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Q&M Dental’s very strategic Aidite Acquisition
Asean Equities Review last reported on Q&M Dental Group (Singapore) Limited during its 2014 Singapore China CAD CAM Symposium. During the Symposium, Q&M Dental also announced the completion of its investment in Aidite High Technical Ceramic Co Ltd. We also mentioned that this is a highly strategic acquisition. We had the chance to hear from Management on the details of how some significant value will be created from this acquisition.
Aidite is a dental materials company based in Qinhuangdao, Hebei Province, China. Q&M Dental announced the acquisition of a stake in Aidite in Nov 2013 and signed a binding agreement in Feb 2014. The acquisition was only completed as mentioned earlier in their Symposium in Aug 2014.
The final terms of the Aidite acquisition are that Q&M Dental would acquire 100% of Aidite by paying the Vendors RMB 39.5million and injecting RMB 35million into the company. The Vendors would have an option to buy back 49% of Aidite under certain conditions in the future. There is also a 12 year profit guarantee from the Vendors.
With the profit guarantee, Q&M Dental will benefit financially from the Aidite acquisition. Let us then understand more about Aidite to understand the strategic benefit.
Aidite was founded in 2007 as a dental materials company. They started by making dental blocks for various types of dental processing equipment. By 2010, they were certified to export to various western countries. Today Aidite exports to about 50 countries world-wide. The bigger markets include USA, the European Union, Middle East, India, Egypt, South Africa, South Korea and Australia. Aidite uses distributors in most countries.
Aidite Management estimates that the global market for these Zirconium Oxide blocks to be worth about RMB 500million. This has grown 20% yearly for the last 3 years. The largest market is USA with an estimated size of RMB 120million. The China market itself is worth over RMB 100million.
Aidite’s current production capacity is about RMB 120million a year. They have purchased 20 mu of land and will build a new manufacturing plant. This taps on the Q&M injection of funds into Aidite. This new manufacturing plant will double Aidite’s production capacity. It will also enable it to launch a new range of dental ceramic products.
Aidite’s growth is due to the fact that they have a cost competitive advantage when it comes to manufacturing the Zirconium Oxide blocks. They have a strong R&D team which has developed an efficient production process through innovation. Through such innovation, Aidite will be one of only two companies globally who can manufacture Multilayer Dental Zirconium Oxide blocks.
These are Zirconium Oxide blocks which have 6 different colour gradients in one block. This is to make the coloration closer to that of a natural tooth which has variations of colour from top to bottom. Having this Multilayer block saves time compared to a one colour block which needs extra colour staining. This simplifies and further reduces the time taken to fabricate a crown in the dental laboratory.
The value of Aidite is thus their cost competitive advantage in producing Zirconium Oxide blocks in what is a growing market globally. Their ability to export to over 50 countries worldwide is further proof of their manufacturing capabilities.
To complete this understanding of the strategic value, we need to understand the use of Zirconium Oxide blocks in dental clinics. These blocks are used in CAD CAM machines in dental clinics. They machines are used to fabricate crowns and other dental restorations. However this use is currently restrictive due to the high cost of setting up the machines and the blocks not being widely available.
The current method of fabricate crowns and other dental prosthetics uses moulds. This is far less accurate as compared to a CAD CAM machine and takes up to 2-3 weeks to manufacturing the crown. This not only inconveniences the patient, it also does not provide the best fit.
With this acquisition of Aidite, Q&M Dental will have a source of these Zirconium Oxide blocks are cheaper prices. Q&M Dental is also in the process of rolling out these CAD CAM machines and training its Dentists. This is because this CAD CAM technology is the future of dentistry.
Q&M Dental can thus offer this benefit to patients through its network of dental clinics. Their patients will they have access to better products at a lower price. And they will also be able to get their dental restorations done within 24 hours of visiting the dentist. This compares very favourably to a 2-3 week wait.
GET TO THE POINT : Q&M Dental’s acquisition of Aidite has significant strategic and financial value to Q&M Dental. Not only will Aidite be a financially viable acquisition, it will also add strategic value to Q&M Dental’s network of Dental Clinics.
(Pictures from Q&M Dental Group (Singapore) Limited
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