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Guessing Game?
Valuation Challenges in Asia

Guessing game? Valuation Challenges in Asia

Contents

Executive summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1: Difficult, expensive and over-hyped? . . . . . . . . . . . . . . . . . . 7
WPP: Practice makes perfect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2: Methods of valuation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Deutsche Bank: High expectations. . . . . . . . . . . . . . . . . . . . . . . . . 11
3: Information and transparency. . . . . . . . . . . . . . . . . . . . . . . 12
West LB: Trust but verify. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4: Pricing in risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Anonymous: Remove the beam in thine own eye. . . . . . . . . . . . 17
5: Measuring intangibles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Asia Netcom: Watch the government. . . . . . . . . . . . . . . . . . . . . . . 18
6: Where the value lies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Survey summary: Developed vs developing markets in Asia. . 23
Who took the survey?. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Appendix: Survey results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

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Guessing game? Valuation Challenges in Asia

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© 2007 The Economist Intelligence Unit and EYGM Limited. All Rights Reserved.

Alexandra Harney was the author of the report and David Line was the editor. researched and written by the Economist Intelligence Unit. November 2007 © 2007 The Economist Intelligence Unit and EYGM Limited. All Rights Reserved. The Economist Intelligence Unit’s editorial team prepared and executed the survey. 3 . Our thanks are due to all survey respondents and interviewees for their time and insights.Guessing game? Valuation Challenges in Asia Preface Guessing Game? Valuation Challenges in Asia is an Ernst & Young briefing paper. conducted the interviews and wrote the report.

• There are few set procedures for valuing companies in Asia. Singapore. Malaysia. The objective of the study was to learn. Hong Kong. Discrepancies between the two can lead to inaccurate valuations. All Rights Reserved. The question in these markets. one-quarter in Vietnam and one-third in Malaysia 4 feel their companies have determined reasonable values for businesses “well” or “very well” in these markets. Singapore and Taiwan—use earnings multiples to determine value. In China and other developing markets net asset values are often favoured by governments—while multinationals prefer discounted cash flow. such metrics are not used routinely across Asia. conducted by the Economist Intelligence Unit for Ernst & Young Transactions Limited.Guessing game? Valuation Challenges in Asia Executive summary W ith mergers & acquisitions activity in Asia showing no sign of slowing (some 5. In the more developed markets of Hong Kong and Singapore two-thirds are happy with their valuation approach. primarily in China. • Lack of information is the biggest drawback to making accurate valuations. potential acquirers are forced to adapt valuation © 2007 The Economist Intelligence Unit and EYGM Limited. Although in developed markets like Hong Kong and Singapore it might be possible for would-be acquirers to rely on published financial data to inform their decisions. With a lack of information in developing markets. and that almost all the problems associated with appraising asset value can be linked to a lack of reliable information. Higher rates of trust in Hong Kong and Singapore show the benefits of transparency. Trust in publicly available information is low. This new study. in many of Asia’s hottest developing markets (China and Vietnam. the methods most commonly used and their drawbacks. In China only 14% of respondents say they use earnings multiples. from the perspective of those closest to making valuations in these markets. This links to the fact that high growth expectations often skew valuations: acquirers might be more eager to get a foot in the door than to spend time doing the homework necessary to get an accurate valuation. the common difficulties faced and the reasons for these difficulties. Overall. • Valuation metrics differ between Asia’s developing and developed markets. It also shows that many acquirers are sometimes prepared to forego accurate valuations in the interests of making a strategically vital purchase. Such is the rush for exposure in the fast-growing China market. even for listed companies in some markets: few respondents feel financial statements for companies in developing markets are sufficient for a good valuation. compared to 6. Far fewer companies in Asia’s developing markets rely on reported financial data than rely on due diligence investigations when valuing a company. It is based on a survey that was conducted in September 2007 of 138 senior executives with knowledge or experience of valuing companies in those markets. examines the difficulties facing executives in appraising the value of companies across Asia. the need for companies to make accurate valuations of their acquisition targets is as pressing as it has ever been—and as difficult. . South Korea. the study shows that executives in Asia are not confident that they are making accurate valuations. • Valuations tend to be higher in China. for example) more thorough and painstaking investigation is required. illustrating the disparity between Asia’s developed and developing markets in the information available to make accurate valuations. however.400 in all of 2006). In other developing markets (Malaysia and Vietnam) valuations are perceived to be lower than in developed markets. Only onefifth of respondents with knowledge of valuing companies in China. from companies in various sectors and of various sizes across the Asia-Pacific region. Among the key findings of the study are: • Companies find it easier to value companies in Asia’s developed markets than in developing ones. acquirers seem prepared to pay over the odds for targets in that country: two-thirds of respondents to the survey say valuations are higher in China than elsewhere. and how the always-problematic issues of pricing in risk and valuing a company’s intangible assets are addressed. While large numbers of companies in Western developed markets—and in Hong Kong. Taiwan and Vietnam. if ever.700 deals were done across the region in the year to October 17th. Few companies can afford to get it wrong often. is whether the strategic price paid for holding off while the homework is done is higher than the premium paid for a quick sale.

cited by nine out of the ten respondents with knowledge of South Korea and majorities in Malaysia. better risk disclosure is the top priority. Apart from in Singapore. say they have been less successful in valuing intangibles than in developed markets elsewhere. Where reliable financial information is scarce it is not surprising that executives want better accounting standards to help with valuations: in China three-quarters of respondents feel this is necessary and in Vietnam four-fifths do. • Better accounting and risk disclosure are most soughtafter improvements. Less than one-third of respondents engage external valuers with local market knowledge. • The greatest value is seen in customer lists and licences. 5 . © 2007 The Economist Intelligence Unit and EYGM Limited. All Rights Reserved. human capital seems not to be regarded highly when valuing companies in Asia. and just under half of respondents with knowledge of valuations in Malaysia and Taiwan. Majorities with experience of valuing companies in China and Vietnam. copyrights and intellectual property are not factored into valuations at all. Sometimes companies don’t bother to try: in China significant minorities report that even important factors like non-compete agreements. possibly reflecting acquirers’ strategic interests in getting a foot in the door and the importance of having local knowledge of complex regulatory issues. where it ranks second only to tangible assets.Guessing game? Valuation Challenges in Asia procedures for each market: half say their approach varies depending on the country. Where companies see the value in their acquisitions depends on the market: customer relationships and licences take priority over intellectual property and human capital in developing markets. • In Asia’s developing markets some intangible assets are too hard to measure. This makes it difficult to compare values accurately between countries. Singapore and Hong Kong. and only one in five say they have internal expertise and models used across markets. Elsewhere.

Mergers & acquisitions activity in Asia.Guessing game? Valuation Challenges in Asia Introduction A s the frenzy of mergers and acquisitions continues across Asia.659.80 6.50 . But in some less developed markets.50 20.70 0.505.609.1 34.6 143 1. mature markets.6 3.9 1. The aggregate value of M&A deals in Asia1 has risen to record levels. a financial information provider. The results also suggest that when it comes to asset appraisal. information is generally easier to come by.615.9 141 -13.7 651 12. coupled with excitement about investment opportunities.3 98 103. and less-developed markets such as China.1 94 12.60 14. The survey conducted by the Economist Intelligence Unit for this report shows that good information is a crucial factor in valuations.251.2 1.70 7.1 18 767.8 442 16.096.70 15. the challenge of making accurate valuations is commonplace across Asia. 2006-07 Year to October 17th 2007 Rank in Asia Value (US$m) % share Same period 2006 Number of deals Value (US$m) % share Number of deals Value (US$m) % share Number of deals 1 China 52. In the developed markets.3 1.10 8 679 59.10 19.351. excluding Japan and Australasia 6 Full year 2006 Yearon-year growth (%) © 2007 The Economist Intelligence Unit and EYGM Limited. which in many Asian countries own the most attractive potential acquisition targets (and must rationalise and defend their sale). valuations have become an increasingly important issue for multinationals in the region.7 222 52.70 4.6 132 13 Vietnam 1.2 3. And despite improvements there.2 0. That compares to US$219bn for the whole of 2006. some investors are concluding that the risk of missing out on the extraordinary growth is greater than the risk of paying too much for a strategic acquisition. Malaysia and Vietnam.60 2.174 4 Hong Kong 34.1 7. 7.60 1. contributes to higher valuations than elsewhere.3 204 7.8 0. China accounted for about 20% of total deal value in Asia in the first nine months of 2007 and around one-third of the total number of deals.7 787 23.10 7.20 7. Concerns about country risk also lead to undervaluation in some emerging markets.5 27. progress is not as fast as some would like to see.593.5 277 8 Taiwan 10.821 29.492.5 873 6 Singapore 18.202.427.10 1.410 79.9 1.8 974 16.6 245.438.168.4 397 10.4 17.90 20. according to Thomson Financial.50 4.001.692. In other words.045.988.755.20 1.513.829.70 4.1 32 Source: Thomson Financial 1 Cross-border and domestic deals. which makes assessing value easier and leads to more reasonable valuations.815.422.10 3.10 21. Information is not always easy to obtain.5 71 155.303.80 15. Target companies don’t necessarily follow international financial reporting norms.6 598 45. the lack of information.80 11. according to Thomson Financial.50 13.1 89 46.70 11 208 199.7 385 81.9 125 3.6 822 31. All Rights Reserved.840.00 19.9 46.495.6 116 10 Philippines 4. Nowhere are these issues more evident than in China.7 27. climbing to over US$250bn in the year to October 17th. represented in the survey by Hong Kong and Singapore. Although executives and advisors report a trend toward greater transparency in valuations in China.289.4 766 5 Malaysia 19. Yet Asia continues to present unique challenges to investors.10 1.980 2 South Korea 49.436. Governments.969.10 12. perhaps reflecting investors’ greater caution.192. the region can be divided into two broad groups: more developed.604.1 273 3 India 36. the region’s hottest M&A market.8 24.40 12.625. sometimes prefer their assets to be valued using different methods from those favoured by multinationals.00 8 178 9 Indonesia 4. notably China.60 7.4 472 7 Thailand 10.3 16.

