BELGIAN UPDATE – M&A Outlook (First Half of 2015)
- Toward the end of 2014, the Belgian M&A market became increasingly active. Due to several factors such as a weaker euro, fear on the part of business owners for a tax shift and greater willingness of the banks to finance acquisitions, the positive trend of enhanced M&A activity continued in H1 2015.
- Private equity investment accounted for 25% of the number of deals, with some 11% of secondary buy-outs. The great majority of deals were trade sales among industry players (62% of the deals). There has been a significant drop in private equity investments as compared to last year.
- In H1 2015, consumer goods, foods and retail, and industrial/manufacturing have been highly active sectors in M&A transactions, accounting for 40% of the total M&A deals. General services, and computer technology and software also played an important role in these transactions (respectively 12% and 10% of the total M&A deals).
- During H1 2015, interest by US and French investors in Belgian companies remained high. Together the investors from neighbouring countries represented almost half of all M&A deals (49%).
- It is remarkable that no reported bidders come from China, as some announced enhanced M&A activity in Western Europe from that country. In contrast to last year, in the first half of 2015 no reported bidders were Japanese, Canadian, or Indian.
1 Legal Environment
The general legal environment for public and private M&A remained stable throughout H1 2015. In 2014, there was a certain expectation that for Belgian individual tax payers exempted returns from equity investments would henceforth be taxed. However, the political discussions about the introduction of taxation on returns on equity investments are still ongoing and there seems to be quite some disagreement on the issue among the members of the current coalition government.
No major legislative changes are to be reported. It is noteworthy, however, that in accordance with article 11 of the law of 14 December 2005 on the abolition of bearer securities, all securities that are still in bearer form will have to be sold by their issuer at auction through Euronext Brussels before 30 November 2015. The bearer certificate holders will only be entitled to claim the proceeds resulting from the auction, not the securities (shares) themselves. As from 1 December 2015, any securities that have not been sold will have to be registered in the Deposit and Consignation Office (a government owned institution) until when it appears that someone lawfully claims the securities.
International: Bilateral Investment Treaties – Panama
The government has reached consent to ratify the BIT between the Belgium-Luxembourg Economic Union (BLEU) and Panama.
Case Law – International Investment Arbitration – China
Ping An, a Chinese investor in Fortis Bank, saw its investment drop dramatically in 2008. Ping An argued that Belgium failed to provide a stable and secure business environment for their investment and equally failed to implement proper measures, protections and solutions to prevent and resolve the Fortis liquidity crisis. The question for the arbitral tribunal was whether the 2009 BIT could apply to existing pre-1 December 2009 disputes based on breach of the 1986 BIT and notified under that BIT. On 30 April 2015, the tribunal decided that the claim was inadmissible for lack of jurisdiction.
Case Law – Corporate
It is impossible in this newsletter to summarise all court decisions published in the course of the first half of 2015 that may have an impact on M&A transactions in Belgium. Here is a short summary of a few highlights:
- Non-compete clauses
The Belgian Court of Cassation (23 January 2015) confirmed the prevailing view that a 17 year non-compete clause between two companies in an M&A context is excessive. More importantly, the Court of Cassation added that if the non-compete clause fails, this will lead to the nullity of the non-compete clause. The nullity will, as a rule, not be extended to the entire agreement.
- Share price in forced sales or purchases of shares – no minority discount
Recent case law provides more guidance regarding the valuation of shares in the context of a forced sale or purchase of shares in situations of dispute between shareholders.
To avoid deadlock in case of lasting disagreement between shareholders, one of the shareholders may file an action in court to force the other shareholders to purchase its shares. The Antwerp Commercial Court (30 May 2014) held that the shareholder who wants to leave a company has to prove that its rights and interest are seriously harmed by the other shareholders’ conduct (serious cause) and that it cannot reasonably be expected to remain a shareholder.
The president of the Commercial Court (6 June 2014) stated that the value of the shares must normally be determined on the date of the transfer of the shares. The value of the shares should correspond to the price a third party would be willing to pay.
The Court of Cassation (21 February 2014) clarified that the judge must not take into account the consequences of the serious cause on the value of the shares and warrants. Moreover the judge should not take into account the behaviour of the parties resulting from the proceedings. In this judgement, the Court of Cassation confirms previous decisions.
In another judgment the Court of Cassation (20 February 2015) took a more explicit stance. The Court took the view, first, that as a matter of principle, the valuation must be as per the transfer date (but there may be exceptions). Second, the valuation must be corrected in order to neutralise the impact of the conflict on the value of the shares. Third, the Court acknowledges that the use of a cut-off date other than the transfer date may be a valid way for the judge to neutralise the impact of the conflict on the value of the shares. The consequence of this is that the cut-off date for the share valuation may be set before the share transfer date. Following this new development in case law judges may exercise a more extensive power of appreciation to determine the value of the shares than was the case under previous case law.
- Financial assistance
If certain conditions are met, Belgian company law allows a limited liability company to finance or guarantee operations effected in view of the acquisition of its shares by third parties. The Belgian Court of Cassation (30 January 2015) decided that money drawdowns, loans or security interests will only be caught by the financial assistance prohibition if they must be refunded or returned. Non-refundable payments will normally fall outside the scope of the financial assistance rules.
- External representation of a company
The Court of Cassation had the opportunity to confirm its opinion on external representation of a company in two cases (13 December 2012 and 27 May 2013, published in 2015). The main rule remains that a representative should declare that he or she acts on behalf of a company. Absent this, it will be presumed that the obligation is personal to the signatory. The Court pointed out that it is up to the judge to decide case-by-case whether a representative acted on behalf of the company or for his or her own personal purposes.
