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Independent Financial Advisers’ Opinions for Takeovers

Independent Financial Advisers’ Opinions for Takeovers

Independent Financial Advisers (IFAs) play a crucial role in Singapore's takeover scene by providing impartial opinions on the fairness and reasonableness of offers made to shareholders.

Key Points:

  • Role: IFAs assess the takeover offer considering the target company's financial situation, future prospects, and the overall market conditions.

  • Standards: Opinions should be based on the "fair and reasonable" test, ensuring the offer reflects the company's true value.

  • Regulations: The Singapore Exchange (SGX) RegCo has issued guidelines to enhance the clarity, consistency, and quality of IFA opinions.

Here's a breakdown of the process:

  1. Appointment: The target company's board appoints an independent IFA to evaluate the takeover offer.

  2. Evaluation: The IFA meticulously analyzes the offer's financial aspects, including:

  • Target company's financial statements

  • Industry benchmarks

  • Potential synergies arising from the takeover

  • Discounted cash flow (DCF) analysis

  • Market valuation multiples

  1. Opinion Formulation: Based on the evaluation, the IFA issues a written opinion stating whether the offer is:

  • Fair and reasonable: The offer accurately reflects the target company's underlying value.

  • Fair but not reasonable: The offer reflects the company's value but may not be the most attractive option for shareholders due to potential future prospects.

  • Reasonable but not fair: The offer might provide an immediate exit opportunity for shareholders, especially in illiquid situations, but may not fully capture the company's potential value.

  1. Disclosure: The IFA's opinion is then disclosed to the target company's shareholders in the takeover documentation.

Importance of IFA Opinions:

  • Shareholder Information: IFA opinions serve as a valuable source of information for shareholders, assisting them in making informed decisions about accepting or rejecting the takeover offer.

  • Market Transparency: These opinions contribute to a more transparent and efficient takeover environment in Singapore.

Limitations and Potential Improvements:

Studies have identified potential limitations in the current framework:

  • Focus on "Fair and Reasonable": While the "fair and reasonable" test is essential, there have been instances where IFAs used more equivocal language, making it difficult for shareholders to fully understand the implications of the offer.

  • Inherent Bias: Concerns exist around potential biases influencing IFA opinions due to the discretion they hold in choosing methodologies and assumptions.

  • Limited Shareholder recourse: Legal challenges against IFAs for inadequate opinions are complex.

Addressing these limitations:

  • Standardization of methodologies: Implementing stricter guidelines for valuation methods employed by IFAs can enhance the consistency and objectivity of their opinions.

  • Increased Scrutiny: Strengthening the regulatory framework for oversight of IFAs can further ensure the quality and independence of their opinions.


IFAs play a significant role in safeguarding shareholder interests during takeovers in Singapore. While the current system offers valuable guidance, ongoing efforts to improve the standardization, transparency, and accountability of IFA opinions are crucial for ensuring a robust and fair takeover environment.

Sample IFA Report (Confidential Sections Highlighted)

1. Introduction

  • Client: [Target Company Name] Board of Directors (Confidential)

  • Date: [Date of Appointment]

  • Purpose: To provide an independent opinion on the fairness and reasonableness of the takeover offer made by [Acquirer Name] for [Target Company Name].

  • Framework: This report is prepared in accordance with the Singapore Exchange (SGX) RegCo's guidelines for Independent Financial Advisor (IFA) Reports.

2. Methodology

  • DCF Analysis: We employed a Discounted Cash Flow (DCF) analysis to estimate the intrinsic value of [Target Company Name].

  • Discount Rate: A discount rate of X.X% was used, considering the following factors:

  • Country risk premium: Based on [Source and justification for the chosen risk premium].

  • Equity risk premium: Based on the historical market risk premium and the company's specific business risk.

  • Company's beta: Estimated using [Methodology for beta estimation].

  • Growth Assumptions: We assumed a long-term growth rate of Y.Y% based on:

  • [Target Company's historical growth rate]

  • [Industry growth forecasts]

  • [Company's specific future plans and projections (confidential)]

  • Market Multiples: We analyzed market valuation multiples of comparable companies in the same industry.

  • Data Sources: Financial databases like [Source 1] and [Source 2] were consulted to identify relevant comparable companies.

