signed in December 2022. On March 27, Vividthree announced plans to acquire a 30% stake in Elliott & Co for $775,393 in cash, with the deal expected to close by April 30.
The agreement also details a call option agreement with Elliot & Co, allowing Vividthree to acquire a further 21% stake for at least $1.98 million should Elliot & Co achieve a net profit of at least $900,000 annually between FY2023 and FY2025.
In accordance with SGX's recommended practice, listed companies like Vividthree that want to diversify into a new business area for the first time must seek approval from shareholders.
Vividthree will hold an EGM on May 10. In its meeting circular on April 25, the company’s board is recommending shareholders to give their go-ahead as the move is seen in the “best interests” of the company.
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In a recent interview with The Edge Singapore, chief executive officer Jonathan Zhang insists the purchase is not a pandemic-era stopgap measure. Rather, it is the first act in a series of acquisitions the company plans to capture bigger swathes of the value chain.
Zhang, who assumed the top job in November 2022 after five months as deputy CEO, speaks of a plan to acquire a suite of businesses, which will allow Vividthree to organise — from start to finish — meetings, incentives, conferences and exhibitions (MICE).
“We’ve announced the first M&A target; we’re looking at a few more down the road,” says Zhang, who joined Vividthree with a diverse background as a Web3 adviser, bank relationship manager and partner in a hospitality management firm. “To organise MICE, PR [public relations] aside, I will need design, tech and event IP [intellectual property]. The fourth is content, which we already have. The combination of these will be multiplied by PR.”
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Target company
Zhang says future acquisitions will likely follow the Elliot & Co approach: Vividthree first takes a 30% to 51% stake in Singapore-founded companies with a regional presence before potentially increasing this stake.
Beyond in-person events, the acquisitions will help Vividthree service brands in “multifaceted ways”, says Zhang.
In the past, we used to follow concepts by creative agencies. We’re always the second tier; brands do not come directly to us. We’re trying to shift this the other way round.
“My wish, which I shared with our team, is to say: ‘Look, let me cover your online and offline presence, your content and your goto-market via live streaming, not just in Singapore, but in multiple countries,” he adds.
Elliot & Co was named one of the top 40 PR agencies in the Asia-Pacific region by PRWeek in 2021. The firm, led by founder Jeremy Foo, has been engaged for projects by more than 1,000 companies — mainly SMEs and startups but also a few bigger, better-known names such as CapitaLand, Diageo and Singapura Finance S23 as well.
See also: Vividthree to acquire 30% stake in PR firm Elliott & Co for $0.7 mil with further call option
Since its inception in 2016, the company has grown to establish offices in Singapore, Malaysia and Indonesia and specialises in serving start-ups and tech names.
While their smallest clients may pay just four figures a month for the agency’s services, Zhang believes these start-ups will remain loyal as they scale, both for the assurance of a long working relationship and the affiliation with the “media and entertainment conglomerate” that is mm2 Asia, which, incidentally, is the controlling shareholder of Vividthree with a stake of nearly 40%.
Vividthree was acquired by mm2 Asia in 2015 and spun off for its separate listing in September 2019.
Zhang says he has visited Elliot & Co’s offices on both sides of the causeway, which employ about 40 staff — more than Vividthree’s 33-strong headcount.
Besides expanding into Indonesia, Elliot & Co is also setting its sights on the US, where it plans to launch a “self-service platform”.
“The PR space is very personal, with account managers and all that,” he says. “So, to reduce costs, they could have a platform where people can sign on and select what they want [and] what kind of publications they want to reach, like a SaaS [Software-asa-Service] model… So, it will potentially [require] fewer people, but then be able to service more clients.”
Vividthree’s $900,000 net profit target for Elliot & Co was initially $1 million, says Zhang, but the target company’s executives asked for some leeway.
Zhang says Elliot & Co hardly needs the concession, as their 2022 figures are impressive. “Actually, on paper, we [have] already [made a] gain.”
In a September 2021 interview with Options by The Edge Singapore, Elliot & Co founder and CEO Jeremy Foo said the company was on track to log nearly $3 million in revenue for FY2021, up 100% y-o-y.
When talks began, Zhang confirms that Elliot & Co recorded an aggregate net profit of $430,700 in 2021. “They did better in 2022, and [their] Malaysia revenues are almost doubling yearly.”
In response to SGX’s queries, Vividthree says Elliot & Co’s aggregate net profit for FY2022 ended Dec 31, 2022, was $673,200, an improvement from FY2021’s $430,700. Based on this figure, the purchase consideration would value the target company at 4.1 times earnings.
‘Very undervalued’
Vividthree surveyed PR companies listed in India, Thailand and China and found that the average P/E ratio ranged from 6.8 to 25.2 times in 2022. At their MOU signing last year, Vividthree said its investment would be funded through internal resources “and, if needed, fundraising exercises”.
Zhang says this is unlikely, citing high-interest rates on borrowing today and the costs of placing shares. Instead, Vividthree will focus on staggering payments in coming agreements.
As of Dec 31, 2022, Elliot & Co has outstanding loans of $574,170 with DBS Bank. Zhang adds that the target company has to maintain sufficient funds to clear its debt completely. In addition, Elliot & Co must maintain six months’ worth of operational cash flow.
In November 2021, Vividthree raised $2.2 million by placing 37.5 million new shares to investors to fund acquisitions and new projects, including the market of non-fungible tokens, or NFTs. At 5.832 cents each, the placement price was a 10% discount off its last traded price on Nov 16, 2021. Investors included Evolve Capital Management, Asdew Acquisitions and Jin Xin Wealth Management.
Zhang says that Vividthree’s market capitalisation was around $22 million then. Since then, Vividthree’s market cap has fallen by a third to some $14.12 million as at April 17, with shares closing at 3.9 cents that same day.
“To me, we are undervalued… It’s very low,” says Zhang.
I think people still don’t know us as a company. Of course, we are not blue chip. Not yet.
He acknowledges the “cold, wintry” environment for Web3 projects over the past six months. Still, Zhang maintains that he is a “strong proponent” of blockchain development and teases “gamification” for clients’ campaigns in 2H2023.
This involves creating “mini-metaverses” for brands to engage with customers, with offline purchases reflecting online and vice versa, such as via loyalty programmes and rewards systems.
According to Zhang’s LinkedIn page, he is a director of GammaR, which is described as a Singapore-based Web3 investment company “that exists to provide partnerships in digital assets and ecosystems”. On Jan 5, 2022, Vividthree announced that it had entered into a convertible loan note agreement with GammaR, where Zhang is the sole shareholder.
Under the terms of the convertible loan note agreement, Vividthree agreed to subscribe to up to $4.08 million worth of convertible loan notes in GammaR. As of May 31, 2022 — just before Zhang was appointed deputy CEO — Vividthree had subscribed for $700,000 of convertible loan notes.
Vividthree reported a reduced net loss of $1.34 million for 1HFY2023 ended Sept 30, 2022, compared to $1.81 million in the red a year prior. Meanwhile, revenue increased by $0.64 million, or 53.6% y-o-y, to $1.83 million with the easing of pandemic-related restrictions.
Zhang says his team’s top priority is recovery, “then we talk about growth”. “I honestly believe that in doing what we do, maybe in the next financial year, we can showcase increments in our topline revenues and our performance; it’s just a matter of time.”
