HRnetGroup Limited (SGX:CHZ) entered into a binding term sheet to acquire 51% stake of REForce (Shanghai) Human Resources Management Consulting Co., Ltd. from Beijing REForce Management Consulting Co., Ltd on January 11, 2018. As on June 9, 2018, HRnetGroup Limited entered into a share purchase agreement to acquire 51% stake of REForce (Shanghai) Human Resources Management Consulting Co., Ltd. from Beijing REForce Management Consulting Co., Ltd for CNY 1.4 million plus earnout. The consideration will be paid in cash. As per the terms sheet, the consideration will include three components: 10%, 45% and 45% of the consideration and will be calculated with respect to the financial years ending December 31, 2017, 2018 and 2019, respectively. The relevant proportion of the consideration will be calculated based on a tiered price-earnings multiple of the actual net profit after tax of REForce (Shanghai) Human Resources Management Consulting Co., Ltd. for the relevant financial year ending, subject to a minimum level of net profit after tax for that year. As per the share purchase agreement, the satisfaction of the consideration has been agreed to comprise three tranches. First tranche will be 10% on the applicable tiered price-earnings multiple on the profits of 12 months ending December 31, 2017. This is now agreed as CNY 1.4 million which will be payable upon completion. Second tranche will be 45% on the applicable price-earnings multiple on the profits of the 12 months after the completion date (1st target year). The minimum profits for the 1st target year have been set as CNY 12.5 million and third tranche will be 45% on the applicable price-earnings multiple on the profits of the 12 months after the 1st target year (2nd target year). The minimum profits for the 2nd target year have been set as CNY 20 million. As part of the term sheet agreement, if REForce (Shanghai) Human Resources Management Consulting Co., Ltd. does not achieve the minimum agreed level of net profit after tax by a variance of 5% or more for two consecutive years, HRnetGroup Limited shall be entitled to terminate the transaction and require REForce (Shanghai) Human Resources Management Consulting Co., Ltd and their affiliates to purchase its shares. The staff of REForce (Shanghai) Human Resources Management Consulting Co., Ltd. will join HRnetGroup Limited. The term sheet is subject to satisfactory due diligence and entry into definitive transaction agreements. The share purchase agreement is subject to obtaining relevant licenses and business transfer procedures. The deal is expected to close in third quarter of 2018. The immediate contribution of the deal to HRnetGroup Limited’s financial results is not expected to be material in the current financial year.