Company summary

LZYE Group plc, is an AIM listed Hong Kong based company which provides tuition services to 2,000 children aged between 6 months and 12 years in three centres in Hong Kong. The Company plans to open further centres in main line China.

02 October 2012 | Education

Company news

LZYE Group makes first move into China in an unusual deal

LZYE Group has announced it has made its first expansion in mainland China. The Company has entered into a conditional agreement to acquire Nantong LZYE Education Advisory Limited ("LZYE NT") for a total consideration of HK$6.72m (£533k).

​HK$3.36m (£266k) is payable in cash and the balance is to be satisfied by the issue of 2,240,000 new ordinary shares in LZYE issued at 12p per share. As part of the acquisition agreement, the owners of LZYE NT will assign to the Company a debt of RMB2.80m (£273k) due to the vendor from LZYE NT.

LZYE NT has secured a 10 year lease over 2,964 square metres in Happy Valley, a new shopping centre situated in Nantong, Jiangsu Province. It will be the Company's first in mainland China and will operate as the flagship centre for the Group. Commenting on the expansion Dominic Yeung, Chairman, stated, “The Company hopes it will serve to attract potential investors from China and overseas as well as acting as a showcase to attract domestic partners”.

Happy Mall is located near to a residential area in Nantong, a "second tier" city, where growth is expected to be significantly higher, with less competition, than in "first tier" cities such as Shanghai and Beijing. The average annual rental for the centre is approximately RMB 2.64m p.a. (£257.5k). The Company estimates the setup cost for the centre to be around HK$6.02 million (£477k) and payback on the investment will be 3.5 years.

LZYE NT was only established in July 2012 in China as a wholly owned foreign enterprise. The shares to be issued to the vendors of LZYE do not appear to be subject to a lock in agreement.

Comment:

We can see no obvious commercial rationale for the acquisition which will see the vendors receive over £900k for a company established barely two months ago, with no apparent assets and a ten year lease obligation. The acquisition price and the assignment of the vendor’s debts represent 35% of the estimated rentals payable over the ten year lease. The RNS did not seek to justify the scale of the proposed payments.

Management estimate payback within 3.5 years but we doubt this takes into account the “£900k premium” to acquire the lease. This deal will inevitably raise investors’ concerns, following a series of damaging revelations at some Chinese and Hong Kong based companies listed on the UK, USA and Canadian Stock Exchanges.

A fuller explanation of the deal by the Company would have been helpful and may have allayed investors’ worries. It is early days for LZYE, but this unusual transaction and the Company’s racy valuation do little to make a compelling investment story at this stage.

All company news →

News

Equity Strategies successfully advises on $342m nutrition and health acquisition

25 January 2016 - ​Equity Strategies is pleased to announce its lead role in the acquisition of INVE Aquaculture Holding B.V.

Animal Health | Benchmark Holdings plc

Equity Strategies advises on £11m strategic acquisition in aquaculture genetics and tilapia breeding

27 October 2015 - Equity Strategies advises Benchmark Holdings plc on the acquisition of two key players in the tilapia breeding and genetics sector.

Education | Benchmark

Equity Strategies originates £3.2m acquisition of leading veterinary CPD & training provider

19 March 2015 - Equity Strategies originates acquisition of leading veterinary CPD and training provider, Improve International on behalf of Benchmark Holdings plc.

Animal Health | Benchmark Holdings plc

Equity Strategies advises on £41m deals in aquaculture breeding and genetics

02 March 2015 - Equity Strategies advised Benchmark Holdings plc on two strategic acquisitions in aquaculture breeding and genetics valued at £41m.

More →

Services

 

Our expertise

Deal origination - acquisitions - We help quoted companies and private equity houses source acquisitions in the UK and overseas.

Deal origination - disposals - We help owners of companies wishing to dispose of their business.

IPO advice - We provide strategic, financial and valuation advice to companies considering an IPO.

Valuation - We undertake valuations for ESOP transactions, employee share schemes and for a wide range of fiscal, legal and commercial purposes.

Our sectors

Our corporate finance skills can be employed in a wide range of sectors. We have a particular strength in animal health, education, outsourcing, IT, data analytics and financial publishing.

More →