Transactions Blog

Introduction

29.983.000.000 EUR (5,2% of GDP), that is the number on which the Dutch government’s deficit landed in 2010.[1] In order to seal this gap, the Dutch government recently announced a plan containing a variety of structural measures to save up to € 18 billion between 2012 and 2015.[2]

Specific for the M&A field, one topic catches the attention: the restriction on the deductibility of interest on acquisition debt in a fiscal unity as from 1 January 2012.

What does it mean?

Under the current legislation, it is common practice that following an acquisition the leveraged acquiring company (holding) enters into a fiscal unity with the former Target, mostly an operational entity. The fiscal unity provides that income and cost from both companies can be offset against each other. Doing so, the tax base of this Dutch operational Target erodes due to a ‘debt push down’.

The new law wants to discourage such constructions. It imposes that the interest cost relating to the acquisition debt can only be offset against the taxable income of the acquiring (holding) company to the extent it does not exceed the taxable profit of this acquiring (holding) company. It will no longer be possible to offset the interest expenses of the acquisition debt against taxable profits of the acquired company. Hence, due to this exception on the Dutch fiscal unity a ‘debt push down’ will no longer be realised.

 The amount that is not deductible is the lower of (i) the excess interest expense minus 1m EUR or (ii) the result of the formula: total acquisition interest expenses * (excess debt / total acquisition debt). The amount that could not been offset in a given year can be carried forward.

Exceptions

The interest cost of the acquisition debt remains deductible when the debt/equity ratio of the fiscal unity does not exceeds 2:1 or, as mentioned above, when the interest cost of the acquisition debt is less than 1million EUR.

Conclusion

In order to safeguard the tax deductibility of interest on acquisition debt, proper debt structuring is (and remains) key.

P.S. Other measures

It should be pointed out that the Dutch Budget 2012 also includes proposals in respect of (i) the Dutch tax exemption on non-Dutch permanent establishments, (ii) substantial interest rules (ii) and dividend withholding tax relating to Dutch Cooperatives.

Further information can be found on: http://www.pwc.nl/nl/prinsjesdag/index.jhtml

Globally, financial services are undergoing unprecedented change.  At the same time, the eastward shift of economic power gives Asian financial services markets stronger growth potential than that of any other region.  As a result M&A is becoming an ever more important strategic tool for financial institutions in Asia.

Report key findings:

• Economic and demographic factors will drive strong growth in Asian financial services
• Domestic M&A looks set to remain the key driver of Asian financial services transactions
• Cross-border M&A in Asian financial services is expected to accelerate.  Bidders from more mature markets such as Australia, Japan, Korea and Singapore are being joined by European and American rivals.
• Capital restrictions are seen as the leading obstacle to M&A in the region, while talent management is seen as by far the greatest challenge for post-deal integration
• Despite regulatory and governmental activity, Asian financial services M&A is predicted to grow through 2011 and into 2012

 For more details, please check: http://www.pwc.com/gx/en/mergers-acquisitions-industry-trends/survey/index.jhtml

Download the full report: FS M&A Asia 2011 

Whether you’re making an acquisition or looking for opportunities to simplify your group structure within the EU, this guide is intended to help you navigate the complexities of cross-border reorganisations. The book provides information on the technical fiscal aspects of the directive and an overview of its implementation within each member state. You will also find detailed country chapters, which facilitate comparison of the different rules in operation within each jurisdiction.

Find out more about our new book  on how to simplify your group structure in the EU: ‘ Tax Restructuring in the EU‘.

The 7^th and last session of this year’s M&A Academy cycle took place on 29 April looking at “HR integration after a merger”. Turbulent economic times are making many organisations undertake a transaction, whether a merger, an acquisition, a divestiture, a carve-out or a spin-off. Every transaction creates turmoil, uncertainty and opportunities for people.

Peter De Bley, Partner at PwC Belgium, introduced the subject before handing over to our guest speaker, Wim De Wit, HR Director, retail & private banking Belgium, BNP Paribas Fortis, who presented his views on the strategic added value of HR in times of changes and the future challenges for his company.

