business transfer workshop for financial institutions€¦ · member of transeo aisbl event...

© J.L. Wuidard - 2015 1

Business Transfer Workshop for financial institutions

October 23, 2015 – Zagreb

Experiences from Belgium and Western countries

Jean-Luc Wuidard

Avocat au Barreau de Liège (BELGIUM)

Partner ACTEO LAW OFFICE

Member of Transeo AISBL

Event organized by CEPOR

With the support of

Experiences from Belgium and Western

countries

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TOPICS

1) Role of banks in Belgium in supporting company owners during the

business transfer process ?

2) Belgium as an example of a developed market of consulting services

for SMEs in the process of business transfer

3) How are roles divided between (M&A experts- Brokers- Lawyers –

Mediators - Financial consultants)

4) The most common forms of business transfers in Belgium and the

most frequent problems that company owners face during the

process ?

5) How to help a client to recognize and face the business transfer

problem on time and define possible solutions ?

6) Case study : Financial assistance in Belgium

© J.L. Wuidard - 2015 2

• I.Role of banks in Belgium in supporting

company owners during the business transfer

process ?

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Rol of banks

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• Key role : why ?

• The transfer of a family business is a high risk factor in the continuity

of the enterprise

• Current credits running on the family business could be in danger

• Banks need to play an active role in those business transfers:

• To secure their current credits

• To finance and develop successfully new types of credits to the

younger generation of entrepreneurs

• To create very close confidence relationships with family

members in order to counsel them in their three dimensions

such as : business issues – family issues- estate issues

Interactions between the potentially conflictual perspectives that

have to be carefully monitored

difficult balance between values invested in the enterprise and

invested privately

© J.L. Wuidard - 2015 3

• II. Belgium as an example of a developed

market of consulting services for SMEs in the

process of business transfer

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Banks in the consulting market sector for

transfer of SME’s

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• A tough competition between the first rank banks

- Various indicators:

- Direct approach towards the founder by specialized teams of internal

employees focused on their client main issues :

- credit specialist

- financial analyst

- Specialists in civil and family law

- Tax experts in Estate and succession planning

Examples :

BNP Paribas Fortis and ING in Belgium :

- invested a lot over the last years in recruitment of legal tax

experts focused on estate planning issues

- Provides high quality information documents in the market with

costly awareness campaigns

© J.L. Wuidard - 2015 4


transfer of SME’s

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• A tough competition between the first rank banks (cont’d)

Examples :

- Banks became active partner or sponsors of various

organizations (chambers of commerce, associations focused on

family business issues, etc.)

- Promotion and ad’ campaigns on such theme

- Editions of technical legal and tax scientific publications

- Organization of update seminars and training aimed to the

network of professional experts dealing daily with transmission

issues (lawyers, tax experts, estate planning councils, etc.)

Strategy is evident : the banker – capitalizing on a personal

closed confidence and relationship with the owner – may provide

awareness about this issue and refer his client to recognized

professional experts in addition to the added value and support of

the bank internal specialized team


transfer of SME’s

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• Banker wants to be the first “resource person” of the owner of the

business

• Using his human skills

• Using the internal banks specialized teams resources (categorized

depending the level of estate of the client)

• Using with appropriate judgment all resources available on the

market of professionals experts

May build a long term relationship not only with the current owner,

but also with several generations after his leave…

Encourage the “word of mouth” : if someone refers my services to

another person based on his positive experience, he avoids me to

engage a sales team.

Needs not only to refer, but requires also a follow-up and cooperation

with the expert chosen by the client

© J.L. Wuidard - 2015 5

III. How are roles divided between:

• M&A experts

• Brokers

• Lawyers

• Mediators

• Financial consultants ?

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Division of the roles ?

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• Being” expert” in family business transmission : what does it means ?

There are different disciplines which need to be integrated :

- Experts in business valuation exercise : focus on :”how much is the

company worth ?”

- Audit firms, experts valuations firms, etc.

- Working with historical data and business plan analysis, assumptions

- A myriad of methods and combination of methods

Various differences between the sectors, and very dependent on the size

of the target

- With respect to SME’s : often under standards of sectors and simplified

valuation process

- M&A experts ? i.e. mergers and acquisitions : generally for “global group of

companies..

- “Brokers” ? Focus on negotiating prices – are paid upon success fee – I may

be the best or the worst advisor in a transfer of a family business -

© J.L. Wuidard - 2015 6


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There are different disciplines :

- Accountants : on SME market, accountants are often the closest periodical

contact of the owner/managing entrepreneur :

- are in charge of the financial books

- They should have a clear view on standard compliance

- But are generally not (but exceptions) the best persons to be qualified in a

multidisciplinary process of transfer of enterprise

- Lawyers : unavoidable to draft, negotiate either the SPA or the best

appropriate legal options for the transfer of a family business, but take care

about their specialization ! (tax lawyers and company law lawyers are

generally the best persons to involve)

- “Mediators” : their role in to prevent conflict or resolve conflict…

- “Financial consultants”: role to review the business plans, to provide financing

options and solutions, etc.