  • Multiples Used: Price-to-Earnings (P/E) ratio, Enterprise Value-to-EBITDA (EV/EBITDA) ratio, and Price-to-Book (P/B) ratio.

3. Analysis of the Offer

  • The offer from [Acquirer Name] proposes a price of S$ Z.ZZ per share.

4. Opinion (Confidential)

  • Based on our comprehensive analysis, our professional opinion is [Fair and reasonable/Fair but not reasonable/Reasonable but not fair]. This conclusion is derived from the following:

  • DCF Analysis: Our DCF analysis estimated the intrinsic value of [Target Company Name] to be in the range of S$ W.WW to S$ X.XX per share. (Detailed calculations with specific cash flow projections, discount rate considerations, and growth assumptions are confidential).

  • Market Multiples: The average P/E ratio of comparable companies is Y.Y, the average EV/EBITDA ratio is Z.Z, and the average P/B ratio is A.A. (Specific company data and calculations used for the analysis are confidential).

5. Disclaimer

  • This report solely reflects our professional judgment based on information available at the time of preparation and should not be solely relied upon for investment decisions.

6. Conclusion

  • We encourage the Board of Directors and shareholders of [Target Company Name] to carefully consider all available information, including this report, before making a decision regarding the takeover offer.

Hypothetical Scenarios for Understanding IFA Reports:

Scenario 1: Acquisition in the Tech Industry

  • Target Company: Acme Tech Ltd., a publicly traded company with a strong track record in developing innovative software solutions.

  • Acquirer: Behemoth Inc., a leading technology giant looking to expand its software portfolio.

  • Offer Price: S$ 10.00 per share.


  • DCF Analysis: Using a hypothetical discount rate of 10% and a long-term growth rate of 15%, the DCF analysis estimates Acme Tech's intrinsic value to be in the range of S$ 8.50 - S$ 11.00 per share.

  • Market Multiples: Analysis of comparable companies reveals an average P/E ratio of 25 and an average EV/EBITDA ratio of 12.

Hypothetical Opinion: Based on the analyses, the IFA might conclude:

  • Fair and Reasonable: The offer price of S$ 10.00 falls within the estimated intrinsic value range derived from DCF analysis and is close to the valuation indicated by market multiples.

Note: This is a simplified scenario. Real IFA reports would involve far more complex calculations and justifications based on confidential financial information.

Scenario 2: Takeover in the Manufacturing Sector

  • Target Company: Reliable Engineering, a manufacturer of industrial equipment facing declining profitability due to increased competition.

  • Acquirer: Global Industries, a diversified conglomerate seeking to enter the industrial equipment market.

  • Offer Price: S$ 5.00 per share.


  • DCF Analysis: Due to Reliable Engineering's declining financials, the DCF analysis might indicate a lower intrinsic value, potentially around S$ 4.00 per share.

  • Market Multiples: The average P/E ratio for comparable companies in the struggling manufacturing sector might be lower than usual, reflecting the industry's challenges.

Hypothetical Opinion: In this scenario, the IFA might conclude:

  • Fair but Not Reasonable: While the offer price aligns with the company's current financial state as reflected in the DCF analysis, alternative options like restructuring or strategic partnerships could potentially unlock greater long-term value for shareholders.

Remember: These are hypothetical situations. Real IFA reports involve in-depth analyses of confidential financial data, making it impossible to replicate a fully functional example.

These scenarios aim to provide a basic understanding of the thought process behind the calculations and reasoning used in IFA reports while maintaining confidentiality.

Bestar Independent Financial Advisers

Role of Bestar in Takeovers:

Bestar plays a crucial role in takeover situations by providing:

  • Independent Opinion: Bestar offers an objective assessment of the fairness and reasonableness of a takeover offer for the target company's shareholders.

  • Valuation Expertise: We employ financial modeling techniques, like Discounted Cash Flow (DCF) analysis, to estimate the intrinsic value of the target company.

  • Market Analysis: Bestar analyzes market data and comparable companies to assess the offer's price compared to similar businesses in the industry.

  • Report Preparation: We prepare a comprehensive report summarizing our analysis, valuation methods, and conclusions regarding the offer's fairness.


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