Download the presentation: “HR integration after a merger”

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

Since 25 January 2010, it is possible to carry out all types of mergers without the intervention of an independent expert (i.e. the company’s statutory auditor, or an auditor/external accountant if no statutory auditor has been appointed).

Articles 695 and 708 of the Belgian Companies Code (“BCC”), modified following implementation of the European Directive 2007/63/EC, now provide that no independent expert’s report on the merger proposal is required, if all shareholders (and holders of other securities conferring the right to vote) of each of the companies involved in the merger, have so agreed.

Prior to such modification of the BCC, it was only possible to carry out a so-called “parent-subsidiary merger” without the intervention of an independent expert (i.e. a merger whereby the acquiring company already held all shares of the acquired company).

The report of the management bodies of the companies involved in the merger is however still required (articles 694 and 707). The new European Directive 2009/109/EC provides for the possibility to also abolish the requirement to draw up such report. For the time being however, this Directive has not yet been implemented in the BCC, and it is not yet clear whether the Belgian legislator will seize the opportunity to further reduce the burden of formalities for mergers.

For (partial) demergers, the intervention of an independent expert remains required, more in particular for the drawing up of the report with respect to the contribution in kind (articles 602 and 313 BCC). If all shareholders (and holders of other securities conferring the right to vote) of each of the companies involved in the (partial) demerger so agree, no additional independent expert’s report on the (partial) demerger proposal will be required.  This was however already the case prior to the recent modification of the BCC.

Karin Winters, Director Corporate & Commercial Law
Bart Vanstaen, Senior Legal Consultant

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.

The third session of our M&A Academy took place on 10 December looking at all the questions the arrival of the “Chapter 11 Nouveau” (at least its Belgian version) raises. Before getting the protection of the Continuity Act, however, an achievable business plan needs to be in place. Do you have one? How about the reasonability of assumptions and remedial management actions? Have you assessed the quality of future cash flows and headroom to covenants?

Our specialists, Karin Winters (Director in the Corporate & Commercial Law department) and Philippe Fimmers (Senior Manager in the Deals practice ) used their legal and financial expertise to try and answer those questions. They also highlighted the Business Continuity Act and some alternative solutions.

Download “How to anticipate/handle covenant breaches?”

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

After one of the toughest periods for M&A in decades, some high profile announcements have got everyone talking. We are entering a test period for M&A, where more quality assets are coming to market than we have seen in 18 months. Successful completions will depend on vendor price expectations coming into line with acquirers’ views. If the majority of these deals close, it may well signal a more buoyant 2010.

Ongoing challenges in the debt markets will create an hourglass shaped M&A market where there are a number of mid-market transactions and mega deals beyond , but where there is a dearth of deals in the upper mid-market due to equity and debt constraints.

However, marketing businesses to corporate acquirers will require a different approach, and realising value will depend on getting this right.

Watch the webcast from PwC UK colleagues:

A series of new publications have been issued by PricewaterhouseCoopers on the Merger & Acquisition activity of 2008 in the Energy, Utilities and Mining industry.

Renewable Deals

One publication comments on the global renewable power market, its evolution and major deals over 2008. The renewable energy sector is one of increasing importance as a sector, but also for deal making. Energy diversification, technological breakthroughs and climate change regulation will all play a part in driving the growth of the industry.

The report examines the rationale behind the overall trends and the key individual deals, as well as some of the critical issues for companies engaging in deal activity within the sector. The publication also looks ahead at 2009 and sees increasing interest of large industrial companies from outside the sector. Clarification of the true extent of political commitment to clean energy will be a major factor for the market’s evolution, along with technological developments to bring the costs down.

Oil & Gas Deals

The second publication focuses on the deal activity within the global oil & gas market over 2008 and also looks ahead to 2009. The report expects after any easing of the debt and equity market, combined with any positive movements in the oil price, a reawakening of the deal activity.

Two further publications are available on ‘Power Deals‘ and ‘Mining Deals‘ providing similar insight in the 2008 deal evolution and looking ahead at 2009.

Please click on the publications covers below to download them.