found valuing companies in Asia to be more difficult than doing so in developed markets.0 2. Why is there a divergence across these markets? Malaysia and Vietnam are certainly less active M&A markets than China. In Taiwan. leads the region in terms of difficulty of valuation.3 Taiwan 8. where 55% of those surveyed report lower valuations. Because the number of respondents with experience in South Korea. All Rights Reserved. But it is intriguing to note that as Vietnam steps up its efforts to attract foreign investment. Hong Kong and Singapore. two-thirds report that valuations are harder. offer a more predictable environment to investors. on the whole.2 4. Some 61% of respondents in the survey say making valuations in Hong Kong is comparable in difficulty to other developed markets. In China. historically speaking valuations in Asia have generally been believed to be lower than in Western countries. 66.5 68. Taiwan and Vietnam was smaller than for the other countries.2 4. 61% of respondents report the valuations they see are lower than in developed markets.4 61.1 25. the largest market in Asia for M&A. by contrast.1 Singapore 18. with 68% of respondents reporting valuations are about as easy to conduct there as in other developed markets.0 55.Guessing game? Valuation Challenges in Asia 1: Difficult.9 Hong Kong 18.3 Vietnam 25.7 8. South Korea remains somewhere in the middle: one-third of respondents say valuations are the same as in developed markets while just over one-half think they are harder.1 66. Asia’s fifth-largest M&A market this year by deal value. 64% of respondents say valuations are higher than in developed markets. China. Perhaps more of a surprise was that companies seem prepared to pay over the odds in high-growth markets— and China in particular—rather than risk missing out on sharing in that growth. by comparison. expensive and over-hyped? • Valuations in Asia are difficult to get right.0 11.7 7 . with 90% of respondents reporting that it is harder to make valuations there than in developed markets. they do not have the economic potential that China boasts.1 Valuations are easier than in developed markets Valuations are harder than in developed markets Valuations are the same as in developed markets Don’t know/Not applicable 90. A similar phenomenon exists in Vietnam. Malaysia. one-quarter of respondents say they find valuations there easier than in developed markets.4 20. Singapore is even easier.3 © 2007 The Economist Intelligence Unit and EYGM Limited. but acquirers may be prepared to pay a premium to get exposure in high-growth markets I t should come as no surprise that the executives surveyed for this report. If valuations in Western developed markets (with freer flows of information) are on average accurate. it is difficult to draw firm conclusions from the data.2 Malaysia 15.1 South Korea 33. But this survey indicates that this is no longer the case in every market.6 15. also presents challenges: 62% of executives surveyed say it is harder to value assets there than in developed markets.4 23. and while they are increasingly attractive to investors.2 13. Nearly one-half of those surveyed in Taiwan (albeit from a smaller sample) also think valuations are higher. and that these difficulties have led to inaccurate valuations. With difficulty comes inaccuracy. In Malaysia.2 61.6 11. Executives and advisors say multinationals are so keen to How difficult are valuations in the following markets compared to valuations of similar businesses in developed markets? (% respondents) China 7.

All Rights Reserved. Leung. In other economies.5 Valuations are more sensitive to growth expectations 47.2 Valuations are more likely to be affected by a lack of 47. As Marc Goedhart. In Hong Kong and Singapore. (% respondents) China Hong Kong Malaysia Singapore South Korea 70. it is worth noting that lack of information does appear to affect valuations there. about one-half of respondents cite demand for investment as the most important external factor affecting valuations.7 28. Nearly two-thirds of the respondents say a lack of information affects valuations in Vietnam—almost as many as in China.”2 External factors The survey results illustrate how external factors affect valuations across Asia’s diverse markets. Timothy Koller and Nicolas C.3 65. “The scrutable East. Unsurprisingly. Surprisingly for an emerging market. About two-thirds of respondents say growth expectations affect their ability to make reasonable valuations there more than in developed markets—a finding that underscores the desire by many multinationals to get into the China market to tap into its rapid growth. perhaps showing that the rush to get in on the market has not reached the same level as that seen in China. about half of respondents say demand for investment distorts valuations in Malaysia. As in Hong Kong and Singapore. valuation is easier in markets that offer investors greater transparency in terms of corporate disclosure. Autumn 2004. Equally important. “[F]or many sectors. only one-third think that growth expectations Which of the following statements are closest to your experience in determining reasonable values for businesses in each market compared to valuations of similar businesses in developed markets? Select all that apply.5 Valuations are more likely to be affected by demand 52. Only 26% of respondents say valuations are more sensitive to growth expectations in the economy than in developed markets. 8 © 2007 The Economist Intelligence Unit and EYGM Limited.” McKinsey on Finance.3 35. Taiwan Vietnam . however.7 2 Marc Goedhart.0 25.4 50.6 46. consultants at McKinsey. Also unsurprisingly. is a lack of information. cite this as an issue.3 64. highlighting the country’s lack of transparency. have so changed the competitive dynamics that there’s little choice but to join the rush.0 58. the advantages of going to Asia.7 38. expectations of growth play a large role in determining values in China in particular.0 12. an almost equal proportion (48%) of respondents says expectations of growth affect valuations in Singapore more than in other developed markets (and six out of ten with knowledge of valuations in South Korea say the same). however.8 27. However. have written. Interestingly. the picture changes dramatically. Timothy Koller and Nicolas C Leung.5 information than in developed markets 10.2 for investment than in developed markets 20. A large majority (70%) of respondents say a lack of information is more likely to affect valuations in China than in developed markets.0 35. where only 12% and 10% of respondents. While it is more difficult to draw definite conclusions about Vietnam. growth expectations are much less important in valuations in Malaysia. particularly China. given investors’ current excitement about the Chinese market. such as high technology and manufacturing.0 33.9 52. A dearth of information affects executives’ ability to make reasonable valuations in every market surveyed except Hong Kong and Singapore. respectively.Guessing game? Valuation Challenges in Asia get a foot in the door in China that they will pay a premium to do so.8 in the economy than in developed markets 60.

A similar proportion of respondents are respectively. WPP: Practice makes perfect In the last two years.” he says. “and we’ll make certain adjustments to get it onto our accounting basis. would be helpful. owner-managed operations. in South Korea. This process can be expensive. Valuations are therefore integral to WPP’s strategy.” Better accounting standards would make Mr Neish’s job easier. not including the local companies it has folded into its network as part of an international group purchased elsewhere. and turns to an external accounting firm to do financial and tax diligence thereafter. the depth of its talent base and its customer relationships. In addition. WPP also has its advisors explore possible tax issues and conduct background checks on the target and its vendors to ascertain its probity. only about one-fifth of respondents feel they have valuation performance in Asia’s more developed markets. none of the demand that can skew value perceptions. 9 . been able to value companies well or very well.Guessing game? Valuation Challenges in Asia satisfied with the valuations they have made in Malaysia. “Sometimes we have to work with them over a period of time if the business controls are not so developed. Generally. “having a good roster of advisors is really important. he believes better corporate governance practices. Equally.” WPP employs a team on three continents—Asia. the percentage of respondents who say they have markets. © 2007 The Economist Intelligence Unit and EYGM Limited. “We pretty much have to be. “We’ll take the local profit number. The in-house team provides another edge in valuations because they bring industry expertise. And it can take months. prior to signing a memorandum of understanding. WPP does commercial due diligence themselves. Human capital and customer relationships are key factors in the advertising business. the group’s regional director for the Asia Pacific region.” Mr Neish says. Once a memorandum of understanding has been signed with a potential target. in the economy affect valuations in Vietnam more than in developed markets. another market that suffers from a lack of reliable Lack of success information. how successful do respondents feel they have valued acquisitions well compared companies feel they have been in valuing companies so far in with other developed markets. About one-half believe that their valuations in China been able to value companies well or very well is 63% and 61% have been acceptable. Asia? The answer. Respondents’ ambivalence about China is mirrored in Vietnam. global advertising and marketing group WPP has done 22 deals in Asia. Europe and North America—devoted to M&A. All Rights Reserved. though. and investments poorly in Vietnam. Some companies do not seem to follow any standard. The team then examines potential targets’ earnings multiples based on a figure Mr Neish calls operational profit after tax. for the most part. from targeting to completion. including stamping out corruption. respondents are relatively happy with their In China. due to the volume of targets at all stages of our M&A process. Strikingly. In Hong Kong and number feel they valued companies poorly compared to other Singapore.” says Stuart Neish. and another 8% say their external factors such as growth expectations and investment valuations are very poor. The commercial due diligence process focuses on building a picture of where profits come from in the target’s business. By contrast. is “not very”. and an equal evidence of the importance of transparency. One-quarter of respondents say they have valued Given the poor availability of information in many countries. particularly as some of the companies WPP invests in are small. “We’re very disciplined in our approach.” he says. Mr Neish believes WPP’s strong brands and long history in the region give it an advantage over its rivals in the valuation and acquisition process.

must justify to the public the sale of valuable assets in readily understandable terms that reflect the physical assets being divested—which often means relying on net asset value. But this causes problems.3 We have internal expertise with in-house valuation models which we use across markets 20. while only 14% use earnings multiples. And only 20% regularly turn to internal staff that use in-house valuation models. “What we find in Asia is that many times. In China. “As long as governments do not recognise that their own approval methods normally do not reflect what sophisticated investors look at. the local companies that are putting themselves up for sale are very focused on what their net asset value is.4 We engage external valuers with local market knowedge to determine values 28. executives rely on a mixed bag of methods. Global marketing and advertising group WPP is among this minority. and in Taiwan.3 © 2007 The Economist Intelligence Unit and EYGM Limited. Nearly 29% of respondents in Hong Kong and 35% in Singapore favour discounted cash flows as a metric. Governments. since using different methods provides a means for potential acquirers to cross-check values—a process that becomes especially important when accurate information is scarce. it is not surprising that nearly one-half of respondents say their approach to valuations varies by country or region. Less than one-third of all respondents say they engage external valuers with local market knowledge to assess value. acquirers use a variety of procedures and methods for valuing assets in Asia I n markets as diverse and distinct as those in Asia. after all.9 Don’t know/Not applicable 2. making it difficult to compare the accuracy of valuations between regions. around one-third of executives say they do not prefer any particular method. In these more mature markets. Although earnings multiples are commonly used in the US and Europe. In the developed markets surveyed. where only 9% of respondents use balance sheet values. in one sense. managing partner of Ernst & Young’s Transaction Advisory Services. it’s going to be hard to change. Only a minority has set approaches or methods. This is not surprising. WPP also appears to be in a minority with regard to the metrics it uses. no single valuation method is significantly more popular than others in Asia.” says Stuart Neish. Balance sheet values are a more common reference in China.” says Bob Partridge. About 37% of respondents with knowledge of valuations in Hong Kong and 42% of respondents with knowledge of valuations in Singapore use earnings multiples based on comparable market transactions or listed companies.3 No considered approach 2. WPP’s regional director for Asia Pacific. “Whether it’s a large or small acquisition. Differences between the methods used in Asia’s developing and developed markets tend to correlate with the availability of information. where 20% of respondents refer to them in making valuations. such as China. 18. one-third of respondents use discounted cash flow. In less developed markets. Interestingly. The lack of consistency overall may reflect the fact that companies and government officials often use net asset value to determine the valuation of a business—not always foreign investors’ favorite approach. perhaps because of the variable quality of information and the need to cross-check. How does your company approach valuations? (% respondents) 10 Our approach varies depending on the country/region 46. All Rights Reserved. we go through the same process. using discounted cash flows is another common approach. Vietnam and Malaysia. This trend is particularly pronounced among respondents from companies with annual revenues below US$500m—which are presumably involved in fewer deals. In certain countries. executives use earnings multiples more than any other method. where one-half of the executives surveyed do. Compare that to Singapore.0 . three of the ten respondents with experience in South Korea use discounted cash flows in deals there. The problem is compounded if state-owned enterprises are not valued as private investors expect.” says Mr Partridge.Guessing game? Valuation Challenges in Asia 2: Methods of valuation • With differing levels of available information.2 27.

