Published March 6, 2009

No more mega buyouts, high valuations

Seminar speaker urges Catalist executives to temper expectations

By JOYCE HOOI

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THE days of mega buyouts and soaring valuations are over, and companies looking to be acquired need to be realistic, according to industry insiders.

Mr Chew: Beneficiary of the buyers' market as his firm Elite KSB Holdings paid a good price for a subsidiary

'The scenario of a lot of funds buying out owners in 2008 is not going to repeat itself this year,' Stone Forest M&A director Tay Woon Teck said yesterday.

Speaking at a seminar organised by the Chio Lim Stone Forest Group and law firm Colin Ng & Partners, Mr Tay urged executives of Catalist-listed companies to temper their expectations of valuations.

From January 2008 to February this year, the market capitalisation of Catalist firms has halved, from $7.63 billion to $3.15 billion.

Mainboard-listed companies have also seen their market capitalisation shrink - but Catalist companies have borne the brunt of the turmoil. Their combined market cap has plunged 59 per cent, compared with 46 per cent for mainboard companies.

Besides falling market capitalisation, Catalist companies are relatively small as candidates for M&A activities.

'About 66 per cent of Catalist companies have revenue of less than $50 million,' Mr Tay said. 'In today's global economy, without scale and size, it is hard to compete for business and continue to attract serious bluechip investors.'

As cancelled M&A deals involving local companies soared from US$1.47 billion to close to US$3 billion year on year in 2008, companies have begun to lower their expectations in a buyers' market, according to Thomson Reuters.

'Before, a lot of euphoria went into the valuation of firms,' said Lars Baslev, head of valuation at Stone Forest Corporate Advisory. 'But now, firms are using the net tangible asset (NTA) method as a basis for valuation, which is more realistic. The premiums paid on top of NTA value are also not as high any more.'

Chew Ghim Bok, chief executive of Catalist-listed meat supplier Elite KSB Holdings, has been a beneficiary of the buyers' market. In January, Elite KSB Holdings paid a favourable price to acquire a subsidiary that will diversify its business.

'When we approached them, they were more realistic given market conditions and agreed to a much lower price. There is a lot of opportunity for acquisitions in this situation,' Mr Chew said.

While the M&A landscape may seem sombre to small companies, Mr Tay said there is no better time to consider a merger.

'We are seeing a lot more pragmatic entrepreneurs who now realise they have to merge with a stronger player to survive,' he said.

The lack of credit should not deter them, as non-cash deals like share swaps are a viable option, according to him.

'If you are doing an M&A to be able to grow and get stronger, there's plenty of opportunity,' he said. 'If you are in it to cash out and retire early, then there isn't.'