BDO Raffles
CONNECT
MICA (P151/11/2004)
Contents
Roll Up Strategy for Growth
1
Quarterly Reporting Requirement
4
Taking your business overseas?
Don’t leave home without your
‘map’
5
Double Deduction for Overseas
Investment Development
Expenditure
6
BDO Raffles News & Events
7
BDO International News & Events
9
DISCLAIMER:
The information in this newsletter is for general
guidance only and is not a substitute for professional
advice.
BDO Raffles and its staff accept no
responsibility for any actions taken or not taken on
the basis of the information in this newsletter.
Copyright © September 2006 BDO Raffles.
All rights reserved.
Q3 2006
Roll Up Strategy
for Growth
Today’s business environment is constantly changing at unprecedented
breakneck speed. The speed of change in product and industry lifecycle,
consumers preferences and business models are largely driven by technology
and opening up of the biggest, fastest-growing economies of Brazil, Russia,
India, and China. The Big Four, also known as BRICs, have attracted the most
investor attention and foreign direct investment in recent years. However, the
private enterprises operating in these markets have different business cultures,
rules and skill bases that make it difficult for western enterprises to enter into
joint venture or invest.
This article explores a growth
strategy when a consolidator
seeks to consolidate a fragmented
industry and eventually provide
liquidity
for
participating
enterprises through share swap
especially when the consolidator
is listed on a recognised stock
exchange. In the next issue, we
will look at the anatomy of a roll
up strategy, the team involved
and pitfalls to avoid in successful
execution.
Definition of Roll up Strategy
A roll up is a powerful strategy
for building value, but is only
feasible under certain conditions.
Much depends on the industry in
question and the management team
undertaking the initiative for buying
and combining a series of small
businesses in the same or very
closely related markets into a large
business.
Consolidator pursues a roll-up
strategy because the combined
entity offers the opportunity to
attract bigger clients, purchase
materials and services more cheaply,
reduce administrative costs, acquire
a competitor’s customer base or
become more attractive to the
skilled technologists who are in such
continued over page..
BDO Raffles CONNECT
short supply. In essence,
the strategy aims to grow
big and fast.
The Process
The process involves
an
experienced
Management
team
partnering
with
Leveraged Buyout Private
Equity fund to buy a
“platform
company”.
The platform company
is usually an industry
leading company. The management team together with the
private equity group seeks to build a much larger company
by making numerous acquisitions. These acquisitions are
usually executed using a combination of debt and equity
with the buyer paying cash for acquisitions. The promoters
anticipate that they will repay the debt and increase equity
value by taking the consolidated company public at some
future date. This enables the creation of an industry
leader that can use publicly traded stock to acquire more
companies.
platform has a strong management team and is a strong
company with some amount of critical mass that can get
the process rolling. Trying to consolidate a platform out of
smaller companies, or pretending that a small company
without many competitive advantages can pull off a rollup
is wishful thinking. Furthermore, it will be difficult for such a
company to receive financial backing for a rollup strategy.
The peril in rolling up stagnant businesses is you run the
risks of creating a larger stagnant business. Once you stop
acquiring, your top line growth is going to stop because
you’re acquiring companies that weren’t growing in the
first place.
A Win-Win Approach for Consolidator and participating
firms
Properly executed rollups enhance a company’s operations,
competitive position and financial health. Successful
rollups can often achieve the following:
•
•
Which conditions are considered suitable?
A rollup strategy is suitable for a fragmented industry
without a dominant player, primarily made up of a number
of locally owned and operated businesses. It could also
be a landscape with a couple of large companies and a lot
of undervalued “mom and pop” operations. However, the
targeted industry must have favourable market conditions.
The opportunity must exist to build a large, dominant
franchise by combining many smaller players and there is
a conviction that a real business can be built.
•
Consequently, it must be an industry where big is better and
where size gives operational or competitive advantages. In
addition, the industry must have stable dynamics that don’t
change from acquisition to acquisition and comprised of
mature companies. In such industries there is little risk of
new and unforeseen competitors and mature industries
tend to be sleepy and therefore do not achieve their
true profit potential. Also, the companies in the industry
should be similarly operated so that management’s values
and methods can be easily transferred to newly acquired
companies.
•
•
•
•
•
Expand geographic coverage. This often allows the
consolidator to service multi-location customers and
win larger contracts.
Expand the consolidator’s services or product line.
