Smart Gaming Smart Gaming Pte Ltd was founded four years ago by Specky Chan and Geek Chou. For the first two years, the two founders built up a small team of product developers and support staff. The first product 3D Play was launched two years ago and now gaining substantial market share in Asia. Another product was launched six months ago in Singapore and expected to be rolled out in Thailand and South Korea over the next 12 months. Its after tax profit for the last financial year is S$1m.

Big Boss Big Boss Entertainment Ltd is a long-established media and entertainment company with operations in Singapore, South Korea and Taiwan. It was listed on the Singapore Stock Exchange since 10 years ago and has a current price-earnings ratio of 10. Big Boss has expressed interest in acquiring Smart Gaming to complement their product offerings. Specky and Geek are reluctant to sell their company as they believe Smart Gaming still has a lot of potential and they wish to continue working on their products. However, Specky indicated that if the price is attractive and if they can continue employment after the acquisition, they will consider selling the entire company. The founders believe that the company is worth at least S$20m based on their potential and the markets they are going into.

(a) What are the difficulties Big Boss may face in determining what would be a reasonable price to offer? (b) Go through each of the 3 valuation approaches and discuss the pros/cons and challenges of each and how you find each approach applicable or not. (c) Highlight the pros/cons of different types of multiples that could be applied in the market approach. Suggest what multiple should be used for this particular case study and explain why. (d) The directors of Big Boss have asked you to use the market approach to evaluate the asking price of S$20m. Elaborate the steps you will take to perform this valuation. What would be some of your recommendations to the board?