Publications

Finance, accounting, and tax professionals constantly ask whether it is appropriate to use financial reporting valuation estimates for tax purposes and whether there are parts of valuations for financial reporting or tax that are interdependent. M&A transactions trigger different rules and procedures with respect to allocations of purchase price under US GAAP and US federal tax principles. While changes to financial reporting standards have eliminated some inconsistencies, fundamental differences between the purchase price allocation rules for financial reporting purposes and tax continue to exist and best practice calls for an integrated analysis where both book and tax valuations are performed simultaneously.

The interpretation of accounting requirements for deferred tax assets has historically been (and continues to be) one of the most judgmental areas of accounting in practice. In today's uncertain economy, focus has heightened on income tax valuation allowance assessments by companies and their auditors, as well as the Securities and Exchange Commission staff, through the issuance of comment letters. Companies need to understand the valuation allowance accounting model and consider whether updates to accounting policy disclosures are necessary in order to reduce risk and assure the quality of financial reporting.

While financial reporting can be complex even in the best of times, many transactions and the attendant reporting issues can be even more daunting during troubled economic times and the recovery period that follows. Some transactions just aren't all that frequent during normal cycles. For others, the accounting is highly sensitive to market volatility and illiquidity.

Recent indicators such as ongoing and forecasted operating losses and downsizing efforts have been leading many companies to focus on asset values and whether there might be associated impairment charges. As a result, many are going beyond their annual testing for goodwill impairment to undertake processes they may not have needed during historic periods of growth and stability, such as testing long-lived assets for impairment.

As the global recession deepens and credit markets remain almost frozen, more struggling companies are looking to carve-out and sell portions of their operations in an effort to generate needed capital or exit noncore business units. Such an environment presents extraordinary opportunities for companies with strong balance sheets and available capital to expand market share and increase profitability. However, carve-out transactions are complex and each unique situation requires careful analyses by potential buyers. Companies engaged in carve-out transactions often benefit from the involvement of staff and advisors with carve-out experience.

From chemicals to financials, from technology to media, the number of goodwill impairments has increased dramatically. That is not surprising, given the plunge in stock prices in 2008. With further stock price declines in the beginning of 2009 and continued uncertainty in the markets, more goodwill impairment announcements might be around the corner. However, management teams that are anxious about announcing a goodwill impairment in today’s market often overlook one key item – recent goodwill impairment announcements typically have had a muted effect on stock prices by the time of the announcement.

This report provides a comprehensive blend of PwC's cumulative knowledge and direct experience in the always changing E&M transaction environment. E&M clients and targets may find the analysis insightful and useful as they evaluate the E&M deal environment over the next 12 months.

Insurance collateral may not be the first thing dealmakers think of when they evaluate an acquisition candidate. However, insurance collateral provided to insurers by most companies with large deductible or similar insurance programs can be painful for an acquirer if it is overlooked or misunderstood. Collateral requirement increases over time can reduce a company's borrowing capacity. Unanticipated increases are a nasty surprise to acquirers' - especially private equity since private equity deals typically rely on debt financing.

In the current market where deal activity is challenging and the initial public offering market is on hold, effective insurance risk management (IRM) at portfolio companies is one of the ways for private equity sponsors and management to drive value. Because of resource constraints, private equity sponsors concentrate on top priority initiatives, abandoning many other worthwhile savings programs, including IRM opportunities that could lead to potential cash savings in the millions. However, with an outside adviser these opportunities can be captured by private equity sponsors.

From retail to consumer cyclical to restaurants to automotive to financial services, the number of business restructuring announcements has increased. Stock prices have plummeted. Margins are being squeezed. The signs are all around us: excess leverage, operating losses, weak management and strategy or operations not built for a downturn. Now may be the right time for investing in distressed.

Impetus for change coupled with market fragmentation in many sectors has created opportunities for corporate and financial investors. Since relatively little market information exists to guide dealmakers, our goal is to shed light on this rapidly evolving market, identifying its major segments, the nature of the competition, and other things investors should know before entering this market.