This is done by acquiring companies that provide
services or products that the consolidator currently
does not offer.
Increase name recognition. Increased name
recognition further drives the business growth and
provides access to cheaper sources of capital.
Leverage off of the consolidator’s infrastructure
and spread fixed costs over a larger revenue base.
For instance, rollups often leverage existing back
office operations such as accounting, marketing,
invoicing and executive management and consolidate
purchasing efforts which increases the company’s
purchasing power.
Breathe new life into the acquisition targets. “Crossfertilisation” occurs as the consolidator brings fresh
management skill set and ideas into the target
companies.
Attract bigger clients and ability to provide full services
to new clients.
Large companies trade at higher valuation compared
to small companies and thus reward all the participants
involved in roll up.
Allows entrepreneurs of the small and medium size
business to swap their private enterprise equity
It is also extremely important that the consolidator or
BDO Raffles CONNECT
Case studies from Australia
In recent years, there has been interest in roll up
strategy executed in Australia. Among them are some
Consolidators which have performed well since listing due
to the successful execution of their acquisition strategy.
We will look at 2 examples in this article.
Boom Logistics
Boom Logistics is a major player in the crane hire and
lifting solutions industry, and in the past 30 years the
business has progressively expanded to become the only
national provider of lifting services.
Since listing on the Australian Stock Exchange in October
2003, the company’s shares with an issue price of
A$0.80, have traded as high as A$4.90. Boom‘s market
capitalization at the offer price was less than A$100 million;
it has since grown to more than A$740 million as a result of
strong share price growth and capital raisings. Boom had
completed a A$70 million placement, in part to help fund
the acquisition of Camilleri Industries. The placement was
oversubscribed and received support from Australian and
international institutions, suggesting that the company is
well placed to continue its growth by acquisition strategy.
Boom had made 5 important acquisitions in 2004-05 which
were instrumental in the company achieving year-on-year
profit growth of 134% in the first half of 2005-06.
United Group
Large, but more importantly, astute and well-executed
acquisitions have been the driving force behind United
Group’s surge from A$160 million to an almost A$2 billion
enterprise today. Most Singaporeans are probably familiar
with United Premas. Acquisitions have not just added
revenues but also provided the diversification and recurring
earnings stream vital to a business that was over-exposed
to cyclical trends. United Group’s A$163 million acquisition
of US-based corporate real estate services group Equis
Corporation in June 2006 was partly funded by a A$125
million institutional placement. The capital was raised at a
share price of A$12.80- a discount less than A$0.10 to the
closing share price on the day before the announcement
of the placement. A week later, United Group’s shares
were trading at a 15% premium to the placement price. It is
estimated that Equis acquisition will contribute about 5%
to earnings pre share in 2006-07.
Conclusion
In a nutshell, there are two characteristics that have to exist
in order for a roll-up to even be attempted. One is that you
have to have favourable market conditions in the industry
and there must be sufficient players in the market so that
you can find enough companies to acquire. Companies
participating in a roll up strategy need to consider their
future role in the consolidator, commitment level to the
consolidator and whether the same values and beliefs
apply.
Management from the consolidator must be seasoned
industry experts and have demonstrated their ability
to build a company by acquiring and integrating other
businesses. In a rollup, investors essentially capitalize a
management team who will go forth and build a franchise
through acquisitions. Accordingly, the management team
must have a great deal of experience in the industry as
well as a good rapport with investors.
Article contributed by Tan Soon Liang and Mabel Wong of BDO
Raffles Advisory.
BDO Raffles CONNECT
Quarterly
Reporting
Requirement
In September 2005, the Ministry of Finance
(“MOF”) requested the Council on Corporate
Disclosure and Governance (“CCDG”) to review
the Quarterly Reporting (“QR”) requirement and
make recommendations to the Government.
Further to this request, CCDG has formed a
QR review committee, consisting of CCDG
members and private sector participants to
review the QR requirements.
On 31 August 2006, MOF accepted all the recommendations
of CCDG as follows:1.
2.
.
4.
5.
To retain the current requirement for listed
companies with market capitalization above $75
million to report every 3 months;
To continually exempt companies with a market
capitalisation of under $75 million from mandatory
QR;
To review the market capitalisation of exempt
companies at the end of each year, starting on 31
December 2006;
To retain the 45-day reporting deadline for QR and 60
days for annual results;
To maintain the current arrangement of a prescribed
and consistent format for QR.
