Extract from print article: No more mega buyouts, high valuations
The Business Times
Friday, March 6, 2009

The financial meltdown of 2008 will see the decline of heightened valuations and mega buyouts. Catalist-listed companies were advised to be more realistic and temper their expectations on valuations given the current economic conditions.

“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 “M&A Oportunities for Catalist Companies” on 5 March 2009, jointly organized by RSM Chio Lim LLP and law firm Colin Ng & Partners.

“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 premiums paid on 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 Mainboard-listed companies declined 46% compared to the Catalist companies of 59% - Which fell from $7.63 billion to $3.15 billion for the period from January 2008 to February this year.

What’s more, Catalist companies have long been considered small candidates for M&A. The average catalist company is only 4% of the market value of an average Mainboard company.

“About 66 percent of Catalist companies have revenue of less than $50 million,” Mr Tay 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, Mr Tay 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.