Because private equity investors do not always incorporate pure GAAP financial metrics in valuing a target upon acquisition or exit, financial statement presentation may not be one of their top priorities. But those who have sustained a surprise hit to earnings or EBITDA, or had a closing or exit delayed because of financial reporting issues may think differently. Such issues could become more common with the use of fair value reporting, unless the financial reporting valuation process is managed properly and valuation and accounting competencies appropriately combined.

Whether installed on a PC, embedded on a semiconductor chip that runs the latest electronic gadget, or preinstalled as part of a network router, software is becoming a more critical component of many products and services. This issues of Deal Flash!® looks at how revenue recognition deals affect deals.

With a substantial portion of the world committed to using IFRS, US private equity funds that operate globally can no longer afford to ignore its impact. Differences between IFRS and US GAAP treatments will affect deal structuring, due diligence and post-acquisition analysis.

US companies with overseas parents or competitors, as well as those looking to do deals in countries that require IFRS, must become conversant with these standards and stay tuned for new developments.

International Reporting Standards (IFRS) are the accounting rules all public companies in the European Union must follow, with another 100 countries either implementing or considering them. So why should this concern a US company? This issue of Deal Flash!® explores seven good reasons.

The tension between management's desire to present financial results in their most positive light, and investor and regulator demands for more transparency didn't begin with Enron. But after Enron's demise, regulators took a hard look at rules previously used to determine who controls (and should consolidate) an entity. This publication highlights key differences in US GAAP and IFRS consolidation rules, and how recent changes to both can affect your deals.

Financing continues to be a challenge while distressed opportunities across industries are available for interested buyers. Innovation will be key for private equity as the industry evolves in the new climate.

Inbound M&A activity recovering and getting stronger
In the current credit market where access to syndicated loans to finance large transactions is limited, private equity firms look for alternatives ways to deploy capital, focusing on distressed investing, private investments in public entities (PIPEs), partnering with corporate buyers and minority investments. Inbound investments into the United States will continue for the remainder of the year and accelerate into 2009, according to the Transaction Services group of PricewaterhouseCoopers.

This new PricewaterhouseCoopers report identifies areas of investment opportunity and consideration for companies seeking entry or growth in the functional foods arena.

To provide business leaders with a venue in which to share best practices and learn from the obstacles that others have encountered, PricewaterhouseCoopers (PwC) facilitated a roundtable discussion in Silicon Valley—one in a series of similar events that we’ve been hosting on current topics faced by both corporate development and finance professionals. We brought together 14 corporate development executives from leading technology companies and a representative from a well known private equity firm for a lively, interactive discussion. Our panelists shared their perspectives and experiences around divestiture strategies and solutions, offering valuable insights into their concerns, challenges, and successes.

PwC's recent Silicon Valley Transaction Services Roundtable brought together 11 finance M&A executives from leading technology companies to share their perspectives and experiences around planning and executing divestiture transactions.

While China's growing economy offers many investment opportunities to dealmakers, they need to balance the opportunities against the complexity and uncertainty they will face when doing business in this country. Besides intellectual property issues, complex and changing tax policies, limited information and cultural differences, investors need to consider China's regulatory changes impacting management buyouts, stock market reform and foreign exchange policy.

Latin America, a region with many cultures and economies, is a large emerging market that offers businesses in various industries significant growth opportunities. It is also a region where economic rewards and growth can be hindered by political uncertainty. This publication sheds light on the inherent risks, investment structures, partnerships, due diligence and other key deal issues when doing a transaction in this region.

Companies that made investments in China years back are enjoying the fruits of their ventures today, highlighting the advantages of going global. This Corporate Development Roundtable summary explores the challenges and opportunities of expanding into China and other foreign territories, and how to increase probability of success investing in volatile M&A markets.

With the closing of three transactions greater than $1 billion and two above $500 million, the third quarter put in a respectable showing compared with the rest of the year to date and boasted an average deal value of $300 million. Larger, strategic, transactions gathered momentum during the third quarter with the announcement of several billion dollar plus transactions. In addition to the reawakening of technology giants, the third quarter also saw the early beginnings of the return of private equity transactions.

This annual report sets out analysis and commentary on the US financial services industry's principal trends and driving forces in 2008 and for the first half of 2009. It also includes an outlook for the remainder of 2009 in aggregate and by key subsectors: banking, asset management, insurance and other. Across these subsectors, the continued high level of uncertainty may present significant opportunities for companies with capital who are interested in acquisitions. Analysis of the factors behind M&A activity within the financial services industry is included throughout the report.