0 31. Hong Kong-based vice president in the mergers and acquisitions advisory practice at Deutsche Bank.” And yet.7 Malaysia 15. Ms Wang advises multinationals on investments and acquisitions in China and Chinese companies on investments and acquisitions overseas. however.5 2.8 38.” Generally.3 Earnings multiples based on comparable market transactions or listed companies 20. on reviewing transactions in areas deemed important to national security. China attracted US$78bn worth of foreign direct investment in 2006 and is forecast to attract US$85bn in 2007. Like other governments in the region. in such a rapidly developing market.5 China 40.0 19. What are the common valuation methods that are considered when valuing businesses in these markets? Select the most preferred method only. “They want to do something in China because they know that there is the potential for a huge upside. (% respondents) US$500m or less Over US$500m Discounted free cash flows Balance sheet values Earnings multiples based on comparable market transactions or listed companies No particular method favoured Don’t know/Not applicable Discounted free cash flows Earnings multiples based on comparable market transactions or listed companies No particular method favoured Don’t know/Not applicable Balance sheet values China 27. on the other hand. Ms Wang says.5 12.1 30. “If you’re any better than average.2 34. “It’s never going to be watertight. These issues are most common among private companies.4 No particular method favoured Don’t know/Not applicable 1. Although the Chinese government increasingly considers valuations produced by DCF analysis (and the survey suggests it is now among the most popular metrics across all types of transaction). Results split by annual revenue of respondents’ companies. 11 .” And as Chinese companies invest more abroad. multinationals are aware of these risks and would not be considering a substantial investment in China if they were dissuaded by them.0 40. and that’s already very good. “You just have to deal with the risk.5 Vietnam 12.0 16. Beijing has used net asset value to appraise the value of enterprises that are up for sale to foreign investors. Chinese companies often lack necessary business permits or even contracts for their employees.8 25. Net asset value remains an important consideration in deals in China—not least because officials must remain accountable for maximising the proceeds from the sale of assets that public money has built. for example.6 23.0 62.3 30. even an average company can be expected to increase revenues in line with gross domestic product.) In the middle of these transactions are advisors like Ying Wang. But the market’s allure can be dimmed by the poor quality of local companies’ bookkeeping and the uncertainty of future regulatory arrangements. Because the economy is growing so fast. Multinationals. a relatively open attitude toward most foreign investment.5 20.0 Deutsche Bank: High expectations China is one of the most promising but challenging markets for executives today. they are becoming more aware of the need for different methods of valuation and more transparency. due diligence can be harrowing. and powerful.0 25. (Indeed. although they also occur within state-owned enterprises. Both of these trends should make the negotiation process easier in coming years. a role that involves navigating between different approaches to valuation. China’s extraordinary economic growth plays a large role in valuations there.0 Vietnam 25. With an economy growing at double-digit rates.0 25. All Rights Reserved.” says Ms Wang. old habits die hard.4 Malaysia 7. prefer to use discounted cash flow (DCF) or comparable transactions. Ms Wang says.5 23.9 14. Beijing has been increasing its scrutiny of foreign investments in recent years. insisting.4 © 2007 The Economist Intelligence Unit and EYGM Limited. you should be growing at a higher rate. Ms Wang says.5 25. (% respondents) Discounted free cash flows Balance sheet values China 32. market-leading companies.7 17.Guessing game? Valuation Challenges in Asia What are the common valuation methods that are considered when valuing businesses in these markets? Select the most preferred method only.

where nearly 80% of respondents say they can rely on reported financial data. “A lot of the information that state-owned enterprises have is totally irrelevant” to foreign investors.3 45.0 25.7 80.3 77. local regulatory officials might overlook in a local company but would single out if the business were a joint venture or foreign-owned group.9 49. reported data is often inadequate T he survey results suggest that investors adjust their information-gathering techniques according to local market conditions.5 53.6 55.Guessing game? Valuation Challenges in Asia 3: Information and transparency • In developing markets in the region. and competitive intelligence. (% respondents) China Internal due diligence/investigation Hong Kong Malaysia 77.8 40.0 Reported financial data 79.0 66. While they can access reported financial data in more developed areas.0 66. Respondents give Malaysia even lower marks: only 30% of respondents feel they can rely on market information there. with only 43% of respondents in China and Vietnam saying they could depend on this kind of information.0 42. more than three-quarters (77%) of respondents rely on commercial due diligence and investigations of target businesses. One executive says he looks for hidden liabilities that.2 80.4 65.7 63. he argues. 68% of respondents in Malaysia and nearly three-quarters of those with experience in Vietnam do their homework with investigations. In China. says one executive. All Rights Reserved. where companies often have hidden tax obligations. Confidence in market information in these countries is low. Others use market research.1 71.9 © 2007 The Economist Intelligence Unit and EYGM Limited.9 Authoritative market information 12 42.” says another. Due diligence is particularly important in terms of a company’s tax records in China.1 90.7 71. Companies are doing commercial due diligence in order to compensate for the shortage of reliable information in these markets. he adds. Similarly.7 57. including comparisons to other companies in the region.0 30.0 58. they are forced to rely more on due diligence in the less-developed markets.0 47.0 Data subjected to financial and tax due diligence 55.3 42. Even in these Which type of information do you rely on for valuations in each market? Select all that apply. acquirers must rely on their own investigations to assess value.1 54. Singapore South Korea Taiwan Vietnam . “You’ve got a culture of secrecy in China. It is far easier to get accurate information in places like Hong Kong and Singapore.4 67. as the availability of accurate and reliable information varies.

7 35.3 Taiwan 16.0 4.0 3. compared with 54% in Singapore.9 Hong Kong 46.7 brought in a [local] accounting firm and they’ve pulled together the financials from the last two years.1 South Korea 40.2 31.1 2.3 8. “Often.7 Singapore 19.1 58. Listed and unlisted No executives surveyed trust public information about unlisted companies in China enough to make it the basis of a good valuation. do you consider the information in publicly available financial statements adequate to determine valuations of businesses? (% respondents) China 4.” says one executive.1 69. he says.4 1. That contrasts with the 62% of respondents in Singapore and 65% of respondents in Hong Kong who feel they can make either a “good” or an “acceptable” valuation of an unlisted company based on publicly available statements.7 54. the data doesn’t exist. Some 94% of respondents say the information in public financial statements in China is not sufficient for any reliable valuation of unlisted companies. but there’s not enough depth to it. and Malaysia.7 4.9 7.4 Malaysia 7.1 4.7 Vietnam 15.0 15.7 2.5 South Korea 33.2 16.8 Malaysia 12.5 4. do you consider the information in publicly available financial statements adequate to determine valuations of businesses? (% respondents) Information in publicly available financial statements is sufficient for good valuation Information in publicly available financial statements is sufficient for acceptable valuation Information in publicly available financial statements is not sufficient for any reliable valuation China 2. “They’ve 33.5 markets.8 11.4 Don’t know/Not applicable 7. All Rights Reserved.8 42.3 15.6 40. the © 2007 The Economist Intelligence Unit and EYGM Limited.7 For listed companies in each market.2 15.9 11. 13 . where three-quarters of the executives surveyed say they would not be able to make a reliable valuation based on public financial statements.3 Information in publicly available financial statements is sufficient for good valuation Information in publicly available financial statements is sufficient for acceptable valuation Information in publicly available financial statements is not sufficient for any reliable valuation Don’t know/Not applicable 94.2 33.” Respondents are similarly cynical about Vietnam. where two-thirds do not trust the public figures enough to use them in valuations of unlisted companies.6 42.1 5.3 76.6 8.2 40.9 22.3 12.4 4.3 23. Again.2 1.9 Singapore 45.1 Vietnam 15. Some 71% of respondents also rely on internal due diligence in Hong Kong.3 25.4 34.2 Taiwan 16. the data isn’t sufficient to make a decision.1 58.0 61.Guessing game? Valuation Challenges in Asia For unlisted companies in each market. however.0 20. most companies still do their own investigation. Or. although a minority (4%) say it is sufficient for acceptable valuation.1 66.7 2.5 48.4 Hong Kong 10.

three-quarters of respondents would like to see the application of better accounting standards. particularly in China. One respondent wants companies to bring the skeletons out of their closets by fully disclosing all of their shareholdings. Some executives are concerned about local companies’ practice of keeping several sets of accounts. West LB often acts as an advisor to 14 large multinationals evaluating private. Onethird of respondents would just like companies to comply with existing accounting standards. A large majority of respondents do not depend on publicly available financial information to make reliable valuations of listed companies in China. Only 3% feel comfortable using financial statements to make a good valuation of a listed mainland Chinese company. the easier it is to get information— and the greater the likelihood of an accurate valuation. For Vietnam. . One respondent to the survey felt strongly enough about this matter to mention it in a write-in response to the question that asked which improvements would be most necessary to increase the accuracy of valuations. South Korea. unlisted companies for acquisition in less developed markets in Asia. and only one-fifth thinks such information is sufficient for an acceptable valuation. Nearly one-half of respondents give Hong Kong and Singapore a thumbs up for public disclosure. In Vietnam. says Mr Regan. on companies around the region. © 2007 The Economist Intelligence Unit and EYGM Limited. accounting regulations and stock market rules in these markets should improve the availability of information about public companies. particularly those that have to meet regulatory requirements. telecommunications. despite efforts in various countries to raise standards to internationally acceptable levels. there can be uncertainty about potential changes in government regulations that would affect the future value of a business. but the real decisions are made many layers back. About 86% of respondents are confident they could make either a good or an acceptable valuation based on publicly available financial statements in Singapore. and hospitality sectors. pose unique challenges. who advises clients in the energy. Among the executives surveyed with experience in acquisitions in Vietnam. West LB uses financial information procured from target companies and then draws from its own database. is insufficient. respondents rank better disclosure of risk as their top priority. “It’s really a case of poring through the data and trying to test for reasonableness. faith in that country’s public information is also low: two-thirds would not feel comfortable making a reliable valuation of a listed company using public financial statements. In these cases. it does. but respondents are more circumspect about trusting information about listed companies in these markets: onethird of respondents with valuation experience in South Korea and one-quarter of those with knowledge in Taiwan do not think information in publicly available financial statements is sufficient for any valuation (although reference should be made to the comparatively small sample sizes). In China. South Korea and Taiwan have developed capital markets. Mature markets like Singapore are more transparent. And in some markets. but can be achieved indirectly by measuring certain elements of the assets such as existing cashflows as well as other comparable data. Hong Kong-based managing director of the capital markets practice at West LB. Singapore and Hong Kong. For example. deepened through past transactions. while 70% believe better disclosure of risk is key and 69% would like more reliable or authoritative market information. Transparency is an issue throughout the region. “You have good visibility from the representative organisation that you’re dealing with. Still.” Room for improvement There is clearly room for improvement in the flow of information around the region. uses a rule of thumb when valuing companies in the region: trust but verify. and 89% could do the same in Hong Kong. There are also problems with information in China. like China. relies on a combination of available data and knowledge of the region to assess value. Measuring intangible assets such as intellectual property is a difficult part of the process.Guessing game? Valuation Challenges in Asia more developed the market. infrastructure.” he says. Some nine out of 10 respondents with experience in South Korea believe companies there need to better disclose risk to investors. Some countries. All Rights Reserved. an emerging market still hampered by a West LB: Trust but verify Charles Regan. one telecoms executive says. West LB draws on data about comparable transactions or companies in other Asian countries. Mr Regan. In Malaysia. Mr Regan concedes it is easier to do this in some markets than others. In theory. Yet another feels that documentation of assets.