Tax – Legislative Changes and other developments
The following legislative changes and other developments in the Belgian tax environment that occurred in the course of the first half of 2015 may have a direct or indirect impact on M&A transactions in Belgium:
- The Notional Interest Deduction (NID) which provides for deduction of fictitious interest on the adjusted equity of a Belgian taxpayer remains in place. This has been confirmed by the government on the occasion of the budgetary control of March 2015. The NID rate for tax year 2016 amounts to 1.63% (and 2.13% for SMEs).
- The Fairness Tax, which was introduced in 2013, is a separate tax of 5.15% on dividends distributed out of profits that were not effectively subject to the ordinary Belgian corporate income tax regime due to deduction of tax losses carried forward and notional interest. The compatibility of the Fairness Tax with the Constitution, double tax treaties and EU law was questioned from the beginning. A request to annul the Fairness Tax was filed before the Constitutional Court on 31 January 2015. The latter has raised a prejudicial question to the EU Court of Justice on 28 January 2015 with regard to one of the grounds for annulment. It will at least take another year before a final decision with respect to the annulment of the Fairness Tax will be handed down.
- The government has announced various tax incentives for start-ups: an individual tax reduction for investment in new companies, an exemption of payment of wage withholding tax, an investment deduction for investments in digital assets and an incentive for crowd funding.
- In the framework of the implementation of the CJEU’s decision in the Tate & Lyle case the government has announced a withholding tax of 1.69% on dividends paid by Belgian companies to companies located in the European Economic Area, which hold a participation of less than 10% that has an acquisition value of more than €2.5M.
- A special tax for companies active in the diamond sector will be introduced. The tax will be calculated on their turnover.
2 M&A Business Environment
Toward the end of 2014, the Belgian M&A market became increasingly active. Due to several factors such as a weaker euro, fear on the part of business owners for a tax shift and greater willingness of the banks to finance acquisitions, the positive trend of enhanced M&A activity continued in H1 2015. We have counted some 119 relevant deals on the M&A market in the course of the period under review.
The headline deals of H1 2015 were the sale of IVC by Mr. Filip Balcaen to Mohawk, the sale of Balta to Lone Star, the Delhaize-Ahold merger and the acquisition of Base by Telenet.
Public vs. Private
In H1 2015, M&A activity targeting Belgian listed companies has been relatively quiet. The proportion of deals targeting listed companies in relation to the number of the known transactions targeting non-listed companies is small. There was only one public deal (1%) and 116 known private deals (99%). The ratio between the public deals and the private deals is similar to the ratio in 2014 (4% public deals and 96% private deals). The financial press reported that Balta was keen to launch an IPO by the end of H1 2015, but its shareholders eventually opted for a private sale.
In the first half of 2015, only one public takeover offer was notified to the Financial Services and Markets Authority (FSMA) and published on its website.
Groupe OnePoint/Vision IT Group
This offer concerned an unconditional mandatory public takeover offer in cash by Groupe OnePoint S.A., a French company, for all outstanding shares in Vision IT Group NV, a Belgian public limited liability company, whose shares are traded on the Alternext market of Euronext Brussels and Euronext Paris.
The mandatory bid resulted from the acquisition by Groupe OnePoint of 54.24% of the shares in Vision IT Group by way of private transactions concluded in H1 2015. The threshold for the obligation to launch a public takeover bid is reached if the acquirer acquires, directly or indirectly, more than 30% of the securities with voting rights. The results of the bid confirm that Groupe OnePoint now owns 97% of Vision IT Group. Groupe OnePoint is currently performing a squeeze out to acquire all remaining shares. Any shares not acquired during the squeeze-out process will transfer to Groupe OnePoint by operation of law.
Private equity investment accounted for 25% of the number of deals, with some 11% of secondary buy-outs. The great majority of deals were trade sales among industry players (62% of the deals). An analysis of the results of this year and comparison to last year shows a significant drop in private equity investments: as opposed to 2014, in which 21% of the deals concerned PE investments, this number decreased to only 14% in H1 2015. In addition to the decrease in PE investments, the ratio of PE divestments has increased (9% in 2014 and 13% in the first half of 2015).
In H1 2015, management do not seem to have been very active as investors on the M&A market. Management buy-outs do not account for more than 6% of the total number of deals. The ratio of management buy-outs to other deals (6% management buy-out, 94% other deals) has remained the same as last year.
In H1 2015, consumer goods, foods and retail, and industrial/manufacturing have been highly active sectors in M&A transactions, accounting for 40% of the total M&A deals. In 2014 consumer goods and food, and industrial/manufacturing concerned respectively only 19% and 10% of the total deals. General services, and computer technology and software also played an important role in these transactions (respectively 12% and 10% of the total M&A deals). Concerning computer technology, the graph indicates a 4% reduction compared to last year.
Geographical Interest from Investors
During H1 2015, interest by US and French investors in Belgian companies remained high. Investors from neighbouring countries have also been very active on the Belgian M&A market. Together the investors from neighbouring countries represented almost half of all M&A deals (49%).
The graph demonstrates that the bidders on the Belgian M&A market remain mostly Belgian (28%). However, compared to last year, there is a decrease in the number of Belgian bidders (36% in 2014 and only 28% in the first half of 2015). By contrast, an increase of French (9% in 2014, 16% in the first half of 2015) and UK (3% in 2014, 9% in the first half of 2015) bidders is noticed.
It is remarkable that no reported bidders come from China, as some announced enhanced M&A activity in Western Europe from that country. In contrast to last year, in the first half of 2015 no reported bidders were Japanese, Canadian, or Indian.