PwC Transactions Blog

• 05Aug

  “Breaking up is hard to do”: Selling non-core assets in a downturn

  by: Lieven Adams
  Publications No Comments

  The diversification strategies popular in the first half of the last decade, have been replaced by pressure from both shareholders and regulators to focus on core competencies and retrieve cash. Whilst overall M&A activity has taken a nose dive since the lofty heights at the end of 2007, the level of ‘Carve Out’ transactions, involving the divestment of one or more non core asset, has remained relatively buoyant. Interestingly, the value of Carve Out transactions has fallen by over 60%, however the volume has fallen by only 15%. 

  This reinforces our recent experience that sellers frequently need to break up assets that they might once have sold as a whole, into smaller parts, in order to overcome limited bidder leverage. Bidders are also more frequently joining forces in consortium arrangements, particularly for larger deals and are more cautious now than ever before.

  For sellers to achieve divestments and maximise deal value, a different, more agile approach is required in this climate. Deal outcomes are more unpredictable and sellers therefore need to predict likely sale scenarios, including the types of bidders and their requirements and plan accordingly. 

  Download the publication “Selling non-core assets in a downturn” 

  Tags: downturn, selling assets

• 27May

  Strategic investments and innovation to help beat the odds

  by: Barbara Van Dyck
  Publications No Comments

  As the economy continues to move toward recovery, leading private-company owners and management are focused on strategic investments and innovation, while keeping an eye on improvements that will enable them to better manage risk within the evolving business and economic landscape. The goal is building a resilient yet agile organization that will be well equipped to take on the many opportunities and challenges the future holds.

  To that end, we are pleased to announce the latest release of Growing Your Business, which focuses on strategic growth, innovation and long-term sustainability as the bedrock of a successful business.

  

  In this issue:

  • Greener pastures – Sustainability: an opportunity for value, savings and innovation – Sustainability is quickly gaining traction with privately-held consumer companies, as management recognizes that producing earth-friendly products can strengthen their brands and the bottom line while protecting the environment.
  • Beating the odds: How the largest privately-held appliance and electronics retailer in the country continues to thrive through 100 years and four generations – Learn how PC Richard & Son’s became an industry leader during one of the most challenging economic times. In this article the family-run company’s senior management discuss how they have survived and prospered while many of their competitors have disappeared.
  • Fighting fraud – How private companies can reduce their exposure in bad times, and good – Our GYB editor interviewed PricewaterhouseCoopers’ forensic experts regarding the disturbing incidence of fraud in private companies, the surprising variety of fraud – and how the solutions that can help stop it have an eight-to-one return on investment.
  • Roth IRA Conversions: 2010′s unique opportunity – This year, high-income investors with traditional IRAs have an important opportunity to rollover their IRA accounts into Roth IRAs, which have distinct advantages over traditional IRAs. Read the article and learn about the Roth IRA and how a rollover might benefit you and your family.

  Tags: Sustainability

• 15Mar

  Chemicals CEOs are juggling international expansion, rising R&D expenditure and infrastructure upgrades with cost-cutting initiatives

  by: Barbara Van Dyck
  Publications No Comments

  
  

  

  The number of chemicals companies engaging in cross-border mergers and acquisitions is substantially higher than it is in other sectors, as the figure above shows. Thirty-three percent of chemicals CEOs have completed at least one such deal within the past 12 months and 46 percent plan to do so within the next 12 months.

  Looking to Asia to lead the way

  The chemicals industry is particularly strong in Asia and North America; 67 percent of chemicals CEOs head companies with operations in Asia and 59 percent head companies with operations in North America (compared with 42 percent and 36 percent, respectively, of the total survey sample). However, most chemicals CEOs, like their peers in other sectors, expect Asian operations to grow more than North American operations over the next 12 months; 84 percent anticipate doing more business in the former, while only 52 percent anticipate doing more business in the latter.

  

  Innovation key to growth

  Chemicals CEOs continue to invest in new product innovation. Sixty-five percent plan to increase their expenditure on R&D over the next three years, which is more than in any other sector except entertainment & media (at 74 percent). Indeed, 30 percent of chemicals CEOs plan to make ‘significant’ increases in the amount they invest.

  Backing tomorrow’s leaders

  Eighty-three percent of chemicals CEOs also plan to spend more on leadership and talent development over the next three years, and 30 percent of these CEOs intend to spend ‘significantly’ more.

  Cost-cutting and infrastructure improvements planned

  Cost-cutting and infrastructure improvements are high on the agenda of chemicals CEOs, too. Eighty-seven percent aim to invest more in cost-cutting initiatives over the next three years. Similarly, 76 percent aim to invest more in upgrading their strategic technological infrastructure in order to facilitate modern manufacturing and logistics processes.