The MOF also accepted the CCDG recommendation to
review the market capitalisation of all exempt companies at
each calendar year-end instead of the current arrangement
whereby listed companies are exempted based on their
market capitalisation as at 31 March 2003 or based on
their IPO price if they were listed after.
Under the new QR requirement, a company whose
market capitalisation crosses the $75 million threshold,
as calculated at each calendar year-end, will have a grace
period of a year to prepare for QR. Thus a company that
reaches that milestone by 31 December 2006 will be
required to submit its first QR for the quarter ending 31
March 2008.
Once a company is required to do QR, it must continue the
practice irrespective of the level of its subsequent market
capitalization. However, a company may seek exemptions
on the QR from SGX on a case-by-case basis.
Under the SGX amended Listing Rules, an issuer’s directors
must provide a “negative assurance” confirmation in the
announcement of its interim financial statements stating
that, to the best of their knowledge, nothing has come to
the attention of the board of directors which may render
the interim financial results to be false or misleading.
In order to make this confirmation, Directors would not
be expected to commission an audit of these financial
statements. The confirmation may be signed by 2 directors
on behalf of the board of directors.
This change took effect from 1 September 2006.
For further clarification, please contact Sin Chee Mei of our
Corporate Secretarial Division on 68289136 or email cheemei@
corporatealliance.com.sg
Taking your
business
overseas? Don’t
leave home
without your
‘map’.
Going overseas for any
business often presents
many challenges despite
the numerous growth
opportunities that exist.
IE Singapore, the primary
government agency
encouraging the spreading
of Singapore external economic wing, offers a
wide range of assistance schemes to enhance
the capabilities of Singapore-based companies
in their internationalisation efforts.
One of many IE Singapore assistance schemes is the
“Internationalisation Road-mapping Program (IRP)”
that provides financial assistance for Singapore-based
companies to team up with established business
consultants to:
•
•
Develop and/or evaluate their strategic
internationalisation plans
Develop a corresponding action plan or roadmap
linked to these plans
Strategic direction must be lucid to the management
of a company seeking to internationalise. Further,
employees must also be acquainted with the direction and
implementation plans of the company.
IE Singapore says, ‘Through a systematic process of
internationalisation road-mapping, companies can receive
assistance to work with established business consultants
to develop and/or evaluate their internationalisation
strategies and develop a corresponding action plan and
BDO Raffles CONNECT
roadmap to facilitate and guide your overseas growth
efforts.’
The IRP is targeted at companies with established
Singapore operations seeking to now develop a strategic
plan for internationalisation as well as companies that
already have an overseas presence but wish to re-evaluate
their international strategic plans.
Road-mapping your internationalisation strategies will
help businesses to avoid the common mistakes faced
when they venture overseas:
•
•
•
•
International expansion without a corresponding
expansion in areas of business competency such
as management skill sets, branding, design, IP
management among others
Inadequate due diligence on the local competitive
environment
Inadequate tailoring of operations/strategy for the
local market
No systematic approach to internationalisation
resulting in excess variation, lack of control and high
operational complexity
(Source: www.iesingapore.gov.sg)
Rather than reacting to problems only when they surface,
which many business will almost definitely encounter
when they go overseas, going through the process of an
IRP project will help to:
•
•
•
•
•
•
Identify/refine key vision and mission
Evaluate and take stock of the existing business
Identify strategic goals and objectives
Evaluate various business scenarios relevant to the
company
Develop tools to measure progress towards
achievement of goals and objectives
Develop a practical action plan and roadmap for the
company.
(Source: www.iesingapore.gov.sg)
To encourage Singapore-based companies to undergo an
international road-mapping project, IE Singapore provides
grants of up to 70% of project costs or up to S$300,000,
whichever is lower.
To find out more about the IRP and or other IE Singapore assistance
schemes, please contact Tah Wee Han of our Management Consulting
Division on 6828 9184 or email weehan@bdo.com.sg.
Double
Deduction For
Overseas
Investment
Development
Expenditure
(OIDE)
The OIDE was introduced by the International
Enterprise Singapore to encourage Singapore
companies to explore overseas investment
opportunities to enhance their competitiveness
internationally.
BDO Raffles CONNECT
2. Expenses incurred in the maintenance of an approved
overseas project development office.
An “overseas project development office” is an office
established to exclusively identify, initiate and develop any
approved investment overseas.
