Scope of offered valuations

KPMG is the number one issuer of Fairness Opinions in Poland. Management and Supervisory Boards of corporations (especially those listed on stock exchanges) are constantly facing pressure from shareholders, regulators and control authorities. The risk of overpayment for the assets / companies being acquired is particularly high. For the managers, an incorrect or negligent decision may result not only in the loss of their positions and reputation, but also in severe financial and criminal liability.

Fairness Opinion, an independent opinion on the financial terms of the transaction, is becoming a standard in the Polish market, in particular in the case of large transactions or those affecting minority shareholders, especially in transactions concluded between related entities or those concerning the largest mergers and acquisitions.

Fairness Opinion is recommended in the case of a public tender offer according to Art. 80 of the Act on Public Offering, and in other circumstances requiring the highest standards of corporate governance. In the case of a public tender offer, the act obliges the Management Board to present a position in which it is obliged to declare whether - in their opinion - the price proposed in the tender offer matches the fair value of the company, while the current stock quotations cannot be treated as the only measure of such value.

Since the Management Board may not have sufficient experience to prepare such value estimates or a conflict of interest may occur (the bidder being often the controlling entity, which has appointed the current Management Board), the Management Board may appoint an external expert to issue an opinion. Fairness Opinion constitutes an additional argument supporting the claims of the Management Board that the decisions are made in good faith, according with the interests of the company and its shareholders. Moreover, it is a form of protection against potential future challenging of the strategic decision by shareholders or regulatory authorities.

The key element of every business acquisition or disposal is an impartial and fair opinion on its value. Business valuation in the context of a transaction is not only informative for the client, but also constitutes an important source of arguments in the price negotiation process. Regardless of whether such information is needed by the buying or selling party, valuation assistance is an integral part of any successful transaction.

The process of valuation for transaction purposes includes multiple components which together should reflect the fair value of the target company. As part of the professional valuation service, the KPMG team carefully analyses not only the financial aspects that affect the company's value, but also other factors contributing to reaching a certain price.

The buyer often assumes achievement of significant synergies as a result of the transaction, therefore our analyses may take into account the expected post-acquisition effects resulting from the transaction and implementation of certain improvements. Yet, research on M&A transactions discloses that only one third of them is successful (meaning they create value for the buyers), therefore, it is so important to reliably and credibly estimate synergy effects. Errors in the area of synergy estimation are said to be the most common reasons for failed transactions.

KPMG experts offer professionalism and objectivity in the process of business valuation in the context of a transaction, supported by international accreditations, many years of experience and hundreds of satisfied customers who have trusted us.

Along with the increasing scrutiny of tax authorities towards various business transactions (especially those conducted between related parties), independent valuations of shares and assets are of utmost importance. Such valuations, in particular, may be related to the corporate or personal income tax or the stamp duty. In recent years, in the case of international transactions, there has also been a rising demand for the measurement of exit fee as well as the preparation of a defence file.

KPMG has extensive experience in the preparation of valuations and pricing analyses with consideration of domestic and international tax aspects. Management feels much more comfortable with reliable and well-documented valuation documentation. Our valuations supplement tax documentation and provide support for the management in the event of possible dispute with tax authorities.

Amendments in the accounting principles implemented in the last decade resulted in the emergence of valuations for the purposes of financial reporting, including fair value measurement (IFRS 13), purchase price allocation (IFRS 3) and impairment testing (IAS 36).

Pursuant to IFRS 3, the entity acquiring control over a company must disclose all acquired assets and liabilities, including contingent liabilities, at their fair value, in the process called purchase price allocation. The acquirer must disclose not only the assets already recognised in the balance sheet of the acquired company, but also any identifiable intangible assets acquired in the course of the transaction, such as trademarks, customer and supplier relationships, know-how, technology or research and development projects, which must be measured at fair value for the first time.

The KPMG team provides comprehensive assistance to its clients in the determination of fair value of enterprises, cash-generating units, separate assets and liabilities, as well as in the estimation of the goodwill. Before the closing of the transaction, it is also helpful to obtain a clearer picture of the acquired intangible assets and to assess how these values may affect the financial performance of the company, particularly with regards to the level of depreciation and net profit.

IAS 36 requires annual impairment tests of certain assets and, if necessary, recognition of write-offs of goodwill, tangible fixed assets or intangible assets. KPMG experts can perform valuations required for annual reviews and impairment tests of assets as well as estimate the impact of any impairment losses on the financial statements.

Some transactions concerning corporations require a special procedure specified by law. For example, if shareholders decide on: a minority shareholders squeeze-out to improve the company's operations; a merger in order to achieve synergy effects; a transfer of activities to another company in exchange for shares; or a demerger for a planned disposal - it is necessary to prepare formal documentation and submit it to the relevant commercial court.

In situations specified by law, in particular in accordance with Art. 311, 417, 503 and 538 of the Commercial Partnerships and Companies Code, in the case of:

• minority shareholder squeeze-out,
• mergers and demergers of corporations, and
• provision of in-kind contributions to the company's equity,

reliable and objective company valuations are required, which constitute the basis for an independent expert to carry out the procedures required by law.

Such expert procedures, depending on the situation, may include: a review of the reliability and correctness of the merger plan and the agreed share exchange ratio, a determination of the squeeze-out price or an opinion on the fair value of the in-kind contribution.

Having extensive experience in preparing valuations for the regulatory purposes, we support our clients comprehensively throughout the entire process, cooperating with the expert and lawyers.

At the client's request, we present the results of our work to management boards, supervisory boards, general shareholders’ assemblies, as well as external experts appointed by courts and in other situations specified in the Commercial Partnerships and Companies Code.

The business environment is becoming increasingly complex and demanding. Business partners often decide to terminate their cooperation and conduct mutual settlement. Yet, partners often have a different view on the business value, which causes disputes that find its way to the court. Estimation of business value or the quantum of damages is often a key element in the process of conducting an effective and fair dispute resolution. A reliable expert opinion enables effective and quick litigation.

We have experience in providing expert witness, independent expert and dispute advisory services – in cases where valuation of shares, business or assets, or damage quantification is at the heart of the dispute. We also assist our clients in reviewing and responding to expert opinions provided by the conflicting party or by the independent expert.

We have highly qualified specialists with extensive experience in the preparation of expert opinions for court proceedings, disputes and arbitration. We believe that the expert should not only follow certain professional standards, but also act upon ethical principles and comply with certain legal requirements, which altogether guarantees an impartial and reliable approach.

We have experience in cooperation with top law firms, courts and arbitration tribunals.