Closing the gap on an IER challenge

12 June 2018

Sherif Andrawes, Global Head of Natural Resources
Partner, Corporate Finance
Jane Gouvernet, Associate Director, Corporate Finance |

In our last article we covered some of the topics discussed at our annual Independent Expert Reports Breakfast seminar. These were on:

  • Picking the right expert
  • Don’t let us tell you “You need to impair”
  • The use of research reports on your company, and
  • Reading factual accuracy drafts, carefully.

We acknowledged that merger and acquisition transactions by listed companies, particularly those requiring an independent expert report, continue to be the subject of close scrutiny by interested parties and regulators and at times this scrutiny has become public and hostile.

Our next set of topics will assist in closing the gaps that may result in a successful challenge to your IER and transaction by hostile or dissenting interested parties.

These topics have all been subject to Takeovers Panel deliberations over the last 12 months.

Protect Independence

You may be required to commission an Independent Expert to evaluate your transaction by the Corporations Act or Regulator. The resulting IER is to accompany the materials sent to shareholders and is for the purpose of ensuring they receive an independent evaluation of the transaction.

The expert you commission must not only be independent but also appear to be independent.

The word independent carries with it an expectation that the expert is not influenced by parties that have an interest in the transaction but rather provides an unbiased expert’s analysis of the transaction. That is, independence provides a framework for the protection of the investing public and is highly regulated.

Independence, or the perception of independence can be compromised many ways. For example:

  • Through the involvement of conflicted parties in the engagement or provision of information to the expert;
  • By attempting to enter into discussions with the expert on how they should be evaluating a transaction when the expert is required to direct and lead all meetings and discussions with interested parties;
  • Providing biased information; or
  • Tailoring the report to support a commissioning or other parties’ views.
A loss of perceived independence provides an opportunity for dissenting interested parties to challenge your IER so by protecting independence and its perception you limit the risk.

Keeping it consistent

An easy mistake to make is an inconsistency between various disclosures. In our previous article we mentioned the importance of ensuring consistency between our independent expert report and transaction documents to shareholders by reading our factual accuracy drafts carefully.

Inconsistency can also occur between previously released material information and the information released while the transaction progresses, for example in announcements, media statements or answering shareholder questions. This can easily happen during the cut and thrust of a hostile takeover and needs to be monitored carefully to ensure your disclosure is consistent across all platforms and to all interested parties.  

It’s not over until the outcome of the transaction is known

If after the release of the transaction documents and prior to the end or event that approves the transaction, for example close of offer or shareholder approval, any significant change in circumstances is likely to trigger the need to reassess the disclosure contained in the IER otherwise the material relied upon by shareholders at the time of making their decision on the transaction may be misleading.

As the expert, we will always notify you if information has come to our attention that requires us to review our report or ask the technical specialist to review theirs. Times when this is mostly likely to happen is when one of the companies involved in the transaction makes a material announcement. Even though this announcement may not affect our conclusion it may materially affect the assumptions on which we have relied and this may be sufficiently material to require an update to our IER.

It is also important for you to advise us if you become aware of a significant change affecting the information in our IER.

Once we have completed a review of our IER, taking into account the changed circumstances we will let you know of the outcome so that you can continue with certainty.

And if our IER is subject of a challenge

We will firstly, and vigorously, protect our independence.

We have found that these are the times when every attempt to compromise our independence and attack our approach or disclosure is made.

In these circumstances we will review our report carefully and manage all communication through your lawyers. We will not compromise our independence or your transaction by being drawn in by the challenging party.


BDO has prepared more IERs than any other firm in Australia every year for over ten years.  Experts who do not regularly prepare IERs are likely to be challenged by the level of scrutiny they will be under and the extent of the compliance processes required.

If you’d like to get in touch to discuss any of the information contained here, or have further questions around how we can help your business, please get in contact.