The expenditure that qualify for double deduction are as
follows:a. Rental and maintenance of office facilities
b. Return economy airfares for up to 3 employees to travel from Singapore to the overseas project development office to take up and return from their appointment
c. Remuneration, rental of accommodation and subsistence allowances for up to 3 employees.
The further or double deductions are only allowed
for expenses incurred in the first six months after the
establishment of the office. If the firm or company setting
up the office has a permanent establishment in the country
in which the office is located, which is chargeable to tax,
Under this incentive, a qualifying company is allowed to
deduct against their taxable income, twice the level of
approved expenses for approved projects.
In this case, a qualifying company must be a Singapore
registered company or firm with operations in Singapore
and it must be at least 30% owned by Singapore citizens or
permanent residents.
Expenditure qualifying for further or double deduction
includes:
then no further or double deduction will be allowed.
1. Investment development expenditure for the carrying
out of an approved investment project overseas
“Investment development expenditure” means expenses
directly attributable to the carrying out of any study to
identify Investment overseas, and any feasibility or due
diligence study on any approved investment overseas.
The following expenditures qualify for double deduction :
a. Third party consultancy fees
b. Return economy airfare and allowances for up to 2 full time employees for a maximum of 2 trips per feasibility study.
The maximum amount of eligible expenses allowed for
deduction under the incentive is S$200,000 per approval.
The above incentive will not be granted to companies who
are enjoying other tax incentives on the same project.
Companies who are interested in applying for the above
incentive should submit their application to the International
Enterprise Singapore before the commencement of the
proposed project.
Article contributed by Nicole Law of our Tax Advisory Division
BDO Raffles’ NEWS & EVENTS
BDO Raffles CONNECT
JULY 2006
Family Day
BDO Raffles held the Annual Family Day this year at
a chalet in Aloha Resort, Pasir Ris on Saturday July 1.
Fun and games throughout the day included the BDO
Challenge, which required teams to conquer various tasks
and obstacles in order to win a cash prize. The day closed
with a BBQ buffet dinner at the poolside.
Tan Soon Liang, commented, “BDO Raffles Advisory is
pleased to have played a role towards promoting and
catalysing business opportunities between Singapore and
Vietnamese businesses. With both countries collaborating
through meaningful exchange of market knowledge,
trade links and network, there exist numerous synergistic
opportunities for their businesses to enter new markets
and enhance value add together by tapping in to each
others’ strengths.”
AUG 2006
“Partner to Singapore & Beyond” Seminar in
Ho Chi Minh City, Vietnam
From 31 August to 4 September 2006, Mr
Tan Soon Liang (right), Head of Business
Advisory from BDO Raffles Advisory
addressed top government officials and
Vietnamese businessmen regarding
business opportunities in Singapore
and urging Vietnamese to leverage on Singapore’s FTA
with numerous trade partners as their global platform
for their exports and capital raising through listing in
Singapore Exchange. This seminar was jointly organised
by International Enterprise Singapore (IE Singapore) and
the Investment and Trade Promotion Centre of Vietnam
(ITPC).
Amongst the participants are established companies like
Pho 24 Restaurant chain, Wong Fong Engineering Works,
Trung Nguyen Coffee company, Mai Linh Joint Stock
Company and more.
Photo above: Soon Liang (far left) with Ms. Seah Bee Leng, Senior Officer, IE Singapore (2nd
from Left), Ms. Maler Vilee, Assistant Director, IE Singapore (3rd from Left) and Mr. Jad Ng,
Senior Officer, IE Singapore (far right)
SEP 2006
Financial Reporting Standards: Practical
Application Seminar
On Wednesday, 6th September 2006, BDO Raffles’ Audit
&Assurance Division held a seminar at the Meritus
Mandarin Singapore to enable companies to appreciate the
new requirements of certain FRSs and provide suggestions
on how companies can effectively address the common
application issues arising from them.
The event prompted a good response from our clients.
Our Audit Principal, Peter Leong outlined issues relating
to FRSs 1, 8, 21 and 36. After a tea-break, Audit Manager,
Elsa Neoh ran through FRSs 32 and 39.
Representatives from IE Singapore also took the
opportunity to dine with BDO Vietnam’s Managing Partner,
Mr Tan Hong Dang.
BDO Raffles CONNECT
CPA Games
water polo and the ‘Sofitel Amazing Race’ - combining a
series of games and obstacles.