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There are different disciplines which need to be integrated , but some of them

are often missing in practice in SME’s transfers

- Human relations specialist: the key success factor in SME transfer business

market is the PEOPLE issue !

- Important work in preparation should be devoted on aiming a smooth

transition for personnel and key managers

- Psychologists and change management coaches are more and more

intervening upon request of the owner asking for help in the process

- Communication skills trainings are generally strongly recommended to

improve change of success in company transfers

© J.L. Wuidard - 2015 7


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There are different disciplines, but : the focus has to identify the key factors for a

successful transfer of an enterprise:

1) Leaving owner is discharged from his responsibilities and may fin a new role

2) The new manager is competent and motivated (technical skills and human

skills)

3) Parties have good relations (high level of confidence, respect and mindset)

4) Clear agreements over the management model and shareholdings issues

5) The new manager builds a team with both non family members and family

members active in the company

6) Management is performed in a professional way

7) The transmission results in a correct division of the family estate

8) The steps of the transmission are integrated in a precise planning


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• How to identify the best person to help the owner/ or future owner ?

- part of preparation phase

- Identify the needs in the case at hand

- No unique solution

- BUT : FIND the “right person at the right moment”

- The bank have privileged relationships with the entrepreneurs and may play a

strong influence in the process by using their network of experts

© J.L. Wuidard - 2015 8

IV. The most common forms of business transfers

in Belgium and the most frequent problems that

company owners face during the process ?

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Most common forms of business transfers in

Belgium for SME’s

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• Based on personal experience (but reference is done to academic studies)

Various typical cases:

• TYPE A : Transfer from owner/ parent to children or some of them :

• TYPE B : Transfer from owner/ parent to a non related person, but a

person already active in the family business (“Management Buy Out”)

• TYPE C : Transfer to a non related person who is not active in the family

business

Most common type ?

- Difficult to appreciate by lack of objective data collection

- May depend on sector and size of company : Type A probably the most

frequent for very small and local enterprises (1to 5 persons)

- The type B and C are clearly more and more frequent when higher value

enterprises are concerned

Other distinction could also be the sale of the assets or the sale of the shares :

generally sale of shares for tax and technical reasons : pricing different !

© J.L. Wuidard - 2015 9

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First fundamental remark : the non legal aspects of transmission =

MYTHS & TABOOS

: what is typical on all family business ,

• The three dimensions of a family business in full

interdependence : possible conflicts between roles and interests

3 differentregisters

Needs How Method

1. It is an enterprise to be managed Professionalism structure

2, It is a family To be compliant with emotions

Communications skills betweendifferent generations

resilience

3. It is an asset A return – a valuation-protection

Process of benchmarking

Expert’sassistance

Most common types of problems


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Type of transfer

Examples of problems Possible options toexamine

Type A(family transfer)

a) Gift or sales of the business ?b) How to secure parent’s financial

needs ?c) How to treat equally children

active in business and non active children ?

d) Emotional factors : integrate the 3 dimensions of a family business : a) enterpriseb) familyc) asset

- Wil of parents- Legal tools to

keep control- Structure,

organize and plan with experts

- Assistance of “psy” experts (HR, coaches, etc.)

© J.L. Wuidard - 2015 10


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Type of transfer


Type B(MBOtypes )

a) Need to help the “manager” to get financed

b) Need to create the environment to enable the MBO envy

- vendor’s credit- Private or public

invests- Banks and ..- Training and

coaching of both parties


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Type of transfer


Type C(Sale to a non related third party )

a) Pricing issues : expectations gap in value – payments issues (timing, escrow account)

b) Declarations and warranties required by buyer

c) Lack of preparation : the target company has to change before it may be sold = > example “ owner/ founder” is “a cinema star”, but without him, no business can continue..

- Experts- Conciliation

process- Facts and figures

documentation- Professional

methods- Start process IN

TIME : 2 to 5 yearsprocess !

- Ask for an expert audit before any contact to buyer

© J.L. Wuidard - 2015 11

V. How to help a client to recognize and face the

business transfer problem on time and define

possible solutions ?

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How to help the process?

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And….

• Communication through

economic press, etc.

• Create confidentiality

framework

• Share experience from

platforms such as in

Nederlands, France, Belgium,

etc..

• Need for confidentiality

• Banker could also provide

sponsoring for events..

Identify a business transfer

problem ?

• Set up focused meeting with

owner to discuss with him his

plans (if any)

• Rise awareness in the market :

seminars, workshops,

testimonials, etc..

• Use available diagnostic tools

(such as kits and tools of the

European experts networks

www.transeo-association.eu

and of its members

• use internationally recognized

experts if not locally available

http://www.transeo-association.eu/

© J.L. Wuidard - 2015 12

How to help the process?

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Define possible solutions to a business transfer

problem ?