Similarly. All Rights Reserved.0 33.5 Better disclosure of risk 65. 71% of respondents would benefit from more reliable market data in Vietnam.2 77. four-fifths of the small sample of respondents feel better accounting standards are called for.9 40.6 36.0 50. while just over a quarter (27%) believe Singapore could improve its rules.6 70.3 More reliable or authoritative market information 68. 15 . (% respondents) China Hong Kong Malaysia Singapore South Korea Taiwan Vietnam 74.4 © 2007 The Economist Intelligence Unit and EYGM Limited. A surprisingly high proportion of respondents would like to see better accounting standards in the most mature markets in the survey: one in five respondents believes Hong Kong needs to reinforce this area.0 61.3 20.7 90.0 64.3 50.3 78.Guessing game? Valuation Challenges in Asia lack of good information.0 37. Which of the following improvements is most necessary or would be most helpful to making accurate valuations? Select all that apply.7 50. Even developed Asian markets could raise their game.4 47.0 58.5 Better general accounting standards 26.3 71.

3 43. 15. This overall judgment can weigh heavily on valuation decisions. suggesting there is room for improvement in this process. Between one-half and two-thirds of respondents from companies with revenues of over US$5bn per year use internal analysis to determine country risk. This suggests that multinationals might simply be less comfortable making valuations in Asia than in Europe or the US.1 Taiwan 27. This could reflect that larger multinationals tend to have larger business development teams. Interestingly. What is also striking about these figures is the heavy reliance on internal analysis in the same countries where executives report the most difficulty in establishing valuations.” he says. the largest companies surveyed tend to use internal analysis rather than relying on external models or rankings.1 30.7 Singapore 21. as even somewhere as secure as Hong Kong can fall foul of crises like the SARS virus.Guessing game? Valuation Challenges in Asia 4: Pricing in risk • Country risk is a factor in valuations across Asia.3 30. In Singapore.0 45.9 Malaysia 48. (% respondents) Country risk is a minor factor in valuations Don’t know/Not applicable Country risk is a major factor in valuations Country risk is not a factor in valuations China 62.8 11.2 4.2 16 1.2 10. and a testament to the country’s attractiveness as an investment destination. more than one-half use external models. country risk was perceived to be the highest in China.3 51. nearly two-thirds say country risk is a major factor in the valuation process. All Rights Reserved. according to Bob Partridge at Ernst & Young.3 Hong Kong 17. but it is not putting companies off making deals A key factor in many valuations is the assessment of country risk. In China and Malaysia. This result raises the question: how can companies be certain they are paying the right price for the businesses they buy in these markets? Please assess how country risk affects valuations in the markets concerned. “What we see in general as companies become a lot more experienced at looking at deals in China. How is risk included in valuation appraisals? As with the overall valuation process. there does not appear to be a consistent method.5 33. according to the survey respondents and the experts interviewed for this report. with 62% citing it as a “major factor” in valuations—an interesting contrast to the high volume of deals.2 9. while in Malaysia the figure is just over 40%.8 . However. respondents indicate that country risk plays a role even in stable.5 41.9 © 2007 The Economist Intelligence Unit and EYGM Limited. they become a lot more comfortable in accepting risk—similar to the process in developed markets.0 10. Nearly one-half of respondents consider country risk a major factor in valuations in Malaysia.4 2.5 Vietnam 69.1 18. Yet the perception that country risk is a major factor in valuations doesn’t necessarily indicate lower deal volume.0 40.0 4.0 33. Of those with knowledge or experience of valuations in Vietnam. Of the four markets with the most responses in the survey.1 South Korea 20.0 1. About one-fifth of respondents say country risk is a “major” factor in valuations in these markets—the same proportion as in South Korea. This could be changing. And more than one-half the respondents use internal analysis to determine country risk in Vietnam. developed markets like Hong Kong and Singapore. about one-half of respondents rely on internal analysis. More respondents use external risk models and rankings in Malaysia and Singapore than in China and Hong Kong.1 31.

0 12. how does your company assess country risk in the markets concerned? Results split by annual revenue of respondents’ companies. they are mostly a reflection of local factors: differing methodologies or standards of accounting and government supervision.3 53. “The model can be elegant.0 Hong Kong 25. they bring up country risk.7 17. but if the assumptions are wrong.5 50.0 3.0 46. the executive contends. One international telecommunications executive takes a contrarian view: he blames the multinationals.7 2. He cites as an example the fact that many executives failed to predict the rapid growth in mobile-phone usage in China.0 China 33.7 42. he continues.” In the telecoms sector.” he says.0 14.7 6. they ignore it.5 50. His comments are so critical that he insisted on anonymity. have little contact with the local staff of the multinational.4 12.5 Malaysia 43. companies commonly underestimate the impact of industry growth. There are very few people that understand Asia well enough to successfully work with the inputs of the model.7 Anonymous: Remove the beam in thine own eye… Most executives involved in valuations in Asia contend that while challenges abound. Most multinational companies. rather than to inform their decisions during the valuation process.0 3. They’re young. he contends.” A common problem. “Valuations are put in the hands of MBAs.1 3. because his views would not reflect well on his company. 17 . He also argues that country risk is a factor executives use for tactical advantage. “It’s a fig leaf.0 Singapore 40. is that the people involved in making valuations for an acquisition in Asia are often flown in from elsewhere. the whole thing is wrong. do not understand Asia well enough to accurately assess the value of assets in the region. for example. When they do want it done.” he says. These MBAs create models to appraise assets that completely miss the point. Others overlooked the emergence and influence of low-cost local competitors that have driven down prices for equipment.3 Hong Kong 35.5 6.7 6. All Rights Reserved.9 50. or focus too heavily on models drawn up by people who do not understand the region. he contends. Senior executives from multinationals either disregard valuation models.1 66. (% respondents) Less than US$5bn US$5bn or over We use external risk models/rankings We do not include country risk premiums in our valuations We use internal analysis Don’t know/Not applicable We use external risk models/rankings We do not include country risk premiums in our valuations We use internal analysis Don’t know/Not applicable China 38. “When people don’t want a deal done. preferring to snap up an asset quickly without sufficient consideration.3 7. this executive observes.7 Singapore 58. Better to leave the work to professionals who have been working in Asia for years and understand the industry.0 26.0 6. and they’ve got total confidence. and even less understanding of the region. they’re inexperienced.0 5. © 2007 The Economist Intelligence Unit and EYGM Limited.8 Malaysia 33.Guessing game? Valuation Challenges in Asia When making valuations.

are family owned. “In the telecoms industry. many businesses. In addition. By contrast. of the city’s vaunted rule of law and close protection of intellectual property rights.” he says.” The uncertainty can drive down valuations by making it hard to understand the potential future value in a business.” he says. Interestingly. Mr Barney says. might © 2007 The Economist Intelligence Unit and EYGM Limited. for example. including crucial elements such as noncompete agreements (26%). there are very few markets where the licensing is black and white. patents/know-how (19%) and intellectual property (19%). Transparency is a major issue in acquisitions in the region. Singapore and Indonesia. between one-third and onehalf of respondents reports that they can measure them only informally. Respondents have the most trouble in China. “It’s always shades of grey. and 44% can say the same in Singapore.Guessing game? Valuation Challenges in Asia 5: Measuring intangibles • Intangible assets are particularly hard to measure—and in some cases companies don’t even try A central challenge in the valuation process is appraising intangible assets. A Chinese telecoms group. A telecommunications industry veteran who has been chief executive of Asia Netcom. Similarly. since November 2005. he believes government policy toward target companies can be a crucial factor in determining their value. In almost every category. About one-quarter say they do not even attempt to evaluate non-compete agreements and one-fifth do not bother with copyrights or intellectual property. respondents say that very little can be measured robustly—even factors potentially crucial to the profitability of an enterprise such as intellectual property. “I think standards are getting better everywhere. but the survey suggests companies have less success in putting a value on a wide range of intangible factors in Asia than in developed markets elsewhere. 46% say they are less effective valuing intangible assets in Malaysia than in developed markets. Executives are more satisfied with their attempts to value intangibles in Asia’s developed markets. This is particularly true in the telecoms sector. Mr Barney is confident that the situation is improving. Connect Holdings. Asia Netcom: Watch the government Bill Barney knows a few things about valuing companies in Asia. between one-quarter and one-half of respondents say they can only measure the value of intangibles informally. This is never easy in any transaction. be able to operate without a licence while it remains a purely domestic company. All Rights Reserved. Most recently. Mr Barney has participated in a wave of deals in recent years. but it may attract the attention of regulators once foreign investors take a stake. with 59% of respondents reporting less success placing a value on intangible assets there than in developed markets. perhaps. workforce skills and brands or trademarks. Of the survey respondents. However. appraising the value of intangibles in China is so hard that between one-fifth and one-quarter of respondents say they do not even bother to evaluate several key categories. Hard to measure Which intangibles are hardest to measure? In China. Still. in September 2007. where governmentissued licenses are essential and valuable assets.” 18 Accounting standards and corporate governance can be less stringent than in Western markets. particularly in countries like the Philippines. 20% of respondents have had more success valuing intangible assets in Singapore than in other developed markets—evidence. the split between developing markets and developed is less clear than in other factors relating to valuation. none of the respondents feel they have had more success in Vietnam than in developed markets. Like other executives. “in terms of understanding how these companies function. licences. 52% have been as successful as in other developed markets in valuing intangible assets in Hong Kong. Hong Kong. . he oversaw the acquisition of Pacific Internet by its parent company. For every category of intangible asset. the Hong Kong-based telecoms group. Indeed. underscoring the better flow of information and greater transparency in these areas. In South Korea fully half of the small sample of respondents report less success in valuing intangible assets there than in developed markets elsewhere. and unsurprisingly. Malaysia presents a similar picture.