BDO Raffles demonstrated
determination
and
support in this years
CPA Games participating
in Pool, Bowling, LAN
Gaming,
Basketball,
Badminton, Table Tennis,
Soccer, Netball Carrom,
Street
Soccer
and
Paintball. The BDO LAN
Gaming emerged RunnerBDO Raffles Netball Team
Up behind PWC and the
Badminton team successfully made it to the semi-finals.
The day was rounded off with a gala dinner in the theme of
Malaysia Kampong where all staff were given a sarong to
wear, as creatively as possible, with a prize for best dressed.
Entertainment was provided by all departments who each
had prepared a performance. And rather than the
traditional ‘sit-down’ dinner, there was a huge seafood
buffet kampong style.
Raft Building
BDO Raffles Football Team
Teambuilding and Annual Dinner & Dance
‘Sofitel Amazing Race’
This year the whole firm was treated to a night’s stay at
Sofitel Palm Resort in Johor Bahru, Malaysia in order to
incorporate our annual dinner and dance event with a
team building exercise.
The office was closed on Friday, 22 September so all staff
could spend the day participating in activities organised by
the resort itself . In the sweltering tropical heat, team work
was measured through activities such as raft-building,
The whole firm of BDO Raffles
Mr Chia, managing partner with the winning team
BDO International
NEWS & EVENTS
BDO International sign new Member Firm in
Surinam
BDO Raffles CONNECT
For more information about our services, contact the following divisions:
Audit & Assurance Peter Leong
peterleong@bdo.com.sg
DID: 68289120
Business Recovery & Restructuring
Gary Loh
garyloh@bdo.com.sg DID: 68289144
Business Risk Management
Scott Lam
scottlam@bdo.com.sg
DID: 68289185
Frans Samyn, CEO of BDO International,commented:
‘Strengthening our already significant presence in South America
continues to expand our unchallenged levels of local knowledge.
Understanding our clients’ local business needs positions BDO
consistently as the expert in every market in which it operates - and,
in Surinam, BDO will be not only the best option in the country, but
in the region as whole’.
Business Transaction Services
Ross Limjoco
rosslimjoco@bdo.com.sg
DID: 68289125
Corporate Finance
Tan Soon Liang
soonliang@bdo.com.sg
DID: 68289169
Corporate Secretarial
Lim Swe Jian
swejian@bdo.com.sg DID: 68289139
Management Consulting
Tah Wee Han
weehan@bdo.com.sg
DID: 68289184
BDO International renews WorldHockey/FIH
sponsorship
Outsourcing Accounting
Lim Siew Ming
siewming@bdo.com.sg
DID: 68289109
Tax Advisory Hu Fung Ling
fungling@bdo.com.sg
DID: 68289146
BDO International is pleased to announce the appointment
of a new BDO Member Firm in Surinam, effective 1
July 2006.
BDO Abrahams Raijmann & Partners was
established some 55 years ago.
BDO International is pleased to announce the renewal of
its sponsorship contract with the International Hockey
Federation.
What would you like to see in future editions of BDO Raffles CONNECT?
Let us know by email. Send your feedback to Samantha James at
newsletter@bdo.com.sg
During a press conference held during the BDO World Cup
Men 2006 in Mönchengladbach, Germany, FIH President
Mrs Els van Breda Vriesman and Mr Frans Samyn, Chief
Executive Officer of BDO International, announced that
BDO will continue its partnership with FIH till 2010.
BDO is the first of the original four FIH global sponsors
to have renewed their sponsorship agreement and have
already sponsored numerous global and national hockey
events all over the world. The BDO World Cup Hockey Men
2006 is the highlight of this four year period.
‘BDO’s global presence and structure make it a natural partner
for the International Hockey Federation’, said BDO CEO Frans
Samyn.
BDO Raffles
5 Shenton Way
#07-01 UIC Building
Singapore
Tel: 65 6828 9118
Fax: 65 6828 9111
Email: info@bdo.com.sg
www.bdo.com.sg
BDO International is a world wide network of public accounting firms, called
BDO Member Firms, serving international clients. Each BDO Member Firm
is an independent legal entity in its own country. The combined total fee
income of all BDO Member Firms was US$ 3,329 million in 2005.
The global network currently has 601 offices in 105 countries and some
27,828 partners and staff in the Member Firms providing business advisory
services throughout the world.