This quarterly report provides insight on technology M&A activity. Announced deals in the 2009 second quarter indicated a move away from the opportunistic distressed transactions of the first quarter toward a number of high-profile strategic transactions. This is a positive sign that technology transactions restarted in the second quarter. As expected, transactions thus far have been led by corporate players. As valuation expectations continue to converge, transformational deals in the technology sector are expected for the second half of 2009.

This report sets out analysis and commentary on the US technology industry’s principal trends, driving forces and outlook for the coming months, both in aggregate and by key sectors: software, Internet, semiconductors, IT services, and hardware and networking. Throughout the report, we identify factors that are creating attractive M&A targets within the industry. Technology clients and targets may find the analysis insightful and useful as they evaluate the Technology deal environment over the next 12 months.

This quarterly report provides insight on technology M&A activity. While the first quarter of 2009 was down in both transactions and deal value, there was a significant increase in announced and rumored transactions. It may be premature to announce the start of a recovery, but the second quarter looks as if it might see the reversal of some recent quantitative trends as far as announced deals are concerned. Companies assessing technology businesses may find the analysis in this report useful as they seek reassurance that today's targets will be financially viable for business tomorrow.

This report provides a comprehensive blend of PwC's cumulative knowledge and direct experience in the always changing E&M transaction environment. E&M clients and targets may find the analysis insightful and useful as they evaluate the E&M deal environment over the next 12 months.

This report offers insights on the changing A&D industry and highlights the key trends likely to drive deal activity in the next six to 12 months.

The financial services industry experienced mixed fortunes in 2007 driven by the sub-prime mortgage situation that forced well-established financial institutions to take large write-offs. That said, US mergers and acquisitions continued unabated across financial services sectors. In 2007, we witnessed a total of 1,033 transactions (disclosed and non-disclosed), up 4 percent from 993 deals in 2006. There was a noticeable decline in activity in the latter half of 2007, and this trend continued in the first half of 2008.

2007 was a banner year for mergers and acquisitions involving Mexico-based companies both as buyers and as sellers. In a favorable investment environment of steady growth, low inflation, a stable currency and ample reserves, 44 Mexico-based businesses worth $10.1 billion changed hands last year compared with 50 companies valued at $8.3 billion in 2006. As a result, average deal size involving a Mexico-based target rose from $167 million to $230 million. Industrial products and energy were the most active industries in terms of value in 2007, followed by retail, consumer products and construction.

The volatility and performance of the equity markets presented substantial challenges to the IPO market during 2008. An increasing number of companies withdrew or postponed their IPOs during 2008. In 2008, 105 IPOs were either postponed or withdrawn, compared with 25 withdrawn or postponed deals in 2007 (IPOhome.com).

The valuation mindset of potential issuers may remain grounded in historical multiples. However, we believe expectations around equity valuations will gradually be reconciled through an increase in corporate acquisition and divestiture transactions as 2009 progresses, and the short term volatility in the equity markets will begin to subside. Issuers in certain niche sectors will test the IPO “waters”, and investors seeking higher returns will help to “unfreeze” the IPO market.

Financial sponsored-backed IPOs and SPACs decrease to a trickle while non-US issuers stay away

The number of initial public offerings (IPOs) in the United States (US) has declined for three straight quarters as volatility in the US economy continues unabated. For the first nine months of 2008, there were 54 IPOs that raised $31.2 billion, a significant drop from the 195 offerings that generated $44.7 billion for the same period in 2007. When the $17.8 billion VISA IPO is excluded from the 2008 results, IPO value for the first nine months was just $13.3 billion.

IPO activity for the third quarter of 2008 was the most sluggish third quarter performance since 2002. US IPO activity for the first three quarters of 2008 was hampered by the prolonged volatility in the equity markets and the crisis in the credit markets--deterring non-US issuers and causing planned IPOs to be postponed or withdrawn, SPACs to lose their momentum and financial sponsors to hold on to their portfolios for a bit longer.

