Introduction
On 20 Feb 2023, Catalist-listed ACROMETA Group Limited (Stock Symbol 43F.SI) announced that it has entered into a legally binding letter of intent (“LOI”) to purchase an additional 40% of the outstanding shares of Life Sciences Incubator Pte Ltd (“LSI”) for a total consideration of S$1.6 million payable in tranches, based on the realization of agreed milestones in its immediate expansion plan.
Upon completion of the purchase, the Group will control 70% of LSI, up from the current 30%. LSI currently operates a 6,500 sq feet co-working laboratory space at The German Centre in Singapore serving SMEs and start-ups.
This announcement comes hot on the heels of ACROMETA’s announcement on 30 January 2023 that it has appointed veteran investor Mr. Levin Lee Keng Weng as Executive Chairman.
On ACROMETA’s entry into the co-working laboratory space business, Mr. Levin Lee said “This potentially carves out a new promising mainstream business for us as controlled environment specialist.”
ACROMETA has in one stroke become not only a builder of laboratories but is now also an operator of co-working laboratory space. For more on Levin Lee’s role in ACROMETA, see Investor-One’s previous article at https://www.investor-one.com/editorial/22617-Micro-Cap-Investors-Why-Really-Understanding-the-Companys-Business-Makes-a-Big-Difference
What is the co-working laboratory space business?
The co-working laboratory space business is a specialized niche of the co-working space business.
As Singapore pivots its economy towards high-value innovation-driven sectors such as MedTech, Biotech, Biopharma, FoodTech, and Healthcare, more and more of the SMEs and startups that play a key role in this transformation need specialized workspaces to conduct their research and development (R&D) to bring their innovative products to the market.
Specifically, they need laboratory space that has specialized infrastructure. But building a laboratory from scratch involves high CAPEX. Co-working laboratory spaces provide a welcome solution to the problem by providing flexible communal working space with the specialized infrastructure already installed.
In short, the co-working lab space business is an integral part of the Future Economy with its many nimble SMEs and start-ups working hard to come up with innovative products for the market.
BENEFITS OF CO-WORKING LABORATORY SPACES
Reduced research costs
Building laboratory spaces for R&D can be extremely expensive. This is due to the highly specialized ventilation, plumbing, electrical systems, and other special equipment required by the tenants.
A congenial environment for innovation
Places where clusters of people working in the same or related high-tech fields generate energy and breed inspiration resulting in higher level of creativity. For this reason, co-working laboratory spaces are hotspots for Future Economy businesses.
Tenants can match expenses to requirements
One feature of co-working laboratory spaces that has attracted SMEs and startups is that they can match expenses to their business needs. For example, a business that only occasionally needs a precision instrument for measuring a variable in its R & D can rent it by the day.
Tenants can kickstart their R&D immediately
This is a big advantage as it enables SMEs and start-ups to bring a product to market in a shorter timeline. And this is a critical point as bringing innovative products to the market ahead of the competition is often a matter of survival or take-off for the SME or startup.
Tenants can choose the site that best benefits them
Each global innovation hub has its specialty, evolving over time and attracting ‘birds of the same feather’. This enhances innovation and inspiration. For instance, if a startup is interested in biopharma research for Asia-Pacific markets, Singapore is a better choice than Silicon Valley or London.
The specialized nature of the co-working laboratory space business means demand is less elastic as compared to general co-working spaces. Moreover, there is a higher barrier to entry as operating a laboratory space requires expertise in this field.
Laboratories are essentially controlled environment spaces where you can specify or tweak various physical properties such as temperature, humidity, pressure, or particle size in a cleanroom. Laboratory spaces also have specialized equipment for precision measuring of the R&D output, as well for the handling and disposal of hazardous waste such as medical waste.
ACROMETA’s specialization in controlled environments means that it is one of the few companies that is by default highly qualified for the operation of co-working laboratory spaces. With its links to the worldwide German Centre network which is renowned for its German DNA of efficiency and quality, and its own track record as a builder of cutting-edge laboratories, growing the LSI brand as a premium provider of co-working laboratory space is straightforward.
The ability to replicate the business model overseas also enables LSI to overcome the limitation posed by the small size of the Singapore market and reap economies of scale. Said Mr. Levin Lee, “We have also strategized Australia as our first foray overseas for LSI and we are excited to be there, where we believe there is a sizeable market to capture for the co-working lab space business! We have found a suitable location and on grounds of confidentiality, we are in talks with a renowned global government-linked company who has in principle agreed, subject to a binding agreement, to be one of the anchor tenants for the proposed LSI Australia site”.
Future Economy + Synergy= Higher Growth Rate?
LSI’s co-working lab business is an integral part of the Future Economy. At the same time, it has a strong synergy with the Group’s current core business of building controlled environment spaces for the biotech, medtech, pharmaceutical, and healthcare sectors.
Will the acquisition of LSI lead to a higher growth rate for ACROMETA in both revenue and earnings?
According to San Francisco specialist industrial real estate agency Innovation Properties Group’s newsletter, co-working laboratory space is one of the fastest-growing sectors in Bay Area real estate.
Co-working laboratory space grew in the U.S. from 12 million square feet to more than 51 million square feet in just two years from 2019-2021. (https://focus-sf.com/life-science-trend-lab-coworking/)
As Singapore is the regional hub for the life sciences industries (pharmaceutical, biotech, medtech, healthcare), and the Singapore government places emphasis on supporting innovation efforts by SMEs and start-ups in the life sciences, we can expect the same or an even greater rate of growth in demand for co-working laboratory space than in San Francisco.
Synergy is the concept that the combined value and performance of two companies will be greater than the sum of the separate individual parts. Simply put, synergy can be described as (1+1)>2.
By having ACROMETA as the largest shareholder, LSI can tap the Group’s expertise and experience as a builder of laboratories, leading to many expected cost savings.
Chief Executive Officer Mr. Lim Say Chin said, “Our wholly-owned subsidiary Acromec Engineers, with its expertise and experience as builders of cutting-edge laboratories, will continue to support LSI’s expansion with its controlled environments engineering expertise in Singapore and the region.”
There is another possible impact of synergy to consider- ACROMETA’s share price. Currently, the price of ACROMETA stock is hampered by the lumpy nature of its core project-based controlled environments building business.
The lumpiness in project-based revenue leads to the unpredictability of half-yearly results and hinders investors’ valuation of ACROMETA resulting in inefficient price discovery and low trading volume.
The steady stream of rental income that LSI brings will help to smoothen the Group’s revenue and contribute to greater interest in the stock, leading to higher trading volume and better price discovery.
Conclusion
In the big picture, LSI’s coworking laboratory space business is a shot in the arm for Singapore’s efforts to support innovation-driven SMEs and startups that may one day come up with world-beating products and grow up to become giants in their field.
Levin Lee hit the right note when he said, “I am glad that ACROMETA, through LSI, can play a vital role in supporting the R&D of startups and SMEs, where their innovation and new discoveries will make the world a better place for us to live in. Our co-working laboratory spaces will make it easier for their dreams to come true.”
This article is contributed by ShareInvestor and Waterbrooks Editorial team.
For original article, please visit: ACROMETA: “Future Economy + Synergy= Higher Growth Rate?”- Investor-One