4 6.3 4.3 5. but can do so neither systematically nor formally.9 43.9 Non-compete agreements 5.8 26. Can be robustly measured Can be measured but not in a systematic way Don’t know/Not applicable (% respondents) Is estimated or appraised only in an informal or qualitative way Workforce capabilities and experience 4.3 37. rate the extent to which in general it can be measured when valuing companies in China.2 10.9 40.9 33. but not systematically.9 © 2007 The Economist Intelligence Unit and EYGM Limited.0 Research and development findings 48.5 47.9 5. In South Korea.4 33. Respondents were even more pessimistic about Vietnam. 1. Nearly 60% of executives say they can make robust measurements of copyrights.8 34.6 1. which 35% of executives say they can only appraise informally or qualitatively.5 Licenses/permits/rights 20.5 Brand/trademark 13.7 Is not measured 1.4 11. For each of the following intangibles.1 32.5 19.9 19 . All Rights Reserved.5 26.4 34.8 18.Guessing game? Valuation Challenges in Asia Measuring the value of intangibles is much easier in Hong Kong.8 Patents/know-how 6.4 11.0 29.5 17. where between one-third and one-half of respondents say robust measurement is possible in nearly every category—except for non-compete agreements.8 4.0 26. And as expected.6 7. respondents have the most confidence in valuing intangibles in Singapore. respondents say they can measure intangibles.6 27. Taiwan presents a similar challenge: respondents can measure the value of most assets.8 24.3 1.5 2.4 31.4 Copyrights/intellectual property 8. patents and intellectual property.8 42.4 44.1 Existing agreements made on favourable terms 14. where a majority can only measure intangibles in many categories informally.7 41.9 23.0 Customer relationship/list 11.8 40.4 1.8 Software 7.6 1.

7 57. the more important tangible assets become. this ratio falls to one-half.6 50.7 Human capital 39.4 5. where 46% and 44% respectively think tangible assets represent at least one-half of the value of a business. patents and brands the most valuable components of an acquisition target. rate its importance in general with regard to the overall valuation of companies in Malaysia. Only 40% of respondents with experience in Malaysia consider human capital a very important component of a valuation. 13. Human capital.1 46. Very important (% respondents) Neither important nor unimportant Don’t know/Not applicable Not important Tangible assets 74.1 Non-compete agreements 23.1 18. In China. human capital was very important to two-thirds of respondents. and licences are similarly important (a result which could reflect the fact that many of the respondents were in the financial-services and professionalservices industries).2 21. however.9 18.2 52.9 2.4 15. In Singapore.1 . and continues to fall in Singapore and Hong Kong. ranks fifth in the hierarchy of importance. In Malaysia.3 Existing agreements made on favourable terms 44.1 Copyrights/intellectual property 39. customer relationships and licences the most important factors when valuing companies—a logical conclusion given the government’s emphasis on net asset value and the complex and fluid regulatory issues involved.9 61.5 © 2007 The Economist Intelligence Unit and EYGM Limited.6 Patents/know-how 39. after tangible assets. while brands and intellectual property play a smaller role.2 7. perhaps reflecting the high regard given its industrious and capable workforce. is fairly far down the list of factors weighed up in considering a company’s value. For each of the following components. there is considerable discrepancy in which parts of a company are typically valued most highly.7 20 5. Behind this.5 47.6 35. customer relationships and licences take priority over intellectual property and human capital A cross the region. tangible assets are the most important factor in valuations.2 Licenses/permits/rights 51.1 Research and development findings 2. however.7 25. In Taiwan.5 Software 17. on par with patents and copyrights.0 Brand/trademark 42. followed by patents and brands. Human capital. This could well reflect the high quality of the talent pool in Singapore. In China. however. But in Vietnam.4 36. In Malaysia.4 Customer relationship/list 62. only one-third of respondents think human capital is very important. human capital finishes second in importance after tangible assets. The survey results suggest that the less developed the market.Guessing game? Valuation Challenges in Asia 6: Where the value lies • Where the highest value is perceived depends on the type of market: in developing markets.5 42. In Hong Kong. 63% of respondents think tangible assets account for at least one-half of the value of the business. All Rights Reserved.4 13. respondents consider tangible assets.8 42.3 44. respondents consider copyrights. Customer relationships came in second in importance in Vietnam to tangible assets. customer relationships are most important after tangible assets. it seems. Again there is a broad correlation with the type of market: tangible assets and customer lists are prioritised in developing markets.

2 13. A similar proportion agree in China and Hong Kong. human capital is generally not highly valued in Asia—an intriguing insight into the attitude of acquirers in the region.6 10-29% 29. a slight majority think intangible assets are worth more than 30% of the value of the business. a majority in each believe intangible assets are worth less than 30% of the business. two-thirds of respondents say human capital is worth less 4 than 30% of the business.6 16. In your experience. Singapore and Malaysia.8 18.3 Human capital 6.8 In your experience.1 4.1 1.3 5.0 26. rate its importance in general with regard to the overall valuation of companies in Vietnam.6 7.2 50-69% 30-49% 70% or over 22.2 1.7 36.4 Don’t know/Not applicable 21.6 10-29% 50-69% 30-49% 70% or over 29.8 All intangible assets 12.6 9. The survey responses suggest that.2 42.7 7. The figure rises to 32% in Singapore and 36% in Malaysia.4 5. Goodwill and synergies are apparently not important in most markets.Guessing game? Valuation Challenges in Asia For each of the following components.8 8.1 10. on average.7 24. Neither important nor unimportant Very important (number of respondents) Not important Tangible assets 10 Customer relationship/list 2 9 1 4 Human capital 8 5 Existing agreements made on favourable terms 8 4 1 Licenses/permits/rights 8 3 2 Brand/trademark 6 4 Patents/know-how 6 2 4 3 Copyrights/intellectual property 4 5 4 Non-compete agreements 4 6 3 Software 4 4 5 Research and development findings 3 6 The picture is more varied on intangible assets. But in China.4 4. All Rights Reserved.7 13.2 13. how much of the value of a typical business in China do the following components represent? (% respondents) Less than 10% All tangible assets 1.5 17.9 40.4 1.9 42. where 40% of respondents say human capital is worth more than 50% of the value of a business. 9.5 27.2 Don’t know/Not applicable 16.2 39. In Malaysia.3 1.1 21 .4 All intangible assets 23. Only about one-quarter of respondents believe these components represent more than 30% of the value of a business in China and Hong Kong.1 27.0 Human capital 26.6 © 2007 The Economist Intelligence Unit and EYGM Limited.0 10. how much of the value of a typical business in Singapore do the following components represent? (% respondents) Less than 10% All tangible assets 6.4 10.4 9. In Hong Kong.1 7. The exception is Singapore.2 Goodwill or synegies 30.1 Goodwill or synegies 19.5 36.7 3.

Companies that do have standardised approaches should ensure that they are applicable for particular markets and do not fall into the trap of using inappropriate models for valuing potential targets. to get the job done. the rule of law and corporate governance. but they are equally likely to be affected by a lack of information and country risk. Gaps in information and methodology have a profound effect on the valuation process. and companies looking to make acquisitions in China. In general the process is likely to get easier. and finally gaps between what a buyer is prepared to pay for an enterprise and what it ends up being worth. All Rights Reserved. without thorough commercial due diligence they may not recognise potential pitfalls and liabilities that could turn an initially attractive acquisition into a millstone. © 2007 The Economist Intelligence Unit and EYGM Limited. Some markets are farther along in the process of addressing these problems than others. Equally. valuations tend to be higher in China than elsewhere—reflecting the premium many multinationals are willing to pay for exposure to its high growth level. On average. Mixing methods gives an acquirer the potential means to double-check reasonable values. and the gaps— already marginal for some things—are likely to get narrower.Guessing game? Valuation Challenges in Asia Conclusions T he story of valuations in Asia is a story of gaps—gaps between countries in levels of regulatory oversight and transparency. When targeting a company in a developing market potential acquirers should also be aware of the much greater difficulty of valuing intangible assets. meaning potential acquirers may not be aware of genuine opportunities. Their search will continue to push governments and companies in the region to improve transparency. 22 Even for listed companies in developing markets publicly available information is often insufficient to make a reasonable valuation. . In Malaysia and Vietnam valuations may be lower. lowering valuations where uncertainty is too great and raising them where the promise of growth is too tempting for investors to pass up. Executives are less comfortable about their valuation accuracy in these markets as a result. local trends in developing countries still compel many investors to use net asset value—no longer commonly used in the US and Europe— as the key metric for valuations. Vietnam and (to a lesser extent) Malaysia should be aware of the potential pitfalls. and the hidden value that may reside in intellectual property and human capital. As the volume of mergers and acquisitions in the region continues to rise. despite efforts to close this gap. This split is most obvious between Asia’s developed and developing economies. These gaps continue to pose challenges for even the savviest investors. (See the chart on page 23 for a summary of the key survey findings between Asia's developed and developing economies. advisors and executives say their access to good information is gradually improving. Many of the issues in the valuation process are matters of government policy. gaps between governments and multinationals in terms of valuation methodology. many companies are not yet taking a systematic approach to valuation in the region and are instead relying on a blend of techniques and resources. There is no quick fix. making the process of appraising accurate values easier. Information gaps can prolong the time it takes to complete deals. as the latter are still a distance from international standards of accounting and transparency.) Because of the variation in levels of transparency. Differing sources of data make cross-checks with developed markets more taxing: for example. but means the process takes longer and is difficult to standardise internally. as investors have to work harder to get accurate data. both internal and external.

