Globalisation continues to drive industry consolidations, while companies are striving to further streamline, optimise their structures and balance sheets and maximise efficiencies. In Belgium, as in other European countries, recent Mergers & Acquisitions activity has been driven by changing circumstances.
Four to five years ago, many major corporations were using excess resources and important third-party financing to fuel external growth. Acquisitions have been followed by investments in reorganisations, footprint adjustments, lowering the net debt position or readjusting excessive leverage. Those corporations that have gone through the process in a focused and successful way are now building better liquidity positions that allow them to step into the M&A market again.
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Private equity players remain visible
At the same time, private equity funds continue to generate strong cash in-flows. Increasingly, investors lacking confidence in stock market or securities performance are turning to private equity funds in search of higher - and stable - investment yields. Being cash rich, private equity funds have become very active players in the M&A market. This, coupled with the renewed buying power of large corporations, has led to increased competition in the M&A market, with sometimes a growing mis-match between ‘bid’ and ‘ask’ prices when targeting the best prospects. With demand for good acquisition targets becoming disproportionately high, there is a real risk cash rich players pay too high prices. Consequently, the markets are nervous.
At the crossroads
Many mid-sized Belgian companies are facing succession issues. Or they may be finding strategic decisions about stepping up the business take them outside the Management’s comfort zone. Alternatively, they may be considering selling the business to a player who has the resources to take the company further in a broader constitution.
At PwC we have a clear role to play, creating value for the community as participants in the economic lifecycle - helping realise external growth and achieve focus through divestitures. Acquisitions and divestitures are becoming more complex, more sophisticated. This explains the need for expertise and track record to provide the best solutions for the specific situations of clients. As such, we are providing services with a high added value.
Leading in vendor due diligence
We assist private equity firms in providing comfort advice around profitability and risk factors associated with their targets. Or, conversely, by providing discomfort advice when appropriate to certain targets.
Realising powerful synergies
An acquisition is not finished when the contract is signed. And very often the post-transaction focus is on realising synergies, while items such as IT systems and HR issues are addressed insufficiently or not at all. In this domain, PwC Belgium has been working with clients to, among other things, facilitate introduction of new remuneration packages for employees of amalgamated companies and to streamline the organisational structure.
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Furthermore, we work with multinational companies that are in the process of refocusing on their core business and consequently wish to sell off parts of the business. It’s a trend we see developing all over Europe - one that has led to new requirements for professional services with our clients. Companies putting parts of their business in the window are increasingly calling upon us to perform vendor assistance work or ‘vendor due diligence’. This is a specific form of due diligence in which it is the seller and not the buyer who takes the initiative. The purpose is to highlight the value drivers of the business that is for sale as well as the risks and threats associated with its activities.
Optimum fiscal structuring
Going forward, fiscal structuring will grow in significance as part of the construction of an acquisition or divestiture. Today, the tax implications of such transactions are increasingly dealt with in the pre-transaction phase, whereas until recently, they were mainly a concern in the post-acquisition phase. Approaching acquisitions in this way very often helps optimise the funding cost of the transaction and avoids a lot of post-transaction headaches.
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While performing such vendor due diligence exercises, our teams duly respect the so-called ‘duty of care’ towards the potential buyer.
This is a new niche that is growing very quickly and in which PwC shows market leadership, both in terms of transactions performed and complexity of deals.
Incentives for inward investment
The Belgian legislator has introduced a number of measures to help boost the attractiveness of the Belgian market, appeal to foreign inward investors and build Belgian economic strength:
- A Royal Decree exempts interest paid to foreign banks from Belgian withholding taxes. This measure has a retro-active effect and will be of particular relevance to US, UK and French banks which previously suffered Belgian withholding taxes.
- An initiative allows all Belgian companies to apply a notional interest deduction. This creates value for the Belgian economy as it attracts international interest and provides opportunities in the M&A market.
We have actively assisted in the introduction and promotion of these initiatives through, among other things, an international roadshow.
Excellent contacts have also been established with the Ruling Commission to attract and keep new investments in Belgium.
A world of opportunities
These trends look set to continue. As many of the big Belgian and European corporations continue to re-focus on their core business, new vendor transactions will be initiated. The current stock market climate is good, while cheap financing is available to buyers. While this combination of strategic assertiveness and relatively low cost financing continues, we expect to see a robust M&A environment.
