The financial meltdown of 2008 will see the decline of heightened valuations and mega-buyouts as companies continue to tighten their purse strings according to industry experts.
“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 in a seminar jointly organized by Chio Lim Stone Forest and law firm Colin Ng & Partners.
He also advised executives of Catalist-listed companies to be more realistic and temper their expectations on valuations given the current economic conditions.
“Before, a lot of euphoria went into the valuation of firms,” said Lars Barslev, 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 and the premium paid on the top of NTA value are not as high any more.”
There’s more at stake for these smaller companies. By comparison, the market capitalization of the Main Board-listed companies has declined 46% compared to the Catalist companies of 69% - falling from $7.63 billion to $3.15 billion for the period of January 2008 to February this year.
What’s more, Catalist companies have long been considered small candidates for mergers and acquisitions (M&A). The average catalist company is only 4% of the market value of an average Main Board company.
“About 66 percent of Catalist companies have revenue of less than $50 million,” Woon Teck cites. “In today’s global economy, without scale and size, it is hard to compete for business and continue to attract serious bluechip investors.”
Despite the fledging economy and the lack of funds, there are still some bright spots – non-cash deals like share swaps are still viable options.
Further echoing enthusiasm for M&A opportunities, he still believes that small companies should continue to seek out merger opportunities with stronger players that have the propensity to open doors to new opportunities when the world economy recovers.
‘Outlooks on M&A Opportunities for Catalist Companies’ by Tay Woon Teck
