Transactions Blog

 The acquisition of Delvaux, the world’s oldest luxury leather company (based in Belgium), by Chinese investment group Fung Brands is now completed. The fund from Hong Kong’s wealthy Fung family has bought the majority of Delvaux’s shares, to facilitate the luxury brand’s international expansion. The Schwennicke family, being the owner of Delvaux since the early thirties, remains a 20% stake in the company. 

The transaction is the result of a year long searching for a good partner to give the company an international boost, after the financial results for 2009 had been quite negative and 2010 saw more reduced sales figures. The first steps on the right path were already made under the old management, as Christian Salez became the newly appointed CEO, Belgian fashion designer Véronique Branquinho the new artistic director and modernisation and internationalisation the new keywords.

Founded in 1829 by Charles Delvaux, the leather company is one year older than Belgium itself. It had stayed in the Delvaux family’s hands for 104 years, but in 1933 all shares were sold to the Schwennicke family. Almost 200 years after its creation, Delvaux leaves Belgian hands for the first time.

By contrast, the Chinese company is only a few months old, but burning with ambition: the luxury oriented private equity group already bought a participation in French shoe producer Robert Clergerie and is led by Jean-Marc Loubier, ex-Louis Vuitton.

The financial, operational, tax and HR due diligence was performed by PwC Belgium. PwC also assisted in business plan modelling, as well as in the assessment of the underlying real estate values by our real estate valuation team.

For more information, please contact Lieven Adams or Jan Muyldermans.

We are pleased to present you the Belgian results of the ‘Family Business Survey 2010‘, which aims to familiarise you with some of the typical issues and challenges that family business owners are facing today and how they are preparing for the future. 

Our national survey was based on an international survey and so useful comparisons with the international scene could be made.  579 Belgian family-owned businesses participated to this study that was realised in cooperation with Trends Top. 

Read the key findings: Executive Summary_DUTCH - Executive Summary_FRENCH

Read the full report: PwC Family Business Survey_DUTCH - Family business report_FRENCH

Read the international report: International Family Business Survey

Selling a business can be the most important deal of an entrepreneur’s career with far-reaching financial and emotional consequences. Most of the time, the seller is in the unique position to prepare and plan well before any information about a potential sale is known in the market. Regardless the size or turnover of the business, there are a number of steps that can be taken to maximise the sales value. In addition to financial performance, there are a couple of other factors that can enhance but also destroy the value of the business.

How to uncover such issues prior to the sale of your company and how to negotiate remaining risks with prospective buyers? How to control and accelerate the process? Will I optimise the sale of the non-core part of my business through a carve-out or through the sale of existing entities?

Find out by downloading the presentation here! M&A_9 November 2010_BLOG

Market studies chave shown that over the last years the total accounting value of all lands and buildings of the 30.000 biggest BelCo’s amounts to EUR 50 billion. When you know that the market value of said assets equals minimum 3 times their accounting value, this represents a dramatic hidden value in the current market environment. Indeed, when companies face difficulties to access the capital market, releasing such potential should be high on their agenda. In a broad sense, this can involve OpCo-PropCo structures either internally or externally financed, straight disposals, or joint-ventures with professional real estate investors.

During the sixth session of our M&A Academy on Thursday, 25 March, we shared with you how to free up cash from real estate, by tackling the corporate tax, VAT and registration duties matters to be taken into account while splitting up real estate from operational structures. We led you through the current environment, pitfalls and opportunities of this developing market.

Download: “How can real estate become a financing means for your company today?”

More info about the M&A Academy season (programme, subscriptions, etc.).

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.

Download “Tax implications of business restructuring”

More info about the M&A Academy season (programme, registrations, etc.)

The PwC China M&A press release revealed that domestic and inbound M&A deal volumes in China (including Hong Kong and Macau) in the second half of 2009 are returning to robust 2008 levels, indicating that the impact of the global economic downturn on China M&A seems to have been short lived.

