THIS WEEK'S TOPIC
What do you think of the Budget initiatives to reduce the cost of mergers and acquisitions?
Do you think such moves will encourage SMEs such as yours to consider M&As for growth?
Are the incentives useful? What more can be done to facilitate M&As among SMEs?

Johnny Goh
Financial Controller
King Plastic Pte Ltd

THE recent tax incentives targeted at supporting business restructuring and facilitating M&A come as a pleasant surprise, particularly for those SMEs which have grown organically to a certain size and sophistically enough to explore further synergies and expansion. The one-off 5 per cent tax allowance of the acquisition value and the waiver of stamp duty on private shares' transfer are symbolic and encouraging, as well as simple to understand and process.

The route through M&A is ultimately a business decision which comes with its relevant costs and risks. Although it may be a faster growth path than organic expansion, a failed M&A exercise could also be very costly and disruptive. As such, additional tax schemes and incentive programmes could further assist to lower the risk and cost of M&A to a more manageable level. Some examples would be extending a Double Tax Deduction for the costs incurred relating to the M&A exercise such as the professional fees and financing expenses.

It will also be encouraging to see if these incentives would be applied to acquisition of overseas businesses, as some local companies may take the direct route of acquiring overseas business as part of an regional expansion plan into foreign markets.

Government agencies such as EDB, Spring or IE Singapore, which have a bigger database, could also help to facilitate business exchanges and increase the exposures for M&A possibilities, vertically or horizontally along the supply chain, or across different industries if the acquiring company is looking to diversifying its business nature.

A good environment to facilitate growth, via M&A, will be positive for the local SME sector, which might not have as strong resources as the bigger multinational companies. A dynamic and vibrantly growing SME sector will hopefully create a positive upward spiral chain effect which in turn promotes the creation of bigger and more efficient companies, attract better talents, improved technologies to enable us to compete meaningfully in the globalised market space.

Jan G Vistisen
Director
Executives' Global Network Singapore Pte Ltd

OUR 20 or so SME group members have certainly welcomed the initiative to reduce the cost of mergers and acquisition, although it seems that some more details on how it exactly is supposed to work would be welcome. Maybe it would be a good idea if somebody could flesh out the details in an article in The Business Times? Also, we wonder whether there is a cap to the rebate/incentive, or is it 5 per cent regardless of amount?

Jackie Cheng
CEO
Hisaka Holdings Ltd

WITH such an initiative to reduce cost for M&As, SMEs will be inclined to consider this as a growth strategy to grow and compete both locally and overseas. The M&A tax allowance will help facilitate and promote consolidations in industries, forming bigger firms hence achieving economies of scale for companies to move up the value chain as well as to increase the company's overall productivity, bringing it to a higher level. The government's effort to help local SMEs grow into global companies should be applauded.

Donna Lim
Executive Director
HSR Realty

AS SMEs expand in increasingly globalised and technology-driven markets, it may not be a question of growing either organically or through mergers and acquisitions (M&A) but through both strategies. M&A can help combine and integrate the core resources and competence of different enterprises to enhance size, scale and scope of services. By leveraging on complementary strengths, they can also create new markets, values and businesses.

In addition, they can enhance their knowledge and competence; especially in disciplines that cannot be acquired in the open market, so as to enhance their profit, advantage and growth. Therefore, HSR has leveraged on M&A and will continue to do so to help us become a globally competitive company and a leader in the market.

While the Budget incentives are commendable, they are more reactive than proactive in helping SMEs plan and execute M&A. As viable SMEs are limited in terms of organisation, competence and other resources, they need government-linked networks to help them scan the environment and identify M&A opportunities. They need financial grants, loans and assistance to help them implement M&A; including investments in consultancy and advisory services, talent development, and development of new infrastructure, systems, technology and processes. If we can introduce such off-budget incentives, we can propel our SMEs to proactively consider M&A and leverage on it to leapfrog over competitors in other countries.

Arthur Tan
Director
Dashmesh Singapore Pte Ltd

THE incentive for encouraging M&A is wonderful, even though it may be open to abuse. At Dashmesh we are always looking out for opportunity to merge with others to grow. Perhaps Spring can provide a directory with a template or format (that is not too long and wordy) for SMEs who are open to M&A suggestions. A properly set up directory that is updated regularly and which is positioned well will create some buzz. In order for privacy of prospects, Spring may intermediate, and disclose SMEs' names only when necessary, and thereafter set-up introductory meetings. Basically efforts to improve business climates in Singapore must move beyond using fiscal incentives only.

Richard Stuart
Managing Director
IPS Securex Pte Ltd

MANY mergers and acquisitions do not provide good returns for the shareholders of the acquiring company. It may be better to encourage joint venture operations which allow Singapore SMEs to learn the technologies and have an exposure to overseas markets while at the same time maintaining the experience and corporate culture of the other partner.

Cheryl Tong
Managing Director (PowerPRO)
Pursuit Pte Ltd

I BELIEVE that the initiative to reduce the cost of mergers and acquisitions will benefit more for listed companies and medium to large unlisted companies than for small companies.

The challenges facing small companies in M&A are more in the human aspects of the merger than operational issues. Most small companies are managed by their owners. Many owners are reluctant to relinquish control of the business which they have built up over the years through blood, sweat and toil. They also have strong personalities which may be plus factors for entrepreneurship but can be impediment for successful merger of companies.

The conventional wisdom is that M&A is driven by revenue growth and cost savings. Too much focus on operational aspects and ignoring the human and cultural aspects of the merger has been a major pitfall for many M&As. The government's recent initiative focuses too much on the operational aspects of M&As. The government should include funding for consultancy support to facilitate the assimilation of different corporate cultures of the merger companies.

Moreover, the government should subsidise other operational and legal costs especially for SMEs venturing in M&A.