Sunway makes some hardware acquisitions

From the Star:

PETALING JAYA: Sunway Bhd is buying hardware and household product traders Winstar Trading Sdn Bhd and PND Hardware & Trading Pte Ltd for RM137.8mil.

In a filing with Bursa Malaysia on Thursday, the property and construction-based group said it would acquire Winstar Trading for RM130.9mil and PND for S$2.57mil (RM6.87mil).

Sunway said the two companies were profitable market leaders with over 30 years of experience in the wholesaling of hardware market.

Generally a good acquisition for me has the potential for growth in the future and is non-correlated with the business.  Diversification of risk is paramount in creating a strong, stable company.  When a company such as Sunway diversifies away from the risky construction sector with a less risky business, I see it as a better risk reward company.  What is risky about an acquisition which guarantees 45 mil in profits over the next 3 years?

The same goes for a company that has stable earnings acquiring a more gun-ho company.  Their risk return profile may be enhanced with the acquisition of a riskier company.  Generally people will opt for higher return for just a little more risk involved.