The turmoil in the credit markets might have slowed the pace of M&A in the second half of 2007; however, it didn’t hinder IPO activity. The fourth quarter of 2007 saw 101 IPOs—the highest quarterly IPO volume in eight years—raise $20.4 billion. As predicted in our 2006 US IPO watch report, 2007 IPO activity exceeded that of 2006. There were 296 offerings that raised $65.1 billion in 2007 compared to 236 listings that raised $49.9 billion in the prior year. In fact, 2007 was the strongest IPO market we have seen since 2000 when 429 IPOs raised $92.6 billion.

US IPO Watch is an annual report consisting of analysis and trends of IPOs listed on US exchanges. Topics covered typically include analysis of Top 10 IPOs, quarterly analysis, IPOs by industry, financial sponsor-backed IPOs, IPOs by exchange and a global perspective on how the US IPO market compares to the global market. Throughout the report, we identify factors that are creating attractive IPO candidates. Clients may find the analysis insightful and useful as they evaluate their own IPO readiness over the next 12 months.

Completed in September, 2009, PricewaterhouseCoopers' Divestiture Survey is designed to gauge the condition of the current mergers and acquisitions (M&A) market as it pertains to divestitures, determine key drivers and success factors and provide some perspective on the near term outlook.

This third edition of the newsletter focuses on valuation multiples by industry in Latin America over the past year, from July 2008 to June 2009.

In this second edition of the newsletter, highlights are provided from the Latin American Business Update, an invitation-only gathering organized by PricewaterhouseCoopers, HSBC Bank USA, N.A., and Greenberg Traurig LLP that focused on the latest trends and developments in the Latin American business environment. Topics covered include alternative funding methods, the changing regulatory environment, and the challenges and opportunities of doing business in this vibrant, fast-changing region.

The following article, written by Donna Coallier of the Transaction Services practice, was originally published in the The Deal on May 28th, 2009. It discusses in depth the new M&A accounting standards.

The issue of climate change is evolving from primarily a scientific and public policy concern to one of business risks and opportunities. Until recently, the impact of climate change on the deal market was barely on the radar of most businesses. However, national policy action on greenhouse gas emissions is requiring companies in virtually every industry to think about the impacts of energy and climate policies on their businesses.

The current newsletter provides a high-level review of the merger and acquisition (M&A) activity in Latin America in 2008 and an industry-specific outlook for 2009. In addition, private equity and IPO trends in the region are outlined. Due to the global economic downturn, this first edition of the newsletter focuses on recent economic developments and fundamental changes of macro economic indicators in Latin America that affect foreign interest and M&A activity throughout the region.

The Mergers & acquisitions: A snapshot series of PwC publications focuses on the new M&A standards and is intended to help our clients keep abreast of emerging issues resulting from the new standards, as well as new ideas on modifying current strategies and employing new ones for future deals.

Volume 6 of Mergers & acquisitions: A snapshot discusses several intricacies in the M&A standards relating to the accounting for partial acquisitions and disposals that may impact how companies report financial results and communicate to shareholders.

Three private equity chief financial officers and one PwC valuation partner gathered in midtown Manhattan to discuss the impact of FAS 157 on their valuation procedures.

Lately, Chinese companies have stepped onto the global stage, with an expanding portfolio of international mergers and acquisitions. Outbound foreign direct investment from China was reported by the Chinese government to be $19 billion in 2007, and for the first four months of 2008, outbound activity was reported at $20 billion. As increasing numbers of Chinese companies look to global markets for access to resources, customers, intellectual property (IP) and technology, they face cultural, talent, and financial reporting and legal challenges along the way. Find out what PricewaterhouseCoopers China M&A partners Ben Ye and Ken Su have to say about the factors driving Chinese companies to go global, and the challenges they confront along the way.

In early December 2007, the Financial Accounting Standards Board (FASB) issued two new standards that changes the way companies will account for and report their deals. The International Accounting Standards Board (IASB) has issued related standards in January 2008. The new US standards, FAS 141R, business combinations, and FAS 160, non-controlling interests in consolidated financial statements, not only put a greater focus on financial reporting as it moves toward fair value; they also call for heightened diligence and valuation. Although these changes will not be effective until 2009 and early adoption is prohibited, dealmakers should be aware of how these changes will affect their M&A process and their ability to get the deal done.