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Singapore enterprises transitioning to seize opportunities through M&A

SINGAPORE, 14 March 2014—Mr. Yap shared these views as a panelist at the Singapore Tax Academy Budget Seminar 2014 on the topic of “Opportunities for the Future, Assurance for our Seniors”. The Budget Seminar was held this morning, 14 March 2014.

Deloitte Southeast Asia Mergers & Acquisitions (M&A) Tax Leader and Energy & Resources (E&R) Leader, Steven Yap said -

Singapore Budget 2014 included several measures, such as the extension of the PIC scheme and the introduction of the PIC+ scheme that further refines the on-going efforts by the government to help spur many enterprises to make the transition to the next level in the value chain and to seize new, exciting opportunities to grow in today’s challenging environment.

Some SMEs may not be as happy as others with the Budget measures especially with the cash pay-out under the PIC schemes when they seem to be more geared towards those SMEs that are more or very profitable. The cash pay-out for PIC to those SMEs that are less profitable than most could be higher as they are now considered less than the equivalent of the net cost benefit from the tax deduction value available under the PIC scheme.

Reaching and achieving sustainable growth in a challenging environment with continuing pressure to contain costs, innovate and improve productivity with limited resources collectively form the new normal. Almost all enterprises, small, medium and large alike, are experiencing cost escalations, price pressures with downward pressure on profit margins.

Containing costs, deploying the right skillsets (talents) and applying improved technologies to remain as competitive or more competitive to produce the desired after-tax yield on their investment are three foremost prime business issues in the minds of many enterprises. Many companies have seen the need to rationalise, consolidate or merge to achieve economic survival and some for competitiveness now - for the future.

The business landscape in Singapore and globally has been in constant change: an enterprise that was once probably a decade or a few years ago considered “easy” money to earn may now hardly be economical to even start-up, let alone earn a return beyond the bank deposit interest rate.

Every enterprise, country or region is evolving towards the next level of the value chain. Businesses need to transition to accommodate to the next state of change and at the same time seize the opportunities.

Budget 2014 measures actually go only so far to support and help give enterprises a leg’s up. The measures are part of a series that were introduced as part of the government’s transformation plan. They need to be considered together as we enter the second half of the transformation exercise. Budget 2014 measures introduced are some refinements on selected measures that have been introduced over a number of Budgets to continue to spur and help many enterprises make the transition to the next level in the value chain and to seize new and exciting opportunities.

 

An enterprise’s business model, optimality, scalability, financial strength, and know-how are some of the many prime factors that influence its survival and success or otherwise. It is worthwhile for enterprises to evaluate and re-evaluate the currency of their business model, among other things. Its relevance and profitability could be affected by whether or not it is optimal. While these Budget measures act as catalysts to the fuel in the enterprises’ engines, it is still ultimately the entrepreneurs who are the drivers of their own success.

With Singapore stepping up to the next level of the value chain as a super hub in Southeast Asia, it would not be surprising to see many companies will be compelled – voluntarily or by sheer necessity to right size through M&As. This is especially to scale up with the right talents, build capacity and strengthen the balance sheet to be able to properly and effectively execute and deliver their services at global standards – in Singapore and in the region.

Containing costs from escalating, right sourcing and deployment of talents and using better technologies to boost productivity for improved profitability would be the utmost in the minds of many companies. Availability of human resources with the right talents is becoming a real challenge for many – to enable workers to perform the work within the prescribed time-frame at the required health and safety standards, and yet managing enterprise risks. Retaining these talents is becoming a primary challenge – with cost management on the other side of the scale. That should be able to be managed with corresponding increase in productivity.

Mr. Yap concluded with his final thoughts, “One, tweaking the M&A (write-down) Allowance from 5% to 10% and increasing the cap from $5m to $20m, and two, increasing the double deduction for transaction costs for M&A increasing the cap from $100,000 to $300,000 would help encourage enterprises to seriously consider consolidating or amalgamating into an optimal enterprise size with stronger financial strength and resources to be a much more serious player in Singapore or elsewhere and as competitive as the regional or global players. Third, fine tuning to allow a combined cap across all six categories should assist more SMEs to derive greater benefit from the PIC and PIC+ schemes – in preference to the cash-payout.”

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