Transaction consulting and financial modelling

From the very beginning of our operational activity, that is since 2010, we have been supporting our clients in making valuations of enterprises, intangible assets and financial instruments.

Valuations are needed for the following purposes:

• transactional;
• accounting;
• restructuring (forced or group restructuring).

In all of these cases we prepare market/ fair value measurements in accordance with Polish as well as international (ICVS) standards. Our staff are members of institutions such as Statutory Business Valuators Association in Poland or Business Valuation Institute UK.

We not only leverage unique expertise in the field of valuations but also have access to international information services (Refinitiv, Bloomberg, MergerMarket, Royalty Range). All this to ensure that our valuations maximise (in line with IFRS 13) the use of objective market data instead of subjective assumptions.

That is why our valuations are used for preparing transfer pricing documentation, in transaction negotiations, or as a basis for recognition of the value of financial instruments held in the accounting books according to the IFRS.

Benefits to our clients?

Cooperation with the best valuation experts ion the market, access to full market information.

At the time of acquisition, the acquiror is obliged to recognise all assumed assets, liabilities and contingent liabilities in fair values. This applies to all identifiable assets and liabilities, also those that were not shown in the balance sheet of the acquired entity.

Within this area we determine the fair values of the purchased assets (if the fair values are materially different from the book values) of the acquired company. This usually applies to: a trademark, customer base, order backlog, the distribution agreement and other elements of the company's balance sheet. Particular attention is paid to the identification of intangible assets for the purpose of assessing whether they meet the definition of traceability and control.

Then goodwill is determined, which is the difference between the fair value of the consideration (also determined under this order) and the sum of fair values of identifiable assets.

Benefits to our clients?

Assessment of respective fair values in accordance with IFRS 13 and other standards. Discussion with auditors on the calculations and the necessary adjustments to the consolidated accounts left to us.

Apart from valuations, where financial models are the basis of the income method, we create models for investment projects in order to obtain an investor or a grant. Our models are created according to a consistent methodology, are auditable and parameterized.

Auditable - so that they can be checked (validated) in the easiest way possible (which also ensures their high quality). We provide this feature by building them according to strict rules (for example, each subsequent sheet in the same convention: individual columns are consecutive periods, the same in each sheet; there is only one formula in each line, etc.)

Parameterized – to allow conditionality analytics “what if?” by checking how the model and its results behave after changing one of the key parameters. This feature is also used for sensitivity analysis.

The purpose of our models is usually to create a balance sheet, profit-and-loss account and cash flow statement for subsequent periods of the plan /investment project.

Benefits to our clients?

Their model will be created by modelling specialists, so it will be transparent, verifiable and changeable, and most importantly – will be able to be used in the future to compare real results with the assumed ones.

For our clients we also validate models used by them or such, which they base their operations on.

We provide such services for banks acting as depositaries custodians of investment funds' assets, for investors, for investors who are presented with financial models by other institutions, for regulators.

Validation is the verification of the following correctness of a model:

• substantive (whether the numbers in the model are correctly included – revenue base, costs, etc.),
• parametric (whether the parameters adopted are derived from market data to the maximum extent they can be, or whether they are based on unverifiable assumptions),
• accounting (whether the balance sheet and the performance account are created correctly and based on rational calculations in the model and whether they are recognised in accordance with the relevant accounting principles e.g. IFRS),
• arithmetic (whether model conversions are correct and whether the cells are linked properly).

Benefits to our clients?

Greater certainty about the correctness of the model, obtaining verification from people who professionally deal with valuations and evaluation of investment projects and building financial models.

Due diligence is an inherent process in every transaction. Due diligence gives the potential buyer the results of independent expertise and risk analysis as well as presents the possibilities of the proposed transaction. This allows for minimising the risk associated with post-trade M&A events and provides a solid base for the post-transaction integration process.

This process provides answers to the following questions:

• Is the data provided by the acquired entity and on which the buyer bases his/her opinion, reliable and accurate?
• Are the historical profits of the company stable?
• What are the potential future profits of the company?
• Do profits turn into cash?
• What are the potential synergies associated with the proposed transaction?
• Is the purchase price reasonable considering the results of due diligence?
• What are the key business risks for the company?
• What business events have influenced the company's successes/failures in previous periods?
• What are the company’s key success factors?
• Which KPIs should be monitored to assess the company's operations and how they have evolved in the past?

The purpose of due diligence is to identify financial and business risks, which would have negative impact on the assessment of the reasonableness of the transaction in general or on the price in the investment process.

Benefits to our clients?

Report on the assessment of financial risks of the company that is potentially the target of the acquisition means reducing the risk of investment and obtaining a list of issues to be addressed in the share/stock purchase agreement.

The share/stock purchase agreement (SPA) is a key document that should address issues identified in the course of due diligence, as well as properly formulate the issues of settlements between the buyer and the seller.

We cooperate in this area with law firms conducting the contract, at the same time ensuring that financial arrangements (including representations of the sellers) and mutual settlements are described in a way that will minimize the space for interpretation or disputes in the future.

We draft relevant parts of contracts so that they are unambiguous and avoid wording that could be subject to interpretation in the future as a result of, for example, incorrect use of financial or accounting terminology.

Benefits to our clients?

Mitigation of the risks of subsequent disputes with the buyer/seller. Unambiguity of the contract and fundamental certainty of settlement.

However, should a dispute arise – we make appropriate analyses to determine whether there has been fraud, abuse or misappropriation of assets. The two main areas of investigative audits in which we operate are:

• Transactional area – audits regarding the way between buyer and seller for the final settlement or irregularities in the information provided to the buyer at the due diligence stage (part-price refund or Representations and Warranties);
• Area of misappropriation of assets – audits of suspected fraud committed by members of the management board or other partners against shareholders in the area of abuse of trust.

Benefits to our clients?

Based on the analysis of data, documents and interviews, a report is prepared indicating (1) scope and mechanism of abuse, (2) financial quantification, (3) the strength of evidence as perceived by us, (4) a summary of evidence or leads.