  Download the publication “Setting a smarter course for growth: chemicals“

  Tags: chemicals, cross-border

• 08Feb

  Debt Market update

  by: Sebastien Gabay
  Publications No Comments

  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.

  Corporate Bonds - For larger borrowers, the bond market filled the vacuum left by the contracting bank sector in 2009 with UK issuance up 12% year on year. Investor appetite also helped put pressure on bank pricing for large corporate refinancings. More borrowers could consider tapping the capital markets to diversify their lending sources (as well as lock in longer term debt).

  Property finance - The sector has been one of the worst hit by the credit crunch. Lenders have generally been supportive of overleveraged credits where the borrower continues to service its debts, but take more robust positions where there is a new money requirement, in some cases taking material equity positions. There are an increasing number of lenders offering debt for new deals, but the level of available leverage will leave a significant funding gap on those deals with upcoming bullet maturities, which suggests there will be a significant amount of restructuring activity in the next 2-3 years.

  Restructurings - The second half of 2009 saw a reduction in the number of borrowers commencing formal restructurings. However, there will continue to be a steady stream of borrowers seeking a renegotiation of their debt facilities over the medium term. Quite apart from the anaemic macroeconomic backdrop, companies that were the subject of leveraged buyouts in 2005-2007 face tightening covenant levels over the next 18 months.

  Tags: banking market, deals, debt, leveraged finance

• 15Jan

  Depressed European IPO markets show an upturn in last quarter, laying foundations for recovery in first half of 2010

  by: Peter Ujvari
  News, Publications No Comments

  On 8 January 2010, PwC has published the Q4 2009 IPO Watch Europe report. The IPO Watch Europe surveys all new primary market equity IPOs on Europe’s principal stock markets and market segments (including exchanges in Austria, Belgium, Denmark, France, Germany, Greece, Holland, Ireland, Italy, Luxembourg, Norway, Poland, Portugal, Spain, Sweden, Switzerland and the UK).

  Europe’s IPO markets recorded a distinct upturn in activity in the fourth quarter of 2009, with both value and volume rising markedly over the previous nine months when stock exchanges continued to suffer from the worldwide loss of confidence in the capital markets and the recession. However, pricing proved difficult in what remains a buyers market.

  There were 61 IPOs on European exchanges in the last quarter of 2009 with an offering value of €4,994m, compared with 44 listings that raised €1,375m in the previous quarter and the 64 IPOs with a value of €1,238m that were recorded in the final three months of 2008.

  NYSE Euronext led on IPO value with 13 IPOs raising €1,907m (in the same quarter of 2008, it had an equal number of IPOs but they raised just €6m) followed by the Warsaw Stock Exchange (WSE) with 16 IPOs valued at €1,454m (compared to 23 lPOs a year ago, raising €555m). London was in an unaccustomed third place with 14 listings raising €951m (two more than in Q4 2008 with a value of €666m). Nine of the London IPOs were on its AIM market and raised €388m, the same number it saw in Q4 2008 with a total value then of just €3m. The remaining listings were on the Main Market and raised €563m.

  Warsaw recorded the biggest IPO of the quarter, the Polish energy company, Polska Grupa Energetyczna which raised €1,407m, followed by the Dutch insurance company Delta Lloyd which listed on NYSE Euronext and raised €1,016m. The third largest, also on NYSE Euronext, was the French industrial goods company CFAO, which raised €806m, while London hosted the fourth biggest IPO, that of investment company Gartmore Group, raising €378m.

  For further details, read the IPO Watch Europe Survey Q4 2009 from our UK colleagues.
  IPO Watch Q4 2009 full report

  Tags: capital markets, IPO, stock exchange

• 23Nov

  Credit where credit’s due?

  by: Sebastien Gabay
  Publications No Comments

  Whilst credit markets have improved since the beginning of the year, borrowers continue to find raising or extending existing credit lines challenging. One of the big stories of the year has been the bond market.
  Banks remain cautious and often reluctant to advance loans to new customers. However, during the third quarter, upward pricing pressure on bank lending has abated. Although we have yet to see significant falls in bank pricing, in the absence of further major economic shocks, the peak for pricing may now have passed.

  Key findings of Q3-09 Debt Market Update:

  Corporate Lending - a focus on existing customers but cautiously open for new business. 
  Any new lending proposal will be heavily scrutinised and banks are reticent to refinance lending with others to avoid taking on their “problems”. A slight recovery in confidence could signal potential for a competitive tendering process for modestly-sized debt. We are seeing a strong strategic drive within some state-backed banks to increase their lending, albeit within more stringent credit quality parameters.

  Leveraged Finance – difficult for the remainder of the year but innovative thinking means deals are possible.
  The leveraged market will remain subdued for the remainder of the year, although there are pockets of activity at the smaller end of the market.

