For good or bad, the business environment surrounding mergers and acquisitions (or M&A) activities is becoming more competitive and subject to a higher level of scrutiny by investors, the market (CVM and BOVESPA), regulatory Agencies (CADE , environmental and other agencies) and the Fiscal Authority (RFB).
The process of M&A needs to be analyzed in its entirety and it is necessary at each stage to consider the effect of the decisions in the later stages, not only avoiding risks to the acquiring entity, but also better evaluating the synergies resulting from the transaction.
The usual sequence of events in a M&A process has proved increasingly insufficient to, on the one hand, explore all the potentials of a negotiation and, on the other hand, to properly prepare the post actions.
The M&A process has some characteristic steps, which are different in different entities and in different transactions, but have, in most cases, some common characteristics. The process has different agents throughout its evolution:
The whole process of a negotiation is centered on the evaluation of the acquired company. This evaluation evolves throughout the process according to the needs of each agent and with the amount of information available at each step.
The decision of the deal maker during the preliminary negotiations is based on a restricted set of information, especially in the most common cases in Brazil, where the target is a closed-capital company, often a limited society. Time is essential at this stage, which requires the evaluator who advises deal maker a balance between speed and accuracy.
Although the due diligence process is justifiably concerned with risk identification, it is the only time to obtain information that allows the evaluator to revise its projections and provide subsidies to deal maker for the closing of the business , especially when the target is a closed-capital company.
Once the business is closed and the integration initiated begins the process known as PPA (from the English Purchase price allocation) where the excess of the price paid in relation to the net equity of the acquired company is appropriate between more (or less) asset asset, Passive adjustments, contingencies and goodwill. The evaluation required by the controller at this stage is usually much more detailed and follows much more stringent criteria than those used by deal maker. This assessment will have to survive the rigorous scrutiny of auditors, regulators and eventually the tax authority.
Not only that, the goodwill and added value of assets established during the PPA will be subjected to impairment tests in future exercises. Misleading decisions in this stage may result in future losses relevant by impairment.
It would therefore be desirable that throughout the whole process of the transaction, from prospecting to the record of the transaction to the RFB there is the support of an appraiser or team of evaluators who knows the whole process and advises all the agents involved.
Some practical situations
How can we help you
The betape has been active for several years in evaluating companies, projects and businesses. Our team operates in evaluation processes for the most different purposes, from the prospective part of the transaction, through the PPA, to the impairment tests.
Since the advent of the 11.638/2007 law we have acted in PPA and impairment test processes. Our work has been successfully reviewed by all the major audit companies in Brazil.
This article was written by Roberto