We have noticed your increased interest in our latest newsletter in the field of transaction advisory, which focused on transformations of business companies and setting of the decisive day. We are pleased that you are interested in this topic, so we have decided to produce another newsletter in this field. This time we will focus on the coordination and planning of the entire process from the acquisition, restructuring or preparation for the sale of a part of the assets and appropriate structuring, to the subsequent implementation of the transformation.
As a result of underestimating some steps in the preparation of the transformation, optimal goals may not be achieved or the implementation of the planned transformation will not be possible at all.
In many cases, before the actual start of the acquisition, restructuring or the sale of a part of the assets, we recommend preparing financial and tax due diligence (financial and tax review) of the company or its part. We will discuss the process of financial and tax due diligence in more detail in the next transaction newsletter.
In the preparatory phase, including the preparation of the due diligence report, it is good to think about how the structure of the acquisition or sale should be set. From this moment on, our intensive work/cooperation on the planning and coordination of the entire project begins.
For proper planning and subsequent management and coordination of the entire project, it is appropriate to prepare or to plan a suitable post-acquisition or post-sales structure and to establish a time schedule of individual steps ensuring that deadlines are met and all essential and required goals are accomplished.
Important points on the time schedule:
- Expected acquisition date and planning of the acquisition and post-acquisition structure or preparation of the company for sale – this planning includes:
- Determination of the decisive day for the transformation
- Determination of the method of the implemented transformation and valuation of assets of the company for the purpose of the transformation, if required by law
- Determination of the date for the preparation of financial statements and opening balance sheets, their audit, filing tax returns for corporate income tax, cooperation with auditors, etc.
- Communication and coordination with lawyers, notaries regarding the preparation of the transformation project, powers of attorney, decisions and declarations of governing bodies, holding general meetings, etc.
- Ensuring information about the intention of the transformation – authorities, employees, banks
- Coordination with the internal or external accounting department and the payroll team, setting up the software equipment so that the conditions required by law are met
- Publication of the transformation project in the Commercial Register, holding general meetings of participating companies and subsequent entry of the transformation in the Commercial Register
- Notification of the implementation of the transformation, filing of tax returns for value added tax, real estate tax, tax on dependent activities, etc.
Below we mention selected areas that, in our experience, can fundamentally affect the planning of this process.
Planning of the acquisition and post-acquisition structure or preparation of the company for sale
In order for the subsequent acquisition to be well planned, it is necessary to analyse how the company will be integrated into the ownership structure after the successful acquisition. Already within the acquisition process, it is necessary to consider a suitable acquisition structure that can be prepared for subsequent transformation – for example, a merger by amalgamation between a parent (acquiring company) and a subsidiary (acquired company). At this point, it is also necessary to plan and verify which of these companies will be the continuing company, i.e., the successor company within the transformation, and whether it will be necessary to prepare an expert valuation according to legal provisions, etc. If the acquisition structure, which already counts on further steps of the company’s subsequent incorporation into the buyer’s ownership structure, was not properly set up at the beginning of the process, this could mean significant downstream structuring costs or negative financial and economic impacts in future, for example in the form of tax non-deductible costs for the purchase of a stake or shares, which may be, among other things, costs for financing the acquired company, etc.
As when acquiring a company, it is also necessary to consider and plan for the sale of the company or its part. By properly structuring the company before the sale, ideal effects can be achieved in financial and tax planning. There are situations in which a prospective buyer of the company does not want certain items, such as assets and liabilities, to be transferred together with the company being sold, because they are not related to the core business in which the buyer is interested, and thus the buyer does not want the purchase price to include these items. Or, conversely, the seller does not want the sale of the company to include some assets and liabilities, which the seller plans to use for their further business activities. As part of the structuring of this sale, it would be possible to realise, for example, a division by spin-off of some of the assets of the company before its sale and to sell either the divided company or the spun-off part of the company. This plan also needs to be well planned and all financial, economic and tax implications should be considered.
Determination of the decisive day for the transformation
Another important point in planning the transformation is setting the so-called decisive day of the transformation, as we outlined in our previous newsletter.
If the decisive day is set before the acquisition date (in the past), in the preparation of the schedule it will be necessary to first consider the preparation of the financial statements of all participating companies and their audit if at least one of the companies participating in the transformation has this obligation. Further steps include the elaboration of an expert valuation, if required by law, the compilation of opening balance sheets and their audit (according to the assumptions above), the elaboration of the transformation project and the subsequent publication and entry of the transformation in the Commercial Register.
When the decisive day is set after the acquisition date (in the future), the implementation of the transformation may in some cases be more efficient and faster, as the financial statements of all participating companies and their audit, including the related expert valuation, may occur only after the transformation is entered in the Commercial Register.
As can be seen from these examples, the planning of subsequent steps as part of the schedule may be different when choosing different decisive days for the execution of the transformation.
Notification of the intention to implement the transformation
Don’t be fooled into thinking that this is just a formal notification of your intention to transform your company. This needn’t be true in all cases, so it is good not to underestimate this point.
Many companies, especially in today’s difficult COVID period, are unable to perform their activities and are taking advantage of the opportunity to save or at least partially maintain their business by drawing subsidies. The contracts of certain subsidies have specific conditions regarding transformations. We usually find that the authority that provided the subsidy must give its consent to the implementation of the planned transformation, otherwise the company runs the risk of having to return the received subsidy. Therefore, it is necessary to verify whether this case can affect the implementation of the transformation and possibly to include it in the steps that need to be taken. In addition, one needs to take into account that the authority has a statutory period of 60 days for this statement, which may extend the interrelation of individual follow-up steps for the implementation of the transformation.
In situations where companies have bank funding, we encounter cases in which the prior consent of the bank is required for the implementation of the transformation. Banks have pledged receivables, real estate, shares, etc. Even in this case, it is necessary to take into account a time reserve, to present your intention to the bank well in advance and subsequently to obtain its consent to the transformation. Therefore, we prepare presentations for clients and help them introduce the processes and individual steps to the bank. Without the consent of the bank, it could happen that the funding, or a loan granted by a bank, could become due immediately, which in some cases might jeopardise the continued existence of the company – it would not be possible to register the transformation, etc., due to the pledge of shares or equities.
Companies could also address their need to secure funding sources by issuing bonds. When planning the steps for the implementation of the transformation, it is necessary to comply with the legal provisions within the transformations and to ensure the consent of the bond creditors, i.e., it is necessary to take into account the convening of a meeting of creditors according to the issuance terms and conditions, which may also affect the planned transformation in time, and it is therefore necessary to take this point into account when planning the individual steps.
Coordination of steps with the entire implementation team
From our experience, we see proper coordination and communication with all teams working together on individual steps as an equally significant area for the successful implementation of the transformation, across individual professions, including economists (accounting and financial team), lawyers, notaries, experts, banks, auditors and others. It is necessary to ensure that all documents, underlying materials, decisions and individual steps have the correct timing and chronological sequence as imposed by the deadlines set by law and other regulations.
We are aware that there are many more points and steps that we did not mention in this article and which may be important, under certain circumstances, for the successful implementation of the planned project, but unfortunately they did not fit into this article. However, if you are interested in solving your specific project, we will be happy to go through and discuss all possible situations and scenarios with you.
Our RSM CZ Transaction Advisory Services team has a wealth of experience with acquisitions, sales and business transformations, including the structuring, planning and coordination of the entire transformation process and the compilation of opening balance sheets. We are here to guide and assist you through each step of the transformation process.