 23 .Guessing game? Valuation Challenges in Asia Survey summary: Developed vs developing markets in Asia (% respondents) Average Hong Kong Singapore Developing Taiwan South Korea China Malaysia Developed Developing Developed Developing 100 100 100 100 80 80 80 80 60 60 60 60 40 40 40 40 20 20 20 20 0 0 Companies have determined reasonable values for businesses “very well” or “well” 0 (Q5) Developing Developed Developing 100 100 100 100 80 80 80 80 60 60 60 60 40 40 40 40 20 20 20 20 0 Valuations are more likely to be affected by a (Q3) lack of information than elsewhere 0 0 Usage of earnings multiples for valuations Developed Developing Developed Developing 100 100 100 100 80 80 80 80 60 60 60 60 40 40 40 40 20 20 20 20 0 0 Better general accounting standards are necessary 0 0 Better disclosure of risk is necessary (Q9) Developed Developing Developed Developing 100 100 100 100 80 80 80 80 60 60 60 60 40 40 40 40 20 20 20 20 0 0 Less success in valuing intangible assets than elsewhere (Q12) 0 Vietnam 0 Valuations are higher than elsewhere Developed 0 Developed 0 Human capital 30% or more of typical business value (Q2) (Q6) (Q9) (Q15) © 2007 The Economist Intelligence Unit and EYGM Limited. All Rights Reserved.

Guessing game? Valuation Challenges in Asia Who took the survey? The survey sought opinions from 140 senior executives with experience valuing companies for corporate transactions or financial reporting purposes in any of seven Asian markets. Respondents’ company headquarters are spread across the world. The respondents are based across the Asia-Pacific region. including five of the top six in terms of aggregate M&A deal value so far this year (China. while 13% are heads of their business units. Respondents’ companies vary in size. The survey was designed to capture responses from people knowledgeable about the countries specified. with 45% having annual global revenues of over US$1bn and 15% having revenues over US$10bn. Respondents come from a variety of industry sectors. and healthcare the best-represented sectors. together accounting for 72% of respondents. Malaysia and Singapore) as well as Taiwan and Vietnam. . © 2007 The Economist Intelligence Unit and EYGM Limited. South Korea. manufacturing. All Rights Reserved. Hong Kong. IT and technology. The respondents are all senior decision-makers within their companies: 26% are CEOs or managing directors and 17% hold other C-level titles. Some 20% are either heads of departments or senior vice-president/vice-presidents/directors. Hong Kong and 24 China. not necessarily from people located in these countries—in recognition of the fact that senior executives move frequently and people based at multinational companies’ headquarters in one place may have responsibility for other countries. with just under half based in Singapore. with financial and professional services. with just under a quarter from Hong Kong and Singapore and many from the US and western Europe.

South Korea 10 respondents.1 Valuations are the same as in developed markets Don’t know/Not applicable 90. South Korea 9 respondents.1 South Korea 30.1 25.3 66.2 15.3 55. Hong Kong.0 66.0 8.2 Malaysia 15.7 Vietnam 36.1 4. (% respondents) Valuations are higher than in developed markets Valuations are lower than in developed markets Valuations are the same as in developed markets Don’t know/Not applicable China 64. Singapore 66 respondents.4 Malaysia 21.4 23. All Rights Reserved. Malaysia 39 respondents.8 63. Hong Kong 44 respondents. Malaysia 38 respondents. Vietnam 12 respondents 2. 25 .6 4.2 4.7 Vietnam 25.2 11. Some respondents answered about multiple countries.2 13.1 10. Taiwan and Vietnam). South Korea.1 40. Taiwan 12 respondents.4 Hong Kong 22. Percentage totals may not sum to 100 due to rounding. Malaysia.0 28.3 Taiwan 8.4 3.1 8.5 Base: China 70 respondents. Taiwan 12 respondents.5 68.0 15.Guessing game? Valuation Challenges in Asia Appendix: Survey results Note: Respondents were first asked whether they had knowledge or experience of valuing companies for corporate transactions or financial reporting purposes in any of seven markets in Asia (China.6 11. (% respondents) Valuations are easier than in developed markets Valuations are harder than in developed markets China 7.6 15. Their responses for the survey were then restricted to those countries about which they indicated they had knowledge or experience. Hong Kong 44 respondents.4 61.9 Hong Kong 18.3 54.0 33.1 Singapore 18. 1. Singapore.2 Taiwan 41.1 8.2 15.6 11. How difficult are valuations in the following markets compared to valuations of similar businesses in developed markets? Select only the statement you consider to be true for the markets about which you have experience or knowledge.7 20. Singapore 65 respondents.7 Base: China 70 respondents.1 South Korea 33.2 61.7 60.1 Singapore 18. Vietnam 11 respondents © 2007 The Economist Intelligence Unit and EYGM Limited.2 4.2 10.0 16.0 2.3 9.4 20.5 59.4 5.5 2. Which of the following statements are closest to your experience in determining reasonable values for businesses in the following markets compared to valuations of similar businesses in developed markets? Select only the statement you consider to be true for the markets about which you have experience or knowledge.3 1.

How does your company approach valuations? Our approach varies depending on the country/region 46.0 Very well 14.0 5.3 25. how well has your company determined reasonable values for businesses in the following markets.3 8.3 50.0 Acceptably Poorly Very poorly Don’t know/Not applicable 18.0 25.3 64.6 46.0 Singapore 22.7 30.3 We have internal expertise with in-house valuation models which we use across markets 20.0 58. Singapore 67 respondents.0 20. Vietnam 14 respondents 4.9 South Korea 50. In your experience.0 33. Singapore 66 respondents.0 37.8 27.0 8.3 52. 18.7 8.0 35.8 in the economy than in developed markets 60.3 65.Appendix: Survey results Guessing game? Valuation Challenges in Asia 3.2 5.5 Valuations are more likely to be affected by demand 52.3 10.2 for investment than in developed markets 20.7 55.5 2.7 28. South Korea 10 respondents. Taiwan 12 respondents.0 12.3 33.3 36.9 Hong Kong 26. (% respondents) Hong Kong China Malaysia Singapore South Korea Taiwan Vietnam 70.5 information than in developed markets 10.7 38.3 Base: China 70 respondents.2 Base: 138 respondents 27.3 No considered approach 2.6 4.3 5.3 Base: China 70 respondents.3 8.7 Don’t know/Not applicable 8.0 Taiwan 16.0 40.0 3.3 .4 We engage external valuers with local market knowedge to determine values 28.3 35.0 3. Hong Kong 49 respondents.0 8.7 4.7 Vietnam 8.5 3.9 Don’t know/Not applicable 2.0 33.0 compared to valuations of similar businesses in developed markets? (% respondents) China 5.0 33.4 50.3 36. South Korea 10 respondents.0 8.2 Valuations are more likely to be affected by a lack of 47.5 Malaysia 5. Malaysia 40 respondents. Malaysia 40 respondents. Taiwan 12 respondents. Vietnam 12 respondents 26 © 2007 The Economist Intelligence Unit and EYGM Limited. Which of the following statements are closest to your experience in determining reasonable values for businesses in each market compared to valuations of similar businesses in developed markets? Select all that apply. All Rights Reserved. Hong Kong 49 respondents.5 Valuations are more sensitive to growth expectations 47.3 Well 7. 2.9 52.

Which type of information do you rely on for valuations in each market? Select all that apply.0 15.3 38.0 Singapore 34.Appendix: Survey results Guesing game? Valuation Challenges in Asia 6. (% respondents) Discounted free cash flows Balance sheet values China 32.0 47.1 20.7 63.9 Authoritative market information 42.0 Reported financial data 79.0 58.2 80.8 40.4 35.3 16.7 23.4 30.5 53.4 South Korea 30.7 Malaysia 12. Taiwan 12 respondents.1 3.0 66.0 16.3 42.0 42.7 80.3 7.5 42. 27 .1 90. Singapore 67 respondents.0 8.0 9.5 No particular method favoured Don’t know/Not applicable 1.3 77. Vietnam 14 respondents © 2007 The Economist Intelligence Unit and EYGM Limited.7 71. Hong Kong 49 respondents.0 Taiwan 8. All Rights Reserved. Singapore 66 respondents. South Korea 10 respondents.4 65. What are the common valuation methods that are considered when valuing businesses in these markets? Select the most preferred method only.2 20. Hong Kong 49 respondents. Malaysia 40 respondents.1 Other 3.6 Earnings multiples based on comparable market transactions or listed companies 20.6 55.4 10.0 31. Taiwan 12 respondents. Malaysia 40 respondents.1 6. South Korea 10 respondents.0 Data subjected to financial and tax due diligence 55.7 Vietnam 15. (% respondents) China Internal due diligence/investigation Hong Kong Malaysia Singapore South Korea Taiwan Vietnam 77.0 50.0 20.0 12.3 Hong Kong 28.6 8.1 71. Vietnam 13 respondents 7.1 54.0 66.3 45.5 7.8 32.0 30.7 Base: China 70 respondents.7 57.1 Base: China 70 respondents.9 49.4 36.4 67.9 7.1 Don’t know/Not applicable 7.9 14.0 25.4 22.

7 Don’t know/Not applicable © 2007 The Economist Intelligence Unit and EYGM Limited.1 2. Malaysia 39 respondents.5 South Korea 33.5 48. Hong Kong 47 respondents.8 42.1 58.1 South Korea 40. Singapore 66 respondents.5 Base: China 68 respondents. For unlisted companies in each market.2 31.1 5.3 15.3 23.9 22.3 Vietnam 15.9 Hong Kong 46.4 34.4 4.7 Base: China 69 respondents.1 66. do you consider the information in publicly available financial statements adequate to determine valuations of businesses? (% respondents) Information in publicly available financial statements is sufficient for good valuation Information in publicly available financial statements is sufficient for acceptable valuation Information in publicly available financial statements is not sufficient for any reliable valuation China 2.1 58. Malaysia 39 respondents.0 3.7 35. Hong Kong 48 respondents.3 Information in publicly available financial statements is sufficient for good valuation Information in publicly available financial statements is sufficient for acceptable valuation Information in publicly available financial statements is not sufficient for any reliable valuation Don’t know/Not applicable 94.3 15. Singapore 66 respondents. do you consider the information in publicly available financial statements adequate to determine valuations of businesses? (% respondents) China 4.1 Taiwan 16.5 4. 7.4 Hong Kong 10.2 1.6 40.7 .1 33.8 11.2 40. Taiwan 12 respondents.4 Malaysia 7. All Rights Reserved.9 11.7 54.7 Singapore 19. Vietnam 13 respondents 28 1.2 33.0 15.7 4.9 Singapore 45.3 8. For listed companies in each market.0 61. Taiwan 12 respondents.6 8.6 42.3 25. Vietnam 13 respondents 8b.2 4. South Korea 10 respondents.1 69.0 20.3 76. South Korea 9 respondents.2 Taiwan 16.4 12.8 Malaysia 12.4 2.9 7.7 2.7 Vietnam 15.Appendix: Survey results Guessing game? Valuation Challenges in Asia 8a.0 4.2 16.