• Interactive exercise between family business owner and :

– The right person : expert..

• Key role of the various resources persons that are periodically in

contact with the enterprise not only the owner/parent, but key

managers, younger generation, etc...

• Banker have an opportunity to build long term relationship with

the clients entrepreneurs by putting the Family Business

Transfer Issue as a vital strategic issue

• VI. Example of financing the acquisition by

using cash of the target : illustration under

Belgian company law

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© J.L. Wuidard - 2015 13

What is « financial assistance » ?

• In most deals, buyers need to borrow funds to

finance the purchase of the target company

• Who could finance this ?

– The 3 F = family, friends, fools

– banks

– (sometimes) the vendor for a certain period of time and

within agreed limits

• It may happen that the (healthy) financial situation of

the target company allows to consider to use the

“financial assistance” model

• Specific situations where the target company will be

authorized to provide a loan (or a pledge) to buyer

within certain limits and conditions – such way of

financing allowed in Belgium since 2009 only -

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Legally acceptable financial assistance (art. 629 et 329

Belgian Company Code)

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Need to gather general shareholders meeting to get authorization to proceed

Funds or amounts affected to loan or pledge = may not exceed legally distributable sum (art.617)

Obligation to record in the accounting books an unavailable reserve account

Need to draft a special Board of Directors ‘ report under its responsibility

Motivation of the transaction ?

Interests of the target company ?

Financial conditions ?

Liquidity and solvency risks ?

Info about purchase price ?

Company A intends to provide a loan or a pledge in view of

The acquisition or subscription by a third party Of its own shares

© J.L. Wuidard - 2015 14

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Real estate 850 Capital 400

Receivables 10 Reserves 450

Cash 440 Equity 850

Debts 450

Total assets 1.300 Total liabilies& e. 1.300

SA REAL ESTATE

Equipment 500 Capital 200

Receivables 100 Reserves 800

Cash 900 Equity 1.000

Debs 500

Total assets 1.500 Total liabilities 1.500

SA OPERATION

Family owners : brothers and

sisters

Candidate buyer : non

Belgian U.E. company

Price agreed for the 2 Belgian companies

= 4.100 k€ for the real estate company +

2.400 k€ for the operational company or

in total = 6.500 k€

Flow of monthly rental payments

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Real estate 850 Capital 400

Shares SA Ex 4.100 Reserves 450

Receivables 10 Debt Fin. Assist. 600

Cash 240 other debts 3.750


SA REAL ESTATE

Equipments 500 Capital 200

Receivables 100 Intangible Reserve 600

Loan to SA R E 600 Other reserves 200

Cash 300 Debts 500


SA OPERATION

STEP 1 : Acquisition of target 2 by target 1 becoming holding

Loan from company UE of buyer (8 years) 1.300

Bank 1 (7 years) 1.000

Bank 2 (7 years 1.000

Loan Financial assistance SA Operations. (8 years) 600

Utilization of cash from SA Real Estate 200

Total financing for SA Real Estate 4.100

Financing

© J.L. Wuidard - 2015 15

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Real Estate 850 Capital 400

Shares of SA O 4.100 Reserves 450

Receivables 10 Debt Fin. Assistance 600

Cash 240 Other debts 3.750


SA REAL ESTATE

Equipments 500 Capital 200

Receivables 100 Intangible reserve 600

Loan to SA R E 600 Other reserves 200

Cash 300 Debts 500

Total assets 1.500 Totalliabilities 1.500

SA OPERATIONS

STEP 2 : acquisition of target 1 by non Belgian buyer (EU)

Share purchase of SA real Estate financed by : 2.400

Bank in country of origin 1.400

Equity of buyer or 1.000

Equity of buyer if 550

there is financial assistance for cible 1 450

Total financing for Buyer 2.400

Avantages and disadvantages

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If done at the lower tier subsidiary => may result in debt push down

Responsibility of directors exposed prevention and special prior review

Need to perform a close follow-up of reimbursement plan and react if necessary by increasing equity

Traps and pitfallsImpact on resources of he target for the period of the

loan

Bet on the profitability short and mid term of target

Special care need on tax and legal aspects

Allows to use cash from the target company to finance the acquisition

Avantages cash position-Potential tax optimization ? (« limits to debt push

down »)

© J.L. Wuidard - 2015 16

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Contacts :

Jean-Luc Wuidard

Avocat au Barreau de Liège

Actéo Cabinet d’Avocats

Phone.(direct):+32[0]4-221 72 72

Mobile:+32[0]477 466 145

[email protected]

Ilot Saint Michel, place Verte, 13

B-4000 Liège

Tel. : +32 [0]4-252 46 90

Fax : +32 [0]4-252 92 31

http://www.acteo.be

© Jean- Luc Wuidard, ACTEO Cabinet d’avocats, 2015 - All rights reserved.

Reproduction prohibited except prior written authorization

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mailto:[email protected]

http://www.acteo.be/

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