  Corporate Bonds – an increase in activity and risk appetite.
  In contrast to the banking market, the public bond market has seen a significant increase in activity this year. Investor risk appetite has also increased with an increasing proportion of BBB issuance. Corporates have been attracted to the bond market not only because it is an available source of credit but also because they have been able to secure longer tenors than on bank loans.

  Convertible Bonds – a significant increase in issuance of this cheaper, more stable form of debt financing.
  In recent months, there have been a number of household names issuing convertible debt. Convertibles have a cheaper cost of carry than conventional bonds because the implied value in the option to convert reduces the cash coupon. Companies with a stretched credit position may be able to issue convertible bonds when conventional debt markets are closed and in difficult credit markets the spread between standard cash coupon bonds and convertible bonds is likely to increase, making the latter more attractive.

  Asset Based Lending - remains well positioned to capitalise on lack of credit from traditional sources.
  Lenders have adopted a “back to basics” approach in recent months and are focusing more financing on physical assets and good quality receivables and less on cashflow-based facilities. Notwithstanding this the size of deals which asset based lenders are willing to finance has decreased in terms of individual hold levels.

  Restructuring - expect a substantial re-pricing of facilities.
  Even if lenders are only resetting covenants rather than rescheduling repayment profiles and/or maturities, companies can expect a substantial re-pricing. Most restructurings involve a negotiation between the existing lenders and shareholders thanks to the limited availability of credit from new providers and depressed M&A values. Whilst lenders are seeking to re-price facilities to what they perceive as heightened credit risk, they do not tend to pursue debt-for-equity swaps unless they are being asked to write down debt by the borrower or its shareholders. The amount of new money required and the jurisdiction of the borrower are also major determinants of the outcome of a restructuring.

  For further details, read the Debt Markets Update  from our UK colleagues.

  Tags: bonds, credit, leveraged finance, multiples, restructuring

• 22Sep

  Global Transportation and Logistics M&A transaction analysis 2009: positive contribution of Russia and China to deal volume and value

  by: Barbara Van Dyck
  Publications No Comments

  The economic downturn continues to negatively impact deal activity and deal value in the first half of 2009. Global deal volume in the transportation and logistics (T&L) sector was down 45% in the second quarter of 2009, compared to the prior quarter, and overall deal value dropped 55% over the same time period.

  Far behind the pace of 2007 and 2008, companies focused more on weathering the economic crisis instead of committing their available capital to new transactions. 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.

  While global deal activity reflects the recent negative state of the economy, the importance of BRIC countries (Brazil, Russia, India and China) to the T&L deal market is increasing. During the first half of 2009, BRIC acquirers and targets accounted for 20 percent and 26 percent of the deals in the sector, respectively. This is up from 15 percent and 18 percent in 2008. Entities from Russia and China have accounted for most of this relative increase in BRIC deals.

  For more info, please refer to the publication T&L Intersections 2009.

  Tags: deal value, deal volume, M&A, Transactions, Transport & Logistics

• 05Jun

  Maximising success with Emerging Market acquirers

  by: Didier De Smet
  Publications No Comments

  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

  Tags: distress, emerging markets, high-growth markets, M&A, Transactions

• 03Mar

  Investments in the automotive industry ?

  by: Didier De Smet
  Publications No Comments

  Our German practice issued a new publication on the Private Equity Investments in the Automotive Supplier Industry.

   

  It describes how the automotive industry has been hit hard in 2008 with a decline in global GDP growth leading to a decline in its business prospects, uncertainty about the direction the industry will take and the drying up of credit facilities, as confirmed in recent evolutions. As in other industries, investment activity has come to a halt and the industry suffered a substantial loss of shareholder value.

   

  In addition, the automotive industry is going through significant changes itself including, among other things, the increasing importance of emerging markets, the emergence of low-cost and smaller cars, the increased emphasis on reduced resource consumption, improving vehicle safety and raising passenger comfort; and improving value chain efficiency.

   

  Potential investors in the automotive sector however can still be positive about the longer-term view in the industry when credit facilities become available again and provided that:

  ·          the investment case is based on a solid foundation of profitable goal and an optimal cost structure

  ·          emphasis on selecting a target that is well-positioned to capture the future industry trends

  ·          financing can be secured based on a realistic business plan – both equity and debt providers must believe in the stability of the financial model. This includes confirming assumptions through rigorous due diligence both from a financial, commercial and operational perspective

  ·          there is a speedy execution of key post-deal improvement projects and regular strategic and operational reviews to avoid surprises at the time of exit as well as ensuring a high quality management team is on board for the full period of ownership

   

  The detailed study provides further insight in the evolution of the automotive supplier industry and can be found on the PwC publication page: Private equity investments in the automotive supplier industry.

  Tags: Automotive Supplier Industry, Investments, Private Equity

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