Ezra Holdings

Bargain purchase is getting common in M&A. Is it due to depressed sell everywhere?

M&A risk is real, especially those "one-time gain(s)", and "write-off(s)" after that, IMO.

The "weakness in its shallow-water platform support vessels business", is referring to lowering of chartering rate, I guess.

(not vested)

Ezra gets $140-million construction contract even as core earnings fall

SINGAPORE (Jan 9): A jump in other income gave Ezra Holdings ( Financial Dashboard) a huge boost to its bottom line for the quarter ended Nov 30.

Earnings swelled to US$54.4 million ($71.3 million) from US$6.3 million a year earlier as the offshore oil and gas contractor booked a one-off gain on bargain purchase related to certain acquisitions, the company said in a statement today.

It also benefited from a foreign-exchange gain of US$9.4 million.

Excluding the exceptional items, earnings came in at US$5.2 million as margins were dragged down by weakness in its shallow-water platform support vessels business.

Overall revenue fell 6% to US$321 million on lower contributions from the subsea services and production services businesses.

On a more positive note, Ezra said it has just secured a subsea construction contract worth more than A$130 million ($140 million) from Apache Energy in Australia.

Ezra shares rose 7.5% to 57.5 cents yesterday.
http://www.theedgemarkets.com/sg/article...nings-fall

Just read that Ezra announced its results and profit increased a lot compared to prior period due to bargain purchases.

http://ezra.listedcompany.com/newsroom/2...O9DN.1.pdf

Could some kind soul help clarify what are these bargain purchases and how do they increase the other income of the company? Thanks in advance

(09-01-2015, 11:35 AM)butcher Wrote: Just read that Ezra announced its results and profit increased a lot compared to prior period due to bargain purchases.

http://ezra.listedcompany.com/newsroom/2...O9DN.1.pdf

Could some kind soul help clarify what are these bargain purchases and how do they increase the other income of the company? Thanks in advance

A google search gives the following.

http://www.investopedia.com/terms/b/barg...rchase.asp
Financial assets acquired for less than fair market value. In a bargain purchase business combination, a corporate entity is acquired by another for an amount that is less than the fair market value of its net assets. Current accounting rules for business combinations require the acquirer to record the difference between fair value of the acquired net assets and the purchase price as a gain in its income statement, thereby providing an immediate boost to the acquirer's equity.

Just a thought, but who in the right mind would sell something for less than the market price?

Accounting profits - including under Other Income - from mostly related party transactions backed by usually some form of financial engineering and new external debt financing IS NOT the same as normal profits from core operating activities earned and realised in cash.

But how do they financial engineer the bargain purchase? This is some area most of us don't understand.

(09-01-2015, 05:58 PM)dydx Wrote: Accounting profits - including under Other Income - from mostly related party transactions backed by usually some form of financial engineering and new external debt financing IS NOT the same as normal profits from core operating activities earned and realised in cash.

In this case, it should be a simple form of negative goodwill. Negative goodwill will be recorded as PnL, base on FRS 103.4

(09-01-2015, 09:10 PM)butcher Wrote: But how do they financial engineer the bargain purchase? This is some area most of us don't understand.

Issuing a correction to what I previously typed - it was reported in the Straits Times that the "newly acquired units include Strategic Marine and Strategic Marine (V) Co - units of Ezra's fabrication and engineering arm, Triyards Holdings". These are not related to the EOC deal as I had previously mentioned. Apologies for the error as Ezra themselves did not specifically explain the bargain purchase gain.

As it is now, I am still unsure as to how the bargain purchase gain was computed. There was no further explanation given within the article.

Regards.

-------------------

I think it's more important to draw readers to the salient points in Ezra's 1Q 2015 results announcement:-

1) Gross profit fell 23% yoy
2) Operating profit would have fallen >50% if you strip out the exceptional gain
3) The Group had USD 206m worth of cash, but it also held debt amounting to USD 1.78bn, or almost 8.5x the amount of cash it had.
4) For 1Q 2015, it generated an operating cash outflow of USD 30.9m, and incurred capex of USD 47.2m, for a total negative FCF of USD 78.1m
.
Regards.

(09-01-2015, 09:10 PM)butcher Wrote: But how do they financial engineer the bargain purchase? This is some area most of us don't understand.

Just an example: A wants to boast its future operating margins, while B desires an instant injection of earnings because its CEO is eyeing another job soon. So over a session of golf at XXX country club, A strikes up a sale-and-leaseback agreement with B for asset C. A will deliberately sell the asset below fair value to B but will be compensated via below market leasing prices from B. After asset C changes hands, B can re-value it to fair value, giving it a one-time boast to its next qtrly earnings (or CEO's paycheck). As for A, it will enjoy lower costs and hence higher operating margins, drawing in retail investors who believe they are buying into an improving/growing business.

An excellent book to learn all these from:
http://www.amazon.com/Financial-Shenanig...0071703071

P.S. Above is an hypothetical scenario and got NOTHING to do with Ezra. Any similarities is purely coincidence. I also do not own any shares or have any intimate knowledge of its business.

(10-01-2015, 09:57 AM)weijian Wrote:

(09-01-2015, 09:10 PM)butcher Wrote: But how do they financial engineer the bargain purchase? This is some area most of us don't understand.

Just an example: A wants to boast its future operating margins, while B desires an instant injection of earnings because its CEO is eyeing another job soon. So over a session of golf at XXX country club, A strikes up a sale-and-leaseback agreement with B for asset C. A will deliberately sell the asset below fair value to B but will be compensated via below market leasing prices from B. After asset C changes hands, B can re-value it to fair value, giving it a one-time boast to its next qtrly earnings (or CEO's paycheck). As for A, it will enjoy lower costs and hence higher operating margins, drawing in retail investors who believe they are buying into an improving/growing business.

An excellent book to learn all these from:
http://www.amazon.com/Financial-Shenanig...0071703071

P.S. Above is an hypothetical scenario and got NOTHING to do with Ezra. Any similarities is purely coincidence. I also do not own any shares or have any intimate knowledge of its business.

The book is definitely worth a good read, and re-read.