PwC Transactions Blog

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.

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According to OECD Corporate governance principles (also stated in the 2009 Belgian Code on corporate governance), (non-executive) directors should have access to accurate, relevant and timely information including the recourse to independent external advice in order to fulfil their responsibilities.

In the context of transactions, the Belgian acquisition law dated 27 April 2007 specifies in Article 21 that independent directors have to designate independent valuation experts in the context of a transaction involving the majority shareholder. This process is commonly called a fairness opinion and is required to protect minority shareholders. But Belgian Company law also foresees that independent valuation experts be consulted and/or prepare reports in the case of intra-group conflicts of interests and in the case of a contribution in kind.

While corporate governance principles and related laws are naturally designed to protect minority interests and other stakeholders, academic researches also tend to demonstrate that a broad use of independent valuation experts is favourable to shareholders.

According to Bugeja[1], valuation experts tend to be used by target companies as it increases the likelihood that the bidder will higher the offer price. Additionally, the use of experts for valuation purposes is also linked to the complexity of the company to value. Based on the assumption that the valuation experts assist directors to provide shareholders with the correct recommendation then hiring a valuation expert is in shareholders’ interest.

The use of independent valuation experts rather than having financial expertise in the Board is stressed by Güner, Malmendier and Tate[2]. Indeed, their research tends to demonstrate that enhancing the financial expertise of the Board may not be beneficial to shareholders when other conflicts of interests are not adequately addressed. Indeed, the empirical results of the research show that the interest of bankers on the board could result in conflicts of interests between the objectives of the company and the financial institution.

As one of the famous Warren Buffet’s statements stressed “Price is what you pay. Value is what you get.”… and the whole game is having the first close to the latter!