Transactions Blog

In deals, Buyers will in a lot of cases drive their target business valuation off a maintainable level of EBITDA.  As the term suggests, EBITDA is calculated ‘before any cost related to the financial structuring of the target business’.

Therefore any debt and/or cash freely available in the business results in an adjustment of the Buyer’s valuation.  In addition, when using EBITDA as a value driver the Buyer is assuming that the infrastructure to deliver this level of profit is in place.  Infrastructure can relate to sufficient working capital as well as tangible operating assets. Therefore, any shortfalls (or indeed excesses from the Seller’s viewpoint) against ‘expected’ infrastructure levels need to be addressed in the valuation.  

Further, the Buyer will want to know that it has the rights to the profit it is paying for and that any indebtedness (in addition to ‘normal’ bank debt) related to historical trading results is at the cost of the Seller.  Therefore, the initial valuation driven off EBITDA (or pre-financing cash flows) does not (necessarily) represent the ‘true’ value of the target business.  

So, a mechanism is needed to move from Enterprise Value to Equity Value.  There are the traditional mechanisms with a completion accounts process or a ‘Locked Box’ whereby the Equity Value is known when the deal is signed, without involving completion mechanisms.

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“The private equity industry is back.” That was the announcement from Carlyle Group founder Rubenstein during the PE Analyst Conference in New York on Thursday 17th. But is it?

Based on the Global M&A Monthly article from Baird, the current economical crisis has caused a record amount of $400 billion unallocated capital that is waiting within PE firms to be invested. Currently most PE firms are taking smaller stakes due to, on the one hand, the poor credit capacity in the market and, on the other hand, lower visibility into the portfolio companies.

The announced revival of the PE M&A activity will ultimately be driven by the provision of debt capital. Currently, the revival is taking a prudent start as signs of improved liquidity are popping up, including new records low for interest rates and reduced spreads on new issuances.

However, it is believed that the key to further revival is still in the hands of the banks, who could be encouraged to provide more easily (high yield and leveraged) bank debt. This reluctance is especially the case in Europe, while in the US, debt financing is already becoming more available for acquirers.

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Under the Belgian Companies Code (“BCC”), public limited liability companies wishing to buy back their own shares are required to make a bid to all shareholders and, where appropriate, to all holders of certificates. This obligation is aimed at ensuring the equal treatment of all shareholders.

Section 620(1), first paragraph (5°), of the BCC provides for an exception to this rule for listed companies whose securities are admitted to trading on regulated market or on a multilateral trading facility system (“MTF”) that meets certain conditions. These companies are permitted – subject to a number of special rules – to buy back their own shares or certificates without having to issue a takeover bid to all their shareholders. It is assumed that compliance with the above rules ensures equal treatment, even without an offer being made to all the shareholders.

These rules have changed with the transposition into Belgian law of EU Directive 2006/68/EC on the incorporation of public limited liability companies and the maintenance and alteration of their capital. Other changes have been made in relation to the acquisition of own shares when implementing this EU directive. This includes for example the following changes:

• the validity period of the “authorised capital” (i.e. powers granted to the board of directors by the general meeting in order to redeem shares) has been raised from 18 months to 5 years; and
• companies can now acquire own shares up to 20% of their corporate capital (this threshold has been raised from 10% to 20%).

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On 24 September, we hosted the first session of our M&A Academy season, which mainly dealt with access to the current debt market and alternative financing methods. Josy Steenwinckel , Financial Services Leader at PwC Belgium, introduced the subject before handing over to our guest speaker, Freddy Van den Spiegel, Chief Economist at BNP Paribas Fortis, who presented his view of the current economic situation and the possible challenges for companies and the banking sector in the coming years.

Download “Access to the current debt market and alternative financing methods“.

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