More than 1,800 domestic transactions (deals being intra-China or from HK to the mainland and vice versa) are likely to be recorded in the second half of 2009, for a total of about 3,200 mergers and acquisitions for the full year, compared to nearly 3,800 in 2008. Looking to 2010, domestic deal activity is expected to grow by more than 20% compared to 2009.

A continued decline however was noted for deals made by foreign strategic buyers (focussed on sorting out problems in their home markets) and also foreign financial players finding new deals harder to come by as gaps in pricing expectations between sellers and buyers continued. There are indications though that those foreign strategic buyers will re-emerge in greater volume and deal size soon, reflecting a pent-up appetite for China targets.

The China outbound growth story will continue and year-on-year outbound M&A growth of about 40 per cent is not an unlikely outcome. Whilst deals for energy and resources will continue to dominate, owners of the larger Chinese privately owned enterprises are looking for know-how and access to foreign markets, being encouraged by the Chinese government.

2008-2009 were 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 optimization.

Reshaping your conventional business model towards a more flexible structure can help you in for example the improvement of your business model, tax credits optimisation and/or cash optimisation.

Furthermore, the new merger law makes it possible in Europe for certain international groups to offset future tax losses and other tax attributes on a European consolidated level, leading to a lower effective tax rate, realising tax cash savings.

European mergers can also facilitate quoted companies to distribute dividends to the shareholders in an easier and quicker way.

2010 will be a challenging year. Make sure your group and business structure is up to speed to tackle this challenge!

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

A new Tax Act Implementing the EU Tax Merger Directive into Belgian law was published in the Belgian Official Gazette on the 12th January and came into force immediately.

The act introduces a tax-free regime for cross-border reorganisations. In addition, it also brings the existing tax provisions applicable to internal reorganizations in line with the EU Merger Directive.  Most provisions are applicable as of the date of publication.

The EU Merger Directive of July 23, 1990 (as amended by the EU Directive of February 17, 2005) provides for a tax-neutral regime for cross-border reorganizations such as mergers, demergers, partial demergers, share-for-share transactions, contributions of assets and transfers of registered offices. Tax neutrality is provided both at the level of the companies involved in the reorganisation as well as in the hand of their shareholders.

Until now the EU Tax Merger Directive was not implemented in Belgian tax law, meaning that cross-border reorganisations were not covered by appropriate tax legislation. This situation is now resolved with the publication of the new Act.

The Act provides for a tax-neutral regime for cross-border reorganisations involving Belgian entities and/or Belgian permanent establishments. Moreover, various existing tax provisions applicable to internal reorganisations have also been aligned with the EU Tax Merger Directive. Other improvements have also been implemented to the existing general tax provisions relating to reorganisations.

Under specific conditions, Belgian tax resident entities and/or Belgian permanent establishments can now be involved in pan-European tax neutral reorganizations, where previously, for most cross-border reorganisations, tax-neutral regimes were not available.

The Act deals in particular with cross-border (inbound / outbound) mergers, demergers and cross-border (inbound / outbound) contribution of assets (lines of business / permanent establishment) and exchange of shares.

Because of the importance of this new legislation, the PwC Transactions team is organising a half-day conference in our office in the afternoon of 3 February 2009. PwC will give a thorough update on the changes that will be introduced by this new legislation and the opportunities it will bring for your business.

During this session, it will be explained how you will be able to carry out cross-border reorganisations tax-neutrally (whether in the form of a merger, demerger, contribution of a business, transfer of a seat of management, share-for-share deal, etc.). Among other innovations, it will allow you to utilise cross-border tax losses or simplify your group structure by reducing the number of entities in it, which will even become more and more important given the current market environment. It goes without saying that such reorganisations also have important social law aspects. PwC will also address these issues during the conference.

In addition, we take this opportunity to discuss the recent corporate law developments (regarding a.o. acquisitions of own shares, financial assistance and cross border mergers) and their impact on reorganisations.

Check the PwC M&A Academy website for more information.