On 16 June we were happy to host our bi-annual M&A Event with a panel debate on the question whether private equity can still compete with cash-rich corporations. Our speakers (Koen Dejonckheere – CEO GIMV), Bruno Humblet (CFO Bekaert), Ralph Hamers (Chairman Executive Committee ING Belgium) and Philippe Haspeslagh (Dean Vlerick Management School) had colorful ideas and different visions on the topic which made it a very challenging and interesting debate. Continue reading »
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04Jul
Tags: Private Equity
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14Oct
Our fourth season of the M&A Academy took off today, the 14th of October. We started with a session given by Chris Hemmings, Global Head of Corporate Finance who talked about general trends in global M&A and the rising influence of Emerging Markets.
Some key messages we learned during this presentation is that Western companies are proactively seeking access to growth markets; that private equity continues to struggle, yielding opportunities for companies; and that emerging market buyers are seeking market advantage and margin.
Download the presentation General trends in global M&A and the rising influence of Emerging Markets.
More info about the M&A Academy season (programme, subscriptions, etc.).
Tags: emerging markets, M&A, mergers and acquisitions, Private Equity
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03Mar
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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14Jan
The French Senate has adopted an amendment to the Draft Finance Act for 2009 (article 4bis of the DFA) for the purpose to address the tax treatment of carried interest shares granted to FCPR (Fonds Communs de Placement à Risque) and SCR (sociétés de capital à risque) managers.
Subject to any possible amendments, the proposed new tax regime for carried interest shares would apply to FCPRs and SCRs set up as from January 1st, 2009, and to shares/rights issued as from this date.
Current tax regime
Under a tax guideline released by the French Tax Authorities on March 28th, 2002, distributions and gain arising from “carried interest” shares benefit of the capital gain tax treatment (i.e. current rate of 29%), provided the following conditions are simultaneously met:
· the carried interest shares are acquired or subscribed by all or some of the fund managers as a capital investment;
· within the same FCPR or SCR, there is only one category of carried interest shares;
· the fund managers holding carried interest shares do not own other shares in the FCPR or SCR which are eligible to an income tax exemption;
· the fund managers holding carried interest shares are allotted a fair salary.
New tax regime resulting from the amendment
In the future, the application of the French capital gains tax treatment to carried interest shares would further require that:
· the carried interest shares are acquired at a value broadly pertaining to a market value, and;
· all carried interest shares issued by a FCPR or a SCR should meet the following conditions:
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the carried interest shares must, in principle, represent at least 1% of the total subscriptions in the fund, and;
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carried interest payments take place at least five years after the creation of the fund or the issue of the shares and, for FCPRs, after repayment of the contributions made by the other investors.
These conditions are obviously more restrictive but the good news is that the capital gain tax treatment would also apply to carried interest in funds located in the EU or in an EEA State with which France has signed a treaty for avoidance of double taxation including an anti-tax avoidance clause, provided the main purpose of the fund is to invest in companies neither listed in France nor abroad.
If the carried interest share is not eligible for the capital gain tax treatment it will be subject to tax (at rates up to 40%) and social security tax as salary income.
Tags: carried interest, France, incentive, Private Equity
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18Dec
To meet their performance objectives, private equity firms must rely on talented, highly motivated managers within their portfolio companies.
To date, aligning the financial interests of portfolio company managers with those of investors has proved to be the most motivational tool in driving them forward. But is this alignment still there in the current financial and economic downturn, which may have resulted in a drop in enterprise value?
One consequence of the current financial and economic crisis is that private equity houses may have to cope with “underwater” equity and should consider resetting management incentives so that they continue to deliver what they are intended to: retention, motivation, reward and alignment. The question is how this resetting can be appropriately structured from a tax and legal perspective.
In this respect it may be helpful to think of a deal as a “cake” with the debt and equity forming various slices. Resetting the incentive may be done by waiving shareholder debt, reducing or turning off the coupon on shareholder debt, converting shareholder debt into equity, restructuring management’s holding to rank ahead of shareholder debt, amending equity, creating new ratchets, creating preferred shares, granting share options and so on
All the alternatives will potentially result in additional value flowing into the sweet equity held by the portfolio company managers and may potentially trigger a tax and social security tax cost for management in most jurisdictions. From a Belgian tax perspective, private equity houses might validly consider granting share options to structure this flow of value to sweet equity. The advantage of share options is threefold: a proven tax treatment, high flexibility in defining the share option features, a lump-sum taxable value that could prove to be far below the actual option value.
Feel free to contact our Management Participation Team for any questions you might have in respect of resetting management incentives held by your portfolio company managers.
Tags: incentive, Management, Private Equity, sweet equity
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