Transactions Blog

The current economic climate leaves a lot of companies exposed to lower trading volumes, pricing pressure, stretched client payments and cost structures that can not easily be aligned. Consequently cash flows come under a significant pressure and are sometimes insufficient to pay back debts or worse interest payments. Combining this with a banking sector that remains very prudent and needs to align their own risk and capital structure, and we have the perfect scenario for potential stand off between the two major pillars of our economy.

Can this be avoided?

The answer to this question can be positive but this requires immediate pro active action from the companies facing these difficulties.

The first step would be to create that common information platform that answers some key questions about the strategy, the alignment of the operational cost base, the short and medium term liquidity needs and the projected cash flows. An independent view on these matters is imperative to create that platform and to take away part of the unrest amongst stakeholders.
A second step would be to think about options and solutions that can be brought to the table, these options may include further need for restructuring, a debt push equity swap, debt covenant adjustments, disposal of non core business, etc….
A third step would be to implement the solutions and to keep all stakeholders informed about the solution process.

Would this approach avoid the clash? Future will tell, however its shows that there are ways to avoid it.

In a recent report, ‘M&A: Down but not Out’, by Boston Consulting Group and UBS based on interviews with chief executives of 164 publicly listed European companies, deal activity is predicted to increase.

This is in part due to the need for consolidation in some industries, the attractive price of assets and struggling companies needing new ownership.

The outlook for the mergers and acquisitions market in 2009 is therefore not all negative, although difficulties in securing bank debt looks set to continue. Locally there still appears to be a good appetite from funders for quality mid-market transactions.

Despite the higher risk and uncertainty of doing deals in the current economic climate, some interesting points come out of the survey:

• Most of the companies have not changed their M&A plans in the wake of the crisis, and only 15% believe it is too risky to do a deal at the moment
• Almost one third of companies expect to make an acquisition over the next 12 months, and more than 20 percent intend to enter into relatively large deals (target sales representing more than 10 percent of acquirer’s sales)
• 43 percent of companies believe there will be ‘transformational’ deals in the coming year with consolidation the biggest driver for these, followed by cheaper prices and the rising number of ailing businesses.
• Large acquisitions are most likely in the Energy, Utilities, and Pharmaceutical and Biotech sectors
• Most companies expect the number of restructuring deals to increase substantially, leading to a rise in the number of spin-offs, carve-outs and closures of individual businesses in the coming months.
• Most companies face a diverse set of internal and external barriers to executing deals including macroeconomic and target-specific. Most of these obstacles can be overcome for example, buyers conduct a more rigorous due diligence process and sellers will have to satisfy requests for more information and market their assets even more effectively to secure a more attractive price.

Read full article:
http://www.bcg.com/impact_expertise/publications/files/MA_Down_but_Not_Out_Dec_2008.pdf 

Reducing number of transactions, plunging equity markets, falling consumer confidence, tumbling oil price, … Could any month be worse than December 2008 ? Amid this turmoil, or shall I say in spite of this, we decided to launch our PwC Belgium Transactions blog. Because we want to communicate with our clients on the transactions environment relevant to Belgium.

The talk of the town these days is “when will the market catch up?”. Few months ago it was “after Christmas”, now some say “forget 2009”.

Our English colleagues in Debt Advisory are publishing an interesting paper on the Debt Market Outlook for 2009. Q1 2009 could see a temporarily return of some level of liquidity. After which the impending worsening of the recession will force the intensive care departments of the banks to run on double shifts.