2 9. (% respondents) China Hong Kong Malaysia Singapore South Korea Taiwan Vietnam 74.Appendix: Survey results Guesing game? Valuation Challenges in Asia 9. 29 .2 4.3 20.0 64.0 Don’t know/Not applicable Base: China 70 respondents.0 37. Malaysia 39 respondents.9 Malaysia 48.7 50.2 Vietnam 69.3 Other.7 Singapore 21. Singapore 67 respondents.3 2.1 14. South Korea 10 respondents.8 Base: China 69 respondents.3 50.9 40.4 2.0 10.1 31. please specify 7. Which of the following improvements is most necessary or would be most helpful to making accurate valuations in each market? Select all that apply.9 30.0 33. Please assess how country risk affects valuations in the markets concerned.4 More reliable or authoritative market information 4.8 11.4 47. Hong Kong 49 respondents.5 Better general accounting standards 26.7 90.1 Taiwan 27.5 15.2 10. Taiwan 11 respondents.0 58.5 33.5 Better disclosure of risk 65. Malaysia 40 respondents.6 70.3 71.0 50. Singapore 65 respondents.0 61. Hong Kong 47 respondents.3 51.6 36.0 33.5 9.3 Hong Kong 17.3 1.3 68.1 30.0 40.2 77. South Korea 10 respondents. All Rights Reserved.0 1.3 78. (% respondents) Country risk is a minor factor in valuations Don’t know/Not applicable Country risk is a major factor in valuations Country risk is not a factor in valuations China 62.0 45.1 South Korea 20.5 41. Vietnam 13 respondents © 2007 The Economist Intelligence Unit and EYGM Limited. Vietnam 14 respondents 10.1 18.3 43. Taiwan 12 respondents.0 4.

Taiwan 12 respondents.6 16.8 25.8 53.7 We use internal analysis Don’t know/Not applicable 50. Malaysia 39 respondents.0 15.7 6.0 50.7 Hong Kong 33.0 20.6 Base: China 69 respondents.4 2.1 41. how does your company assess country risk in the markets concerned? (% respondents) We use external risk models/rankings We do not include country risk premiums in our valuations China 37.9 52.3 11.2 20.3 3.3 Singapore 19.7 43.9 South Korea 10.1 4.1 30.1 Malaysia 12.2 7.4 We have had the same success in valuing intangible assets Don’t know/Not applicable 59.1 30. South Korea 10 respondents.3 11.7 84. compared with developed markets? (% respondents) China 7. All Rights Reserved.7 14.Appendix: Survey results Guessing game? Valuation Challenges in Asia 11.3 7.7 7. When making valuations. Singapore 66 respondents.7 .2 4. Hong Kong 48 respondents. Vietnam 13 respondents 12.1 South Korea 10.6 2.7 7.3 Singapore 55.0 15.6 29.2 4.2 Hong Kong 8.3 We have had more success in valuing intangible assets We have had less success in valuing intangible assets 17.7 Vietnam 7.3 51.2 43. Singapore 65 respondents. 50.6 46.3 Vietnam 30. Has your company been more or less successful in placing values on intangible assets in these Asian economies.7 6. Malaysia 39 respondents.0 33.8 7.7 4.1 50.0 16. Hong Kong 48 respondents.0 33.4 15.2 12.0 4. Vietnam 13 respondents 30 © 2007 The Economist Intelligence Unit and EYGM Limited. Taiwan 12 respondents.2 Taiwan 16.0 10.0 Taiwan 41.8 Malaysia 43. South Korea 10 respondents.7 Base: China 69 respondents.

9 27.4 Copyrights/intellectual property 8.1 4.8 33.1 4.4 33.5 26.9 43.3 Non-compete agreements 25.4 Licenses/permits/rights 51.9 23.8 42.6 1.9 5.9 37.7 41.1 6.1 Existing agreements made on favourable terms 35.1 2.5 2.4 1.4 27.5 2.3 43.9 33.1 32.9 Base: 69 respondents 13b.3 19.9 Patents/know-how 42.1 35.3 2.1 2.2 33. rate the extent to which in general it can be measured when valuing companies Can be robustly measured Can be measured but not in a systematic way in Hong Kong.4 36.2 10.4 1.1 2.2 6.0 Research and development findings 48. 31 .6 1.4 19.8 Software 7.4 5.5 Licenses/permits/rights 20.4 31.1 Existing agreements made on favourable terms 14.0 40.6 6.3 1.1 27.5 19.3 31.8 4.4 1.5 17.1 2.1 38. For each of the following intangibles.8 Software 19.7 Is not measured 44.8 34.8 Patents/know-how 6. For each of the following intangibles.0 4.8 18.8 40.4 11. rate the extent to which in general it can be measured when valuing companies in China.0 4.1 2.3 22.1 6.1 2.1 51.9 Non-compete agreements 5. All Rights Reserved.9 24.1 25.3 14.8 Customer relationship/list Is not measured 19.3 Brand/trademark 40.1 2.5 Copyrights/intellectual property 45.3 Base: 48 respondents © 2007 The Economist Intelligence Unit and EYGM Limited.8 11.4 10. Don’t know/Not applicable (% respondents) Is estimated or appraised only in an informal or qualitative way Workforce capabilities and experience 38.6 26.4 37.Appendix: Survey results Guesing game? Valuation Challenges in Asia 13a.5 Brand/trademark 13.3 47. Can be robustly measured Can be measured but not in a systematic way Don’t know/Not applicable (% respondents) Is estimated or appraised only in an informal or qualitative way Workforce capabilities and experience 4.3 34.1 4.6 20.9 33.3 27.4 2.0 Customer relationship/list 11.1 14.5 26.8 29.3 7.6 Research and development findings 23.

6 5.8 15.8 Is not measured 52.1 7.3 43.7 50.8 42.1 4.1 Licenses/permits/rights 52.6 42.2 36.2 26.4 Existing agreements made on favourable terms 15. rate the extent to which in general it can be measured when valuing companies Can be robustly measured Can be measured but not in a systematic way in Singapore. (% respondents) Is estimated or appraised only in an informal or qualitative way Workforce capabilities and experience 10.2 51.6 Is not measured 35.3 Non-compete agreements 40.6 Base: 65 respondents 32 12.4 Non-compete agreements 10.0 27.6 29.9 Patents/know-how 58.6 Patents/know-how 10.0 18.1 © 2007 The Economist Intelligence Unit and EYGM Limited.5 Research and development findings 26.6 3.1 13.1 39.0 16.2 3.1 14.6 Base: 38 respondents 13d.1 13.1 3.6 3.8 5.8 31.3 50.6 Software 44.4 3.8 Research and development findings 7. For each of the following intangibles.6 3.4 16.5 31.0 12.3 26.5 1.0 18.9 3.6 3.3 15.1 Customer relationship/list 36.9 24.8 37. rate the extent to which in general it can be measured when valuing companies Can be robustly measured Can be measured but not in a systematic way Don’t know/Not applicable in Malaysia.3 40.6 25.4 2.9 Copyrights/intellectual property 13.4 34.3 31.5 Software 15.5 Brand/trademark 10.2 36.5 18.Appendix: Survey results Guessing game? Valuation Challenges in Asia 13c. For each of the following intangibles. Don’t know/Not applicable (% respondents) Is estimated or appraised only in an informal or qualitative way Workforce capabilities and experience 44.5 Customer relationship/list 18.1 .1 3.8 Brand/trademark 48. 16.7 24.5 1.9 40.8 5.5 34.8 Licenses/permits/rights 18.5 3. All Rights Reserved.0 5.2 36.9 40.5 21.5 3.1 Existing agreements made on favourable terms 36.9 39.4 2.0 27.7 18.3 Copyrights/intellectual property 57.1 13.

rate the extent to which in general it can be measured when valuing companies Can be robustly measured Can be measured but not in a systematic way in South Korea. Can be robustly measured Can be measured but not in a systematic way Don’t know/Not applicable (number of respondents) Is estimated or appraised only in an informal or qualitative way Workforce capabilities and experience 1 7 Patents/know-how 1 8 Research and development findings 2 Is not measured 3 1 3 5 5 Copyrights/intellectual property 10 2 Brand/trademark 1 5 Customer relationship/list 1 3 Existing agreements made on favourable terms 2 Licenses/permits/rights 8 Non-compete agreements 1 Software 3 6 6 5 2 2 4 5 6 1 3 1 2 2 1 © 2007 The Economist Intelligence Unit and EYGM Limited. All Rights Reserved. For each of the following intangibles.Appendix: Survey results Guesing game? Valuation Challenges in Asia 13e. Don’t know/Not applicable (number of respondents) Is estimated or appraised only in an informal or qualitative way Workforce capabilities and experience 2 5 2 Patents/know-how 3 Research and development findings Is not measured 1 6 2 1 6 2 Copyrights/intellectual property 3 6 1 Brand/trademark 2 7 1 Customer relationship/list 2 6 2 Existing agreements made on favourable terms 2 4 4 Licenses/permits/rights 3 5 Non-compete agreements 1 2 4 5 Software 7 3 13f. For each of the following intangibles. 2 33 . rate the extent to which in general it can be measured when valuing companies in Taiwan.

4 20. 1.8 Existing agreements made on favourable terms 55.9 .2 Research and development findings 7.4 32.8 Customer relationship/list 73.6 2. For each of the following intangibles. (number of respondents) Is estimated or appraised only in an informal or qualitative way Workforce capabilities and experience 1 11 1 Patents/know-how 3 Research and development findings 6 2 Copyrights/intellectual property 1 1 3 1 Existing agreements made on favourable terms 5 Licenses/permits/rights 2 1 9 1 1 9 1 1 Brand/trademark 4 Customer relationship/list Is not measured 7 1 2 9 2 7 1 4 Non-compete agreements 1 2 Software 1 3 5 2 7 3 6 3 14a. rate its importance in general with regard to the overall valuation of companies in China.4 54.1 2.5 20.3 57.4 1.8 40.9 Licenses/permits/rights 72. Very important (% respondents) Neither important nor unimportant Don’t know/Not applicable Not important Tangible assets 79.9 21.8 10.2 4.4 Non-compete agreements 27.2 2. For each of the following components.4 Patents/know-how 40.2 29.4 Base: 69 respondents © 2007 The Economist Intelligence Unit and EYGM Limited.5 23.6 5.4 Brand/trademark 58.Appendix: Survey results Guessing game? Valuation Challenges in Asia 13g.7 1.1 46.4 49. All Rights Reserved.4 17.4 29.6 Copyrights/intellectual property 36.5 Software 19.9 47.3 Human capital 63. rate the extent to which in general it can be measured when valuing companies Can be robustly measured Can be measured but not in a systematic way Don’t know/Not applicable in Vietnam.6 34 1.4 13.7 18.1 8.

