South Korea’s private equity firm EastBridge Partners is trying to exit from its investment in diagnostic device manufacturer TCM Biosciences Inc, with the company recently becoming a wholly-owned subsidiary of NEXT BT Co Ltd.
The PE firm invested in TCM Biosciences, an affiliate of BioLeaders Group, in June 2016. EastBridge acquired 160,000 shares owned by BioLeaders Group CEO Young-chul Park for 4 billion won ($3.3 million) and purchased 4 billion won worth of convertible bonds issued by TCM Biosciences two weeks later through its EastBridge Asian Mid-Market Opportunity Fund. The conversion price of the convertible bonds is 19,500 won.
EastBridge planned to exit its investment in TCM Biosciences after the relisting of the company’s shares from the KONEX to the KOSDAQ, which didn’t go smoothly. The company’s attempt to transfer to the KOSDAQ, under a new set of initial public offering (IPO) guidelines aimed to make it easier for companies with high potential to join the market, ended in failure in 2017.
TCM Biosciences made its second attempt with its patch-type diagnostic kit for cervical cancer, called GynPad. Its sales increased from 2.5 billion won in 2017 to 3.5 billion won 2018 and it attained a grade of A from two organizations for its technology evaluation in April 2019. It applied for the preliminary review for the KOSDAQ listing in August 2019.
But TCM Biosciences dropped its IPO plan this year. Although it passed the technology evaluation, the Korea Exchange reportedly raised questions about the company’s growth potential during the preliminary review, an industry source said.
Recently TCM Biosciences has become a wholly-owned subsidiary of NEXT BT, the BioLeaders Group’s health functional food business unit, in a move that is said to be part of the group’s efforts to improve its governance structure. With the move, shareholders of TCM Biosciences, including EastBridge, exchanged their shares for NEXT BT’s shares.
EastBridge’s exit from TCM Biosciences could get easier, given that NEXT BT is a KOSDAQ-listed firm. Volatility in NEXT BT’s share price, however, is another obstacle to exit its investment. NEXT BT’s share price has fluctuated widely between 1,000 won and 5,000 won per share over the past five years and it fell below a 1,000 won level in March. Its share price has recently been around 2,000 won.
EastBridge bought 4 billion won worth of TCM Biosciences shares in 2016 at 25,000 won per share. If 25,000 won is divided by the stock exchange ratio of 1 to 8.0857643, meaning one NEXT BT share will be exchanged for about 8.09 of a TCM Biosciences share, the price comes to approximately 3,092 won. This means the PE firm will be able to take profit if the NEXT BT’s share price surpasses 3,092 won, a level last seen on June 5, 2018, based on its closing price.
In 2019, NEXT BT’s sales decreased by 32.8% compared to the previous year and swung to an operating loss in the four years since 2015. (Reporting by Byung-yoon Kim)