Business reorganisations free of tax under new EU regulations
Owing to the globalisation of the world economy over the past ten years, many companies have been forced to grow in scale. For many years, megadeals have been a feature of the M&A (Mergers & Acquisitions) scene. Companies make such deals in order to grow, increase their profits and remain competitive in the global market. This often leads to the creation of huge multinational groups with extremely complex corporate structures, consisting of countless companies and divisions, sometimes in more than 100 countries. The recent economic recession has forced multinationals to cut costs in order to offset disappointing revenues. This has led to a new trend: corporate simplification. Corporate simplification is a way to achieve savings by making the decision-process more straightforward and cutting costs, in part by reducing the complexity of corporate structures. Recent EU regulations on mergers and reorganisations, which have now been incorporated in the national regulations of all 27 EU member states, including Belgium, are bound to encourage this trend. PwC therefore expects that in the coming years, following the wave of acquisitions in recent years, there will be an increasing number of business reorganisations that lead to greater integration and simplification, and hence cost savings.
Size does matter…
Since the start of the new millennium, the number of mergers and acquisitions in Europe has shown an upward trend, as has the average value of such deals. In 2007, the combined value of all mergers and acquisitions in Europe was some € 1,100 billion, compared with € 424 billion in 2003(1). Undeniably, mega mergers and acquisitions have dominated the M&A scene during the past decade. According to the same source, the total value of all deals worth more than € 500 million was no less than € 863.7 billion in 2007, compared with € 298.5 billion in 2003. The main reason for mergers and acquisitions is to achieve economic growth. Companies conduct mergers and acquisitions with the aim of increasing their market share or gaining access to new markets and activities. “A merger or acquisition is only the beginning,” explained Jan Muyldermans, Lead Transactions Partner at PwC. “We have established that it often takes businesses a long time to integrate a newly acquired business or group into their business, and often this simply does not happen. This could be for any of a number of reasons, for example so that it will be easier to sell the acquired company on in future if the group decides to do so. However, this can sometimes result in extremely complicated corporate structures with different entities and divisions in various countries, and mean that some of the benefits of the acquisition, in the form of synergies or cost savings, are not realised.”
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Credit restraints and a weaker operating environment have shifted attention in the sector toward smaller deals, minority stakes, divestitures and distressed targets. The three largest announcements during the first half of the year could be classified as “midmarket” and all related to minority purchases or purchases of remaining interest.
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