[Essay] Buy a Company

Pacific Rim stocks are so far down, a little uptick could mean big profits. The current situation of the world market reveals that there is a need for a safe evaluation in buying a business in Hong Kong. It is very important to consider the business profile of Hong Kong before buying a bunker company.

Assuming that the stock market isn't a pure game of chance, skilled bears make plausible arguments that the end is approaching: valuations are getting rather high, and the Asian crisis is bound to have a negative effect, at least at the margin, which could be enough to tip the odds. Now is the time to diversify, but where?

In emerging markets, particularly Asia. Asian markets have nowhere to go but up, that's not to say that they'll recover this year or next - they don't need to. They've been slammed so hard, and they're operating from such a low base, that stocks you buy today could yield double-digit returns even if they creep up just a little. However, the listed and suggested considerations below in buying a company reveal the perfect appeal of Hong Kong in Market competition.

As Hong Kong becomes enmeshed in a deflationary scenario, the value of stocks has declined. This development has not gone unnoticed by local economic forces and there has been a rash of bottom-feeding recently.

The reasons for this are to buy back companies to simplify shareholdings, pay debt and to take public companies private. Assets are being bought cheaply as the current depressed state of the market has forced prices down.

In most cases, these moves are being spearheaded by majority shareholders and minority shareholders may not benefit. Minority shareholders usually invest in a company because they trust that the management over time will return a profit to them. Their position is quickly eroded when assets are sold.

Property developers are leading the reorganizations as the bottom has fallen out of the Hong Kong property market since the economic crisis of 1997-98. Property prices have declined as much as 60 percent since then.

Business Profile of Hong Kong

· Economy: The mainstays of Hong Kong’s economy are light manufacturing, shipping and financial services. The last of these is now the most important as Hong Kong has developed into a major international financial centre. Manufacturing is concentrated in textiles, consumer electronics and other consumer goods (Hong Kong is the world’s largest producer of children’s toys). The shipping industry is assisted by Hong Kong’s natural deep-water harbour, probably the best in the region. Much regional trade is still conducted through Hong Kong.

· Business: Businesspeople are generally expected to dress smartly. Local businesspeople are usually extremely hospitable and speak English. Appointments should be made in advance and punctuality is appreciated. Business cards are widely used with a Chinese translation on the reverse. Most top hotels provide business centres for visiting businesspeople, with typing, duplication, translation and other services.

· Commercial Information: The following organisations can offer advice: Hong Kong Trade Development Council, 16 Upper Grosvenor Street, London W1K 7PL, UK (tel: (020) 7616 9500; fax: (020) 7616 9510; e-mail: london.office@tdc.org.hk; website: www.tdctrade.com); or Hong Kong Trade Development Council, 38th Floor, Office Tower, Convention Plaza, 1 Harbour Road, Wan Chai (tel: 2584 4333; fax: 2824 0249; website: www.tdc.org.hk); or Hong Kong General Chamber of Commerce, 22nd Floor, United Centre, 95 Queensway (tel: 2529 9229; fax: 2527 9843; e-mail: chamber@chamber.org.hk; website: www.chamber.org.hk).

· Conferences/Conventions: The Hong Kong Convention and Incentive Travel Bureau is a division of the Hong Kong Tourist Association, which specialises in promoting Hong Kong as a leading venue with a special East/West position; it publishes lavish and detailed brochures showcasing the region for conference and incentive planners, together with a glossy catalogue of promotional material and a directory of associations and societies in Hong Kong. There are venues with seating for up to 12,500 persons. For further information, contact the Hong Kong Convention and Exhibition Centre, 1, Expo Drive, Wanchai, Hong Kong (tel: 2582 8888; Fax: 2802 7284; e-mail: info@hkcec.com; website: www.hkcec.com.hk).

Things to Consider in Buying a Company

· Evaluate and analyze up to 10 years of historic information about an acquisition candidate to determine just how well the company is REALLY performing.

· Estimate the company's future earnings capability and financial position to provide a reference point for valuation and pricing and to make sure the company has adequate working capital and fixed assets to sustain growth.

· Pinpoint market value with 10 accepted valuation methods to provide a baseline for determining how much to pay.

· Structure purchase price and deal terms that make economic sense.

· Create a workable financing plan that includes debt, mezzanine financing and equity funding.

· Project the company’s future performance and bottom-line return based upon the price, deal terms, financing and new operating assumptions.

· Analyze post-acquisition performance to spot potential risks.

· Estimate the Internal Rate of Return to investors.

· Quickly create credible and informative acquisition proposals to get your acquisition approved and funded.

Valuing a Company

A company value can actually be divided into five components:

1. Market value of assets.
2. Historical trends of revenues, expense and cash flows.
3. The value of rights, privileges, and knowledge.
4. Estimated stability in the future.
5. Esthetic appeal.

The buyer should consider the valuation report which addresses all five (5) components of a company value through a series of questions which define each of these aspects numerically. There should be a software to be use to calculate the valuation methodologies which were used to determine the suggested price.