At the latest M&A Belgium Community Summit, PwC Legal’s Ive Serneels shared some valuable insights on the importance of preparing a company for sale focussing on managing risks and creating value. In a follow-up interview, he unpacks the reality of deal-readiness with colleague Bart Vanstaen.
“Every seller believes their company is ready for sale, but most are not”, says Ive, who has spent more than 16 years of his career at PwC Legal in the M&A department and now serves as its co-lead in Belgium. “Building a legally compliant, well-documented business that will withstand due diligence scrutiny is crucial for a successful deal.”
He explains that if a company’s legal matters are not in order, this can have an impact on the deal price (reduction, earn-out mechanisms, and specific indemnities), timing (extended due diligence due to multiple rounds of questions and extended negotiations), and last but not least, deal certainty (buyer loses confidence and walks away). A fourth, often underestimated, dimension is management distraction: while legal issues are being untangled, key executives are pulled away from running the business, which can itself erode value.
Higher risk in smaller, family-owned businesses
“Not every deal is the same but we see a number of concrete issues that pop up frequently”, says Ive. Some of the most common issues PwC Legal’s M&A division sees include poor corporate housekeeping, incomplete or missing commercial contracts, insufficient IP ownership protection, compliance gaps, and environmental matters. “These are all matters that can have an important impact on the value of the company. Especially in smaller, often family-owned businesses, there is a higher risk of these issues coming to the surface”, Ive adds. “Due to the fact that the owner needs to focus on everything – he / she is the CEO, CFO and HR responsible – the legal, tax and finance function is often less mature compared to a larger corporate or a private equity held business.”
Bart recalls a case he worked on, where one of the primary value drivers of the business was being an exclusive distributor of a certain apparel brand in the Benelux area for the last 20 years. “In each of the management presentations they made towards candidate buyers, they focused on this fact, but when it came to the due diligence, there was no written contract in place. It was operating solely based on trust.”
While an oral arrangement is recognised as binding under Belgian commercial law, when you sell a business, these arrangements tend to leave with the original owner. “We were able to draft contracts to commit to this exclusivity and lock in that value before the deal was signed”, Bart notes.
Red flags
Ive shares an example of how easily value can slip through the cracks when intellectual property is not properly secured. "I worked on a transaction where my client was acquiring a company whose entire competitive edge rested on very specific IP. The problem was that the IP was never documented or legally assigned to the company itself. It only existed in the heads of the owner and a handful of long-time employees."
"The IP only existed in the heads of the owner and a handful of long-time employees."
“From a buyer's perspective, this was a red flag: if those individuals were to leave, fall ill, or refuse to cooperate after closing, the core value of the business could walk straight out the door", Ive notes. "To close that gap, we had each of these individuals formally document the IP and assign all related know-how and IP rights to the company before closing.”
Alignment between stakeholders
Finally, Ive points to the importance of stakeholder management. “A stakeholder that is sometimes overlooked is the management. If you do not engage these persons early, there can be a risk in terms of timing and deal certainty”, Ive warns. “Alignment between stakeholders is needed to avoid destabilisation of the process.”
He recalls a transaction where certain members of the management had been granted a management incentive plan entitling them to shares in the target — a fact that only surfaced late in the process and led to difficult last-minute discussions.
Regulatory impact
The constantly evolving regulatory landscape also impacts sales processes. In addition to competition clearance or sector-specific approvals (e.g. financial, telecommunications) that have always influenced deal processes, one of the most significant developments has been the rise of foreign direct investment screening mechanisms.
“Over the past years, many countries have introduced or strengthened national security review processes that apply to transactions involving companies operating in strategically important sectors, such as critical infrastructure and defence, for example”, Ive indicates. “Belgium introduced its own mechanism in 2023.”
A transaction that would previously maybe have required little to no regulatory engagement may now be subject to mandatory filing, extended review periods, additional conditions or even be prohibited. “In practice, this means that also sellers must assess at an early stage which regulatory clearances are likely to be required and obtained by a potential buyer, then factor this into their choice, as obtaining approval takes time and creates uncertainty”, Ive clarifies.
Apart from the company having to be active in a strategically important sector and reaching a certain investment threshold, the Belgian FDI regime only applies if the buyer (or its ultimate beneficial owner) is a non-EU national or resident – for example UK, US or China. And, as with competition clearance, FDI approval operates as a condition precedent to closing, with a strict prohibition on gun-jumping, meaning that the transaction cannot be closed until clearance is obtained.
The pace at which other regulation changes of course also has an impact on the business itself – Ive and Bart see that sellers are sometimes not able to keep up with regulation anymore. Bart shares an example with respect to environmental regulation matters that is characteristic for this point. “I once assisted a buyer with the acquisition of a waste management facility park, where the seller did not have the required permits or environmental matters in order. He was no longer able to follow up on all the requirements and obligations on his own and had already undergone various inspections with threats to close down if there was no change. Because of this, the purchase price was reduced significantly.”
Had the owner decided to sell sooner, a lot of the reputational and price impacts might have been avoided. “If you wait too long, a lot of the value you’ve worked so hard to build up can be lost”, he says. That’s why it’s important to start preparing for deals even when you are not emotionally ready yet.
Deal readiness starts with knowing your weaknesses
It’s clear, to prevent impact on time, price, and deal certainty, preparation is crucial. “As a seller, you need to make sure you are fully aware of what is going on in your company”, Ive encourages. “As part of pre-sale actions, we always advise sellers to do their own internal due diligence as if they were a potential buyer. When matters are discovered, these can then still be remediated before going to market, leaving less room for surprises afterwards.” The drafting of a legal factbook or legal vendor due diligence report to increase buyer trust and confidence from the outset of the process, can be part of this step.
“As part of pre-sale actions, we always advise sellers to do their own internal due diligence as if they were a potential buyer."
Ive adds: “On top of that, a well-organised and comprehensive data room is an important element in a successful sales process. It signals to prospective buyers that the company is professionally managed, transparent, and serious about the transaction. When buyers encounter a well-structured data room it creates a strong first impression and builds trust. The combination of both items (internal due diligence and data room) protects value, accelerates execution, and positions the seller for the best possible outcome.”
Bart observes that, especially with family-owned businesses, there is often more work to be done upfront. This is because the business and the owner’s private life are often intertwined, with owners holding multiple roles and being more emotionally involved in the process. “Beyond the technical legal expertise, you have to show some human skills and emotional intelligence in cases like these.”
Key message
Expert M&A lawyers, such as PwC Legal, help to manage risks and create value. “We are not just here to draft the sale and purchase agreement; we can be of a lot of value from the beginning of the process”, Ive says, pointing to five pieces of advice he typically shares with his clients:
● Know your weaknesses – conduct internal due diligence and address issues before buyers do.
● Remediate or explain – decide whether to fix issues or clearly explain them.
● Involve the right people, with the right skills. A successful deal preparation is multidisciplinary by nature, combining legal, tax, finance and HR expertise from the outset.
● Plan early – ideally at least 12 months before going to market.
“If you prepare your company for sale in thorough way, as a seller you can control the narrative and set the terms of engagement”, Ive concludes.
