Transactions Blog

2008 and 2009 are challenging times for the M&A market due to the lack of available funding. Many investors and international groups are looking for cost-cutting opportunities and cash optimisation.

During the 5th session of our M&A Academy, we tried to evaluate how reshaping your conventional business model towards a more flexible structure can help you in for example the improvement of your business model or the optimisation of your tax credits and/or cash position.

Since business restructurings trigger multiple tax issues, not only transfer pricing aspects, this module also focused on the following aspects:

• the arm’s length risk allocation to restructured group entities;
• the potential ‘exit charges’ and indemnifications upon restructuring;
• the recognition, by tax authorities, of restructuring transactions.

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The recent financial turmoil in many ways might have affected family owned businesses. Be it through the exposure to further specific industry issues/downturn due to a lack of diversification of the family wealth or be it because the available financial reserves have suffered significantly, e.g. due to operational and/or financial losses incurred or working capital surges.

In addition, the Trends Top 30.000 survey showed self-financing of companies in general at its lowest over the last 3 years (2008). While the reasons and sources thereof can be quite diverse (lower profits, more distribution or increased liabilities), self-financing might still be further hit by the effects of the economic crisis in 2009 (and …2010) and this at a moment of increased need of finance. Demand for financial resources is therefore likely to increase in the mid-term (even if funds are available within the company – cfr. Trends Top 30.000, ‘Loans to safeguard savings’ in 1 out of 4 companies).

Any given family business therefore needs to ask itself the existential question on how to continue. Whether it is its ambition to do so on a fully stand-alone basis (and whether from a financial/wealth point of view it is capable to do so), whether (temporarily) a certain level of external capital is required or whether the family wants to sell its business. Even in the first scenario, it is highly likely (and recommended) that the family diversifies its activities and hence is likely to make divestments/acquisitions. Needless to say that in the other scenarios, family businesses are likely to bring new oxygen to the M&A market in the mid-term.

The final quarter of 2009 saw encouraging signs of confidence returning across a broad spectrum of bank lending. The mild softening in pricing and the lengthening of tenors in the corporate market, a cluster of new leveraged buyouts at the end of 2009 and the re-entry of banks into the commercial property market (on a selective basis) all presage a more active banking market in 2010.

Corporate lending – There are signs of increasing confidence in the corporate lending market reflecting a slight softening of pricing, particularly on larger deals and the extension of tenors to four years in some instances. Lenders are also more willing to consider financing a new borrower where there has been a resilient track record through the recession and prospects are attractive. There are initial signs that banks are beginning to consider taking material underwriting positions; a key milestone in the return to a more normalised market.

Leveraged finance – 2009 was the quietest year for over a decade in the syndicated leveraged finance market. However, there was an uptick in activity in the fourth quarter and the pipeline for new deals is encouraging. Whilst the market is not about to accept a surge in highly leveraged, thinly priced deals, a gradual improvement in lending conditions is realistic.

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Today, more than ever, effective tax management is key in case you are dealing with situations such as:

-        determining a bid price in an acquisition process;

-        reallocation of existing bank debt and intercompany debt;

-        reorganizing your current group structure;

-        understanding  the impact of taxes on your cash position;

-        a complex supply chain with multiple countries and entities;

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