4 13.4 Customer relationship/list 62.2 21.1 Copyrights/intellectual property 39.1 46.6 50.3 44.3 2.2 7.7 57.1 Non-compete agreements 23.6 23.2 18.1 Base: 39 respondents © 2007 The Economist Intelligence Unit and EYGM Limited.5 4.3 6.1 50.0 16.8 2.8 2.6 6.1 Customer relationship/list 54.1 Base: 48 respondents 14c.0 47.5 47. rate its importance in general with regard to the overall valuation of companies in Hong Kong.3 37.5 31.1 Research and development findings 50.2 39.6 Patents/know-how 39.0 8.1 Research and development findings 2.5 13.7 25. rate its importance in general with regard to the overall valuation of companies in Malaysia.7 Human capital 39. Very important (% respondents) Neither important nor unimportant Don’t know/Not applicable Not important Tangible assets 74.2 43.7 25.0 Brand/trademark 42.7 Software 17.4 36.3 Licenses/permits/rights 62.9 Non-compete agreements 33.3 Human capital 56.3 Existing agreements made on favourable terms 44.2 Licenses/permits/rights 51. All Rights Reserved.4 5.6 35.1 18.1 Brand/trademark 66. For each of the following components.2 5.7 54.7 31. For each of the following components. 35 .2 2.8 27.9 2.1 2.3 2.4 15.5 52.8 42.3 Existing agreements made on favourable terms 54.5 42. Very important (% respondents) Neither important nor unimportant Don’t know/Not applicable Not important Tangible assets 76.4 Copyrights/intellectual property 70.9 18.0 Software 25.1 Patents/know-how 66.Appendix: Survey results Guesing game? Valuation Challenges in Asia 14b.9 61.

8 18.5 27.2 Human capital 71.5 43.6 1.3 Brand/trademark 66.8 Copyrights/intellectual property 65. Very important (number of respondents) Neither important nor unimportant Don’t know/Not applicable Not important Tangible assets 8 2 Patents/know-how 6 4 Copyrights/intellectual property 6 4 Customer relationship/list 6 4 Research and development findings 5 5 Brand/trademark 5 5 5 5 Licenses/permits/rights Human capital 4 Existing agreements made on favourable terms 4 6 Non-compete agreements 4 5 Software 3 36 6 6 © 2007 The Economist Intelligence Unit and EYGM Limited.6 1.5 Non-compete agreements 45.9 Software 36. rate its importance in general with regard to the overall valuation of companies in Singapore.5 1.5 9.1 Base: 66 respondents 14e.8 Licenses/permits/rights 57.3 Patents/know-how 68.0 30.5 9.0 33. rate its importance in general with regard to the overall valuation of companies in South Korea. 1 1 .9 1.5 4. All Rights Reserved.6 31.5 1.5 33.8 1.5 1.2 1. Very important (% respondents) Neither important nor unimportant Don’t know/Not applicable Not important Tangible assets 78.2 3.2 1.5 4. For each of the following components.Appendix: Survey results Guessing game? Valuation Challenges in Asia 14d.1 50.5 4.2 3. For each of the following components.8 Research and development findings 60.5 6.4 41.5 27.3 1.6 Existing agreements made on favourable terms 52.5 1.1 36.2 1.3 Customer relationship/list 60.

Very important (number of respondents) Neither important nor unimportant Don’t know/Not applicable Not important Tangible assets 8 3 6 4 Copyrights/intellectual property 6 6 Brand/trademark 6 6 Non-compete agreements 6 3 Research and development findings Patents/know-how 5 1 5 5 Licenses/permits/rights 5 7 Software 5 3 Human capital 4 1 2 4 7 4 1 3 6 Existing agreements made on favourable terms Customer relationship/list 1 1 6 2 14g.Appendix: Survey results Guesing game? Valuation Challenges in Asia 14f. All Rights Reserved. rate its importance in general with regard to the overall valuation of companies in Taiwan. For each of the following components. rate its importance in general with regard to the overall valuation of companies in Vietnam. For each of the following components. 4 37 . Neither important nor unimportant Don’t know/Not applicable Very important Not important (number of respondents) Tangible assets 10 Customer relationship/list 2 9 1 4 Human capital 8 5 Existing agreements made on favourable terms 8 4 1 Licenses/permits/rights 8 3 2 Brand/trademark 6 4 Patents/know-how 6 3 Copyrights/intellectual property 4 5 4 Non-compete agreements 4 6 3 Software 4 4 5 Research and development findings 4 2 3 6 © 2007 The Economist Intelligence Unit and EYGM Limited.

6 16.3 70% or over Don’t know/Not applicable 36.7 36.3 7.8 14.4 12.8 5.7 3. In your experience. how much of the value of a typical business in Malaysia do the following components represent? (% respondents) Less than 10% All tangible assets 5.9 Goodwill or synegies 22.8 All intangible assets 12.3 7.7 15.5 21.3 56.2 Don’t know/Not applicable 16.5 25.2 25. 9.2 6.2 42.3 All intangible assets 4.9 10. All Rights Reserved.4 18.8 4.1 7.1 27.6 9.0 10. how much of the value of a typical business in Hong Kong do the following components represent? (% respondents) Less than 10% All tangible assets 6.1 Goodwill or synegies 19.4 1.4 10-29% 50-69% 30-49% 26.7 24.5 17.2 1.1 10.Appendix: Survey results Guessing game? Valuation Challenges in Asia 15a.3 Base: 69 respondents 15b. how much of the value of a typical business in Singapore do the following components represent? (% respondents) Less than 10% All tangible assets 6.9 36.3 6.9 15. In your experience.3 43.9 42.3 Base: 48 respondents 15c.7 13.6 10-29% 50-69% 30-49% 29.8 22.8 7.2 Base: 66 respondents 38 70% or over 13.9 20.8 Human capital 28.5 36.2 Goodwill or synegies 30.1 .6 20. In your experience.6 8.5 5.4 Base: 39 respondents 15d. how much of the value of a typical business in China do the following components represent? (% respondents) Less than 10% All tangible assets 1.8 18.6 2.9 All intangible assets 15.4 5.4 39.4 © 2007 The Economist Intelligence Unit and EYGM Limited.2 8.1 5.2 10.6 9.2 13.4 1.6 7.4 70% or over Don’t know/Not applicable 22.4 4.4 45.3 Human capital 6.1 10.8 10.3 1.0 26.2 39.3 2.0 10-29% 20.0 Human capital 26.2 27.9 40.5 50-69% 30-49% 70% or over Don’t know/Not applicable 22.7 7.1 4.8 4.6 10-29% 50-69% 30-49% 29.1 All intangible assets 23.7 Human capital 12.8 41.8 8. In your experience.1 4.8 Goodwill or synegies 30.

how much of the value of a typical business in Vietnam do the following components represent? (number of respondents) Less than 10% All tangible assets 1 3 10-29% 30-49% 4 4 4 Human capital 2 4 1 4 70% or over 2 All intangible assets 2 Goodwill or synegies 4 50-69% 3 2 Don’t know/Not applicable 2 1 2 1 1 2 1 2 © 2007 The Economist Intelligence Unit and EYGM Limited.Appendix: Survey results Guesing game? Valuation Challenges in Asia 15e. In your experience. how much of the value of a typical business in South Korea do the following components represent? (number of respondents) Less than 10% All tangible assets 2 2 All intangible assets 2 3 50-69% 30-49% 10-29% 70% or over Don’t know/Not applicable 5 1 4 1 Human capital 7 2 Goodwill or synegies 3 1 6 1 15f. All Rights Reserved. how much of the value of a typical business in Taiwan do the following components represent? (number of respondents) Less than 10% All tangible assets 2 1 All intangible assets 2 7 Human capital 2 6 Goodwill or synegies 3 10-29% 2 50-69% 30-49% 70% or over Don’t know/Not applicable 4 3 3 3 4 1 4 1 15g. 39 . In your experience. In your experience.

9 Australia 9.1 Vietnam 2. .0 Malaysia 4. All Rights Reserved.9 Hong Kong 16.7 Base: 140 respondents 40 © 2007 The Economist Intelligence Unit and EYGM Limited.3 Japan 5.Appendix: Survey results Guessing game? Valuation Challenges in Asia Demographic questions In which country are you personally located? (% respondents) Singapore 18.6 India 17.9 Pakistan 2.3 Indonesia 3.1 Philippines 2.4 China 12.4 Afghanistan 0.6 Taiwan 2.1 Republic of Korea 1.

4 Australia 8.5 Hong Kong 14.6 Netherlands 2.9 Switzerland 2. 41 .7 Denmark 0.4 US 10.9 Taiwan 2. All Rights Reserved.4 Afghanistan 0.9 Pakistan 2.9 Vietnam 2.7 British Virgin Islands 0.9 China 2.7 Base: 139 respondents © 2007 The Economist Intelligence Unit and EYGM Limited.Appendix: Survey results Guesing game? Valuation Challenges in Asia Where is your company headquartered? (% respondents) India 16.7 Austria 0.3 Malaysia 3.2 Indonesia 2.3 UK 4.2 Sweden 1.1 Singapore 9.6 Japan 4.

travel and tourism 2.9 Transportation.9 Automotive 2. All Rights Reserved.1 Manufacturing 10.9 Healthcare.8 IT and technology 7.9 Logistics and distribution 2.1 Professional services 15.Appendix: Survey results Guessing game? Valuation Challenges in Asia What is your primary industry? (% respondents) Financial services 33.7 Chemicals 0.4 Retailing 1.7 Agriculture and agribusiness 0. .0 Consumer goods 4.3 Energy and natural resources 3.7 Entertainment.2 Construction and real estate 1.4 Education 1. media and publishing 0.7 Base: 139 respondents 42 © 2007 The Economist Intelligence Unit and EYGM Limited.2 Telecommunications 2.4 Aerospace/Defence 0.6 Government/Public sector 2. pharmaceuticals and biotechnology 5.

1 $500m to $1bn 10.9 8.0 25.5 18.4 Other C-level executive 8.0 8.3 Base: 139 respondents © 2007 The Economist Intelligence Unit and EYGM Limited.0 What is your title? 7.9 $1bn to $5bn 13.1 $10bn or more 15.Appendix: Survey results Guesing game? Valuation Challenges in Asia What are your company's annual global revenues in US dollars? (% respondents) $500m or less 55.9 Head of Department 10. All Rights Reserved. 43 .2 27.9 CFO/Treasure/Comptroller 6.1 Head of Business Unit 12.0 Other 2.5 CIO/Technology director 1.1 Manager 16.6 SVP/VP/Director 10.8 $5bn to $10bn 5.3 Base: 138 respondents 18.3 (% respondents) Board member CEO/President/Managing director 5.0 7.

All Rights Reserved.Appendix: Survey results Guessing game? Valuation Challenges in Asia 44 © 2007 The Economist Intelligence Unit and EYGM Limited. .

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