Transactions Blog

On 16 June, we hosted our exclusive M&A event at the Magritte Museum in Brussels. Jan Muyldermans gave a presentation on tax issues in the context of debt restructuring and Chris Hemmings, our Global Head of Corporate Finance shared his vision on the M&A Marketing post credit crunch.

Download the presentation.

On 28 May, we hosted the last M&A Academy session of the season, which dealt with tax aspects of debt restructuring. Jan Muyldermans talked about what it is that is driving debt structuring transactions, the tax basics, the tax aspects of overall debt restructuring and the continuity law. Finally, he put all this into practice using a case study.

Download the “tax aspects of debt restructuring” presentation.

The new season of the M&A Academy will be launched soon.

Accounting for acquisitions has changed. The International Accounting Standards Board released a revised standard on business combinations in January 2008 (IFRS 3 Revised), accompanied by a revised standard on consolidated financial statements (IAS 27 Revised).

 The new standards are expected to add to earnings volatility, making earnings harder to predict.

 PwC has produced a guide IFRS 3R: Impact on earnings, the crucial Q&A for decision-makers  which aims to help dealmakers and preparers of financial statements communicate the consequences of a business combination on the current and future earnings.

 I would like to highlight in this posting 2 aspects in particular:

-          transaction costs no longer form part of the acquisition price; they should be expensed as they are incurred and the related services are received

-          contingent consideration (like earn-outs payable based on post-acquisition earnings or on the success of a significant uncertain project) is required to be recognised at fair value, even it is not deemed to be probable of payment at the date of acquisition. All subsequent changes in debt contingent consideration are then recognised in the income statement, rather than against goodwill as today. This means that an increase in the liability for strong performance results in an expense in the income statement. Acquirers will have to explain this component of the performance: the acquired business has performed well but earnings are lower because of additional payments due to the seller.

 As you can see with these two examples, acquisitive companies can expect increased earnings volatility, both in the year of the acquisition and in the years following.

 As a result, the standards will also:

-          influence acquisition negotiations and deal structures in an effort to mitigate unwanted earnings impact

-          potentially impact the scope and extent of due diligence and data-gathering exercises prior to acquisition

-          expand the call for valuation expertise

During the last six years (2003-2008), Emerging Market entities made some 844 acquisitions or investments in Western Europe with a combined value of nearly € 120 billion (of which some 3% in Belgium).

As a result of the ‘credit crunch’ and the global economic slowdown, 2008 has been a week year for global M&A activity. Despite this, 2008 was a record year for M&A transactions conducted by Emerging Market acquirers or minority investors, with 256 completed deals with an overall value in excess of € 45 billion.

For companies facing possible distressed situation (or for other transactions), it could be a viable strategic option to consider getting a strategic Emerging Market investor on board. It could not only provide additional funding, but also access to high-growth markets.

Want to read more about the typical issues/concerns in such situations or things to remember when bridging cultural differences, than there is an interesting piece just published by PricewaterhouseCoopers.

Find out more