Crowdfunding culture a boost for M&A scene: Goh Bock Seng, Dealmakers Ltd.
Goh Bock Seng, founder and principal of boutique mergers & acquisition (M&A) firm Dealmakers International Ltd, believes that crowdfunding has served to boost the M&A sector, which is buoyed by the overall growth of Southeast Asia.
Featured in publications such as Portfolio, the former military man served as a captain in the Singapore Armed Forces (SAF) from 1977 to 1990 prior to leaving to pursue his entrepreneurial ambitions.
He developed a career as an M&A professional and public speaker at sales conferences and seminars in Southeast Asia, where he has shared stages with Brain Tracy, Bryan Flanagan, Robert Kiyosaki and Gary Kinder at the National Achievers’ Congress held in Philippines and Indonesia.
Goh was invited to be a member of Young Entrepreneur’s Organization (YEO) in 1998 and was elected the President of the Young Entrepreneur’s Organization in 1999.
In this role, he spearheaded a project aimed at getting members of the YEO to share the stories behind their achievements, with the aim of supporting and nurturing budding entrepreneurs. This led to the book, “Young Entrepreneurs: Success Made in Singapore”, being published in 1999.
Goh has further diversified his business through various industries such as financial investment, acquisition & merger, education, F&B, fashion apparels and sea-sport recreation center. The M&A firm focuses on the hospitality, finance and service industries.
In a sit-down interview with the Venture Views blog, Goh discusses his background and start in mergers & acquisitions (M&A), as well as how he sees the market evolving in coming years with the emergence of online crowdfunding platforms.
Edited excerpts
What led you to enter the M&A space after leaving the army?
In 1990, I decided to quit the army and went to work at a bank for a while. Due to my connections with an Indonesian general who was an old friend of mind from my army days — it was the early 1990s and they had a lot of capital to spare — he approached me to help him buy some property under my name. But I argued that if anything happened to me, the property would be gone, so we explored options to grow the money in a different form.
At the time, they had two companies coming up, so I helped them invest into those firms and merge them. And that’s how I get my start in M&A.
In the early days, we’d do a background check and due diligence on them companies and executives, followed by a presentation to these Indonesian ambassadors, Indonesian, from the deals we closed, they’d refer more peopel to us. My past experience in the military gave me this inroad into the M&A business.
Since starting, what sort of transaction sizes does your company handle, and how many deals in the year usually handle?
We do deals involving companies with a minimum market capitalisation of S$10 million. Anything less than that isn’t worth doing it. In the early 1990’s, we had a lot more deals — perhaps 20 deals a year — though we now do about 10 transactions per annum. We’ve done deals across the manufacturing and hospitality services sectors and we’re now handling deals across the Asia Pacific.
Why does your firm maintain a minimal digital footprint?
We’re like a ninja in the market, we don’t want to expose ourselves too much. If you’re too prominent, then you have to deal with a lot of unnecessary attention, and we try to be secretive about the deals as possible, because when such transactions are disclosed in the open market, then the parties may strike off the deal.
How do you manage deal sourcing and origination, as well as due diligence? What’re the hardest elements of the M & A process?
The hardest part of the M&A process is, firstly, getting the target firm we want to sell to potential acquirers to open up their books and disclose information to us about their business operations and financials.
The only way to conduct due diligence very often is to enter into non-disclosure agreements (NDAs). Only then will people permit us to go into their accounts. While they want to sell the company, they’re not willing to show the books to us until we do that.
What are the challenging elements of running an M&A agency, given it has a lot of human touchpoints in terms of relationships?
Actually, the difficult part is how to haggle for the right price. For both parties, there’s always this human distance. Both sides are looking at me and expecting me to come up with the answers to their questions.
Even with my staff conducting the due diligence checks and everything else at the background, we have some clients who want to close a deal fast and are desperate for answers.
They’re always seeking my opinion on the state of the firm and sometimes I have to comment on the state of affairs at target firms which aren’t very fabulous and can impact the outcome of the transaction, even if I personally don’t know anything about the company firsthand; its my team that runs the show and does the in-depth analysis, so they feed me information and I have to let my clients know what I think.
You’ve been in the scene since the 1990s. Now in Southeast Asia, back then there was significant Japanese capital present in the region. Now we’re seeing a lot of South Korean and Chinese funds entering the space. How has the M & A equal system in Singapore and in Asia evolved since the 1990s?
In the 1990s, there was a lot of activity centred on large players in Indonesia and Malaysia, but now you have the Koreans, Japanese, and even the Chinese, so the M & A landscape has changed a lot. The EBITDA and approach is totally different.
For instance, the Koreans are looking at how to enter the regional ASEAN market and they’re granted great incentives by various governments looking for foreign investment, so they’re looking for target firms. But with competition from the Japanese and Chinese in the region — they’ve got cash to burn- they are a player that can come in and purchase assets at a price that may be unreasonable, even overvalued, and they’ll do so just to have a footprint in Southeast Asia.
In terms of the crucial elements, what do you need to be aware of when managing relationships with your various clients such as the brokers, the target firms, and the acquirers?
It basically boils down to trust. With any M&A client of mine, we don’t try to fabricate any stories but stick to the facts. We will tell the truth; if a deal or a company is no good, then it’s no good.
We’ll do our due diligence checks and tell them what we think about the company’s strengths and weaknesses. In this market, if the buyer is very well informed, then he can make the appropriate decision about an acquisition at the price he wants.
In this line, the reputation of a company like Dealmakers is more important than closing the deal, so we must always be upfront and gain the trust of both buyer and seller. We have to balance the interests of the buyer and the seller.
How has the M&A terrain evolved in Malaysia and Singapore?
