Business Valuation in Singapore

Business Valuation in Singapore

Where is Business Valuation Commonly Applied in Singapore?

The most common use – financial reporting

Business valuation in financial reporting encompasses activities like purchase price allocation, goodwill impairment testing, and portfolio valuations. When a company acquires another, a valuation is necessary to determine the price paid for each asset and liability. The acquiring company must then assess the goodwill of the acquired business and write off any lost value post-acquisition. In fund management, portfolio valuations are conducted for investor reporting, financial reporting, audits, and regulatory compliance.

The second most common use – transaction support

Business valuation in transactions involves activities like exit planning, mergers and acquisitions (M&A), and financing. For an Initial Public Offering (IPO), a valuation is conducted to inform potential investors about the company’s worth. When acquiring another company, the buyer performs a valuation to ensure a fair price. Similarly, when seeking financing, a company must value its assets before securing funds.

Other uses can include litigation and arbitration support

Business valuation in litigation and arbitration support encompasses activities such as shareholder disputes, bankruptcies, damages assessments, and the purchase of majority or minority shares. In shareholder disputes, valuations determine the amounts due to each shareholder upon the company’s dissolution. During bankruptcy, asset and liability valuations are essential for resolving debts with creditors and shareholders. Valuation principles are also applied to assess damages when a judgment has been obtained.

What Are the Key Expectation on Valuation of Regulators in Singapore?

The value of an asset, including businesses, that a listed company intends to acquire is crucial for investors’ decision-making, such as voting on the transaction. Companies should be aware of market and regulatory scrutiny when acquiring or disposing of assets. The SGX Listing Rules mandate independent valuations for significant transactions like substantial acquisitions and reverse takeovers, requiring rigorous procedures and transparent reports for shareholders and the public to evaluate the transaction’s merits.

Disclosure Requirements

Companies must disclose the following:

– The asset’s value

– The party commissioning the valuation

– The methodologies and assumptions used

– The valuation date

Meanwhile, the Board must ensure assumptions and estimates are reasonable and disclose any material uncertainties in projections. Boards should ensure valuations are conducted independently by qualified professionals and in line with recognized standards, such as those from the International Valuation Standards and IVAS.

Emerging Trends Affecting Valuation in Singapore

1. Intangible Assets: Valuation of intangible assets, especially in businesses with new technologies, should be appropriately conducted and disclosed.
2. ESG Considerations: Companies should account for ESG factors in their valuations, articulating their impact on long-term prospects.

IVAS Practice Note Compliance

IVAS Practice Note 2 outlines minimum disclosure requirements for summary valuation letters. Companies should refer to this early in the valuation process to ensure comprehensive and consistent disclosures.

SGX Requirements on Valuation

The SGX Listing Rules require independent valuations to be conducted for transactions including acquisitions or disposals that meet the Listing Rule thresholds for very substantial acquisitions and reverse takeovers. Valuations must be undertaken subject to a robust procedure surrounding the assumptions and methodologies. The valuation report provides transparency and forms an important basis for shareholders and the investing public to assess the commercial merits of a transaction.

Who Regulate Business Valuation in Singapore?

Business valuation is a specialized profession in Singapore. In Singapore, business valuation practices are not regulated by a single specific regulatory body dedicated solely to business valuation. However, business valuation professionals and practices may be subject to oversight by various regulatory bodies and professional associations. Some of these entities include:

• The Institute of Valuers and Appraisers, Singapore (IVAS) was set up by the Singapore Accountancy Commission (SAC) in 2013 to develop Singapore into a centre of excellence for Business Valuation. Institute of Valuers and Appraisers of Singapore (IVAS): IVAS is a professional organization dedicated to valuers and appraisers in Singapore. It sets standards for valuation and provides guidance to professionals in the field, including those involved in business valuation. IVAS is a member of the International Valuation Standards Council (IVSC), the global standard setter for valuation.
• Singapore Accountancy Commission (SAC): The SAC is a government agency responsible for overseeing the accountancy sector in Singapore. While it doesn’t specifically regulate business valuation, it plays a role in promoting high-quality accounting and auditing standards, which are relevant to business valuation practices.
• The Singapore Institute of Accredited Tax Professionals (SIATP): While focused on taxation, SIATP may also be relevant to business valuation as taxes can impact valuation decisions. They promote excellence in the field of taxation.
• Monetary Authority of Singapore (MAS): MAS is Singapore’s central bank and financial regulatory authority. While not directly regulating business valuation, its oversight of financial institutions and markets indirectly influences business valuation practices.
• Public and Private Entities: Depending on the context, public and private entities involved in business transactions, mergers and acquisitions, and financial reporting might require business valuation. These entities often engage with reputable valuation professionals to ensure accurate assessments.
• Professional Accounting Firms: Many business valuation services in Singapore are provided by accounting firms, which are regulated by the Accounting and Corporate Regulatory Authority (ACRA) and follow international accounting standards.
• Legal and Financial Regulations: Regulatory requirements in various industries and sectors, such as financial services and real estate, can impact business valuation practices and methodologies.

What Is the Porcess Business Valuation and Techncial Skills Required?

Business valuation is a systematic process to determine the economic value of a business or company as at a specific valuation date. Key concepts in business valuation includes ownership rights, the base of value, appropriate valuation methodology, reasonable valuation assumptions, economic and industry considerations, capital structure considerations, operating and non operating assets. Generally speaking, valuation is more of an art than a science. Business owners, management and potential buyers form their view of valuation from their own perspective. The role of business valuation professional is to balance the factors and make justified valuation conclusion. The key information supporting the valuation is well documented in a formal valuation report.

Financial modelling technique is essentials. Accounting and financial reporting knowledge are also important as you need to understand the financial statements. The bigger the valuation target is, the more accounting knowledge is required as the book and accounting policy is much more complicated for larger group or corporations. Experience in the industry also matters. Experience allows valuers to ask relevant questions and obtain necessary information from the company to support the valuation.

The importance and responsibility of performing business valuation is getting higher in the financial market. Business valuation will attract more attention in Singapore. The issues faced by valuation professional are getting more diverse and complicated. Development of necessary data and technology solution will the future of valuation industry.