Tuesday, March 3, 2009

Learning Experience India 1 - 4

Dear All

This is the last and final learning for this Indian experience and I hope you have enjoyed the sharing.

On project 1, I am very pleased that I have manage to fixed up three potential candidates for acquisition. It is actually five. Two in Delhi and three in Mumbai. There are several others that I rule out. Those are generally the ones that are just "testing market" - wanting to know what's the potential of their business. Some of them I felt are rather too small with no good management and there are those wanting unrealistic valuation of their business. I want to share with you about valuation. In all the years I have been in this profession. Valuation of a business is always the most challenging. There is no right or wrong method and what you learn from your MBA classes is just the foundation for you to be creative/flexible in negotiation on the valuation. Methods like DCF or PE approach personally is just to support your proposed pricing. For the sector that I work in (the small and medium enterprises) NTA + goodwill is the best approach. Personally I conclude that a lot has to do with your negotiation skill. I have seen negotiation where the NTA is only 40 million ringgitt and the eventually sale is slightly over 92 million ringgitt and it all down to a old but shrew lady's approach in negotiation. Only advise that I can share with you in negotiation is that do your homework and take note of all the little details. Need not remember them by hard but know where to them them. Also always take note. On this project I will be beck on the follow-up in January. This is where the interested buyer meet the interested seller. First impression is very important. As I am working for the buyer in this instance, I must project the buyer in a very professional & sometime benevolent if it in about a family business.

On project 2, I was a bit disappointed. Having spoken to several contractors and developers, India's tier 1 cities is still not ready for prefab in a big way. Firstly cost of labor is cheap here, road system is not good enough to transport large slab and finally the general public still have poor perception of prefab buildings. In this instance, I must be ready to drop this assignment even though I can carry forward and charge the customer for feasibility report. As a consultant, people pay you for your knowledge and if you feel that at this stage the market is too early for your product, it is better to be honest with the clients. You win some and you lose some. Being a consultant does not mean that you have to take on all the work. Leave some for a later date :)

On project 3 however, I was lucky. I have an accountant friend who brought to me a very established book distributor. I thought I was going to give up on this assignment. The lesson I want to share about this project is the mindset of the company owners. This business turnover US$20m and its profit after tax is only US$200K. There is under declaration over the years. I cannot tell you more. The lesson you have to take away from this business is that under declaration has its pro and con. When it come to selling or raising money for the business, you really have no ground for argument as it is all book value that valuation is created. I have met them and discuss their financial. The owner was disappointed with the value of the business.

I guess this is the end of the learning experience

I am now sitting in Mumbai airport typing this email. I slept over in the lounge for five hours because Air India flight back to Singapore was cancelled :)


Seng Choon

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