Malaysia lags about ten years behind Singapore in terms of M & A, but they are growing very fast, and the recent market changes in Malaysia will benefit them down the line. The growth in their country will be more established due to the flows of mainland Chinese capital and people, so you’ll see a lot of infrastructure growth. This will spur greater accessibility and Malaysia will exceed the Singapore market in terms of size.
Thailand seems to have been caught in a middle-income trap, so what’s the M&A forecast there?
In Thailand, the rich are really rich now. We’ve seen the wealth grow over the last decade tremendously, like what Singapore saw in the 1990s. Back then, any business you entered in Singapore would make a profit, and that’s the sort of market environent that Thailand is experiencing; they are where Singapore was in the early 1990s, so I can see exponential growth in Thailand.
If they manage their politics well, they will see extremerly robust and positive growth and if they manage it well politically, I think they will grow very well, too. The strengths of their M&A market will lie in their F&B (food&beverage) sector, as well as the hospitality industry, one of the areas I’m evaluating.
How do you see the emerging markets of IndoChina and the Philippines performing?
They’re at an infant stage. If you can establish your footprint in these marketss, you’ll have a potential growth for the next decade as they increasingly open up, as in the cases of Myanmar and Cambodia. If you look a the trends, middle-class consumers are behaving just like those in Singapore. You have youth spending money at cafes on beverages that cost S$5-S$10.
Looking at this behaviour, if the market wasn’t good there and they were still living in poverty, then the café wouldn’t survive. At present, the younger generation is educated and opening up, so there’s a lot of potential in those markets.
The last few years have seen the emergence of a lot of digital investment platforms like Fundnel, FundedHere, and OurCrowd in Singapore, which facilitate crowdfunding of a sort. How is this reshaping traditional M&A?
If you look at the Asia-Pacific (APAC), I think that the crowdfunding culture is a good fit and amplifier for the M&A space. With crowdfunding, you don’t need companies to say, “I want to acquire a business.” It could be a crowdfunding group that decides they wnt to syndicate and invest in a new firm.
It’s a positive development that has opened up a lot of possibilities for people seeking to start their own business. Many years back, in the 1990s, people were starting to explore this, so it’s not something new; we’d crowdfund the acquisition of property among a bunch of friends.
Over the years, they’d make more money, sell the property once it was paid up, then come together to purchase a larger property. It’s not a new phenomenon and it enable great economic strength when people pool their capital to invest.
We’ve seen crowdfunding platform mature over the last few years, but are the larger capital markets sufficiently mature in Southeast Asia and the Indo-Asia Pacific to support a specialist online M&A platform?
That’s tough. M&A is a very personal business. If you trust your transactions through a digital platform, you can buy through that platform easily. But you still need people to discuss and feel out the company and its executives, as well as evaluate. So, a digital M&A platform may be good for an introduction to a target firm, but everything in the background still needs a person involved.
Speaking of that, what’s your take on the SGX and its current cycle of delistings in recent years? What’s driving this privatisation and shift to private capital markets?
The delisting is about the profit margins that individual companies are looking at. For company to engage in an initial public offer (IPO) and go public… after a while they just stagnate and can’t grow any further. The only way to grow is to delist and perhaps re-listing in another bourse like the HKEx or elsewhere. Ultimately? It’s rejuvenating the companies by delisting it.
It will be like that with stocks that have a lot of debt or otherwise lack liquidity. Nobody is trading its stocks or cares about it and they’re rather small firms, not MNCs. You’re talking bout firms that are nano-cap or micro-cap stocks — maybe ranging from $15 million to $200 million in value — perhaps given their size a delisting is a better approach.
Looking at succession planning, a lot of private equity funds and some sovereign wealth funds (SWF) renew their executive management when they reached between 60–65 year of age. There’s a certain focus on grooming successors and finding replacements, either international or external. What’re the benefits of an external hire?
An external hire can come in and manage your funds and companies; it’s always a good thing to do, because they can bring new ideas and a fresh approach you may not find with an internal hire. Traditional practices may not be able to bring a firm to new heights. You face a higher risk if you don’t bring in new blood.
I always encourage founder-run companies to explore external hires. I’ve dealt with companies where the founders have managed it for 30–40 years; under one owner the culture doesn’t change and there’s no initiative or innovation. New management needs to come in to lead it to the next level.
A succession plan doesn’t necessarily need an internal person. I’ve encountered the same challenge myself, because when you have an internal success running the whole thing, the culture stagnates. So in many cases, an external hire can be more beneficial.
With technology M&A, you have young entrepreneurs in their mid 20’s or older founding these companies and looking to exit through a trade sale or IPO. What’s the difficult part of selling a company, and for acquirers, what is the challenging part when acquiring and integrating the target firm and its operations?
A lot of these innovators and founders always think their companies are millionaire makers; they always think that with the cost and effort they’ve put into it that they’re going to make a big profit out of it. It can if the concept is good and they’re able to generate enough business. In this case, the price isn’t the issue.
The questions is whether a company will buy it. They must able to answer: “Can this complement my existing operations?”
For example, RedMart was bought over by Lazada, and the question is why did they buy that? For an e-commerce firm, that can be a dilution of the core business and raises questions of whether the platform can support it. But it saw Alibaba’s stock rise. For a publicly listed business, its a new initiative that expand the business lines and boosts the share price.
I dealt with a firm whose share prices hadn’t been moving and suddenly, he decided to buy over a plastic company. His rationale? His company needed plastic bags and when he announced the acquisition, his stock moved because it showed initiative and enhanced the business.
Beyond supplying plastic bags to his own company, he also supplies it to other firms along the value chain. Every time a company buys a target, they have to ask themselves: “Does this add value to the current operations? And if it does, why not?”
