Continued scrutiny over publicly listed M&A transactions

05 June 2018

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

We recently held our annual IER Breakfast seminar which was once again attended by a large number of local advisers and companies.

At the Breakfast 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. At times this scrutiny has become public and hostile.

Some public commentary, particularly if it includes broad sweeping statements that question whether independent experts are truly independent, can be damaging and detract attention and time from the true merits of the transaction being proposed.

Although this noise maybe outside your control, here is the first of a two-part series on some of the conversations we had at the Breakfast to assist you in preparing yourself for engaging your Independent Expert.

Pick the Right Expert

Choose an expert on the basis of experience and understanding of the technical, statutory and regulatory requirements not because of cost, ability to provide ‘in house’ specialist expertise, or likely opinion.

Expertise & experience

Experts that regularly prepare Independent Expert Reports (‘IERs’)have a better insight into the regulatory scrutiny and challenges an IER might face and therefore have the competence and experience to determine the best approach and the level of material disclosure required to support their conclusion.

It’s important to beware that the level of disclosure on a transaction can be judged differently depending on the interests of the party asking the question.

There still maybe questions from either shareholders or the regulators however, they are likely to be for subjective and strategic reasons rather than because of a deficiency in the report. A deficiency in the report may derail the transaction whereas questions for subjective or strategic reasons can be dealt with through further disclosure.  

If you are intending to attempt to derail a transaction by challenging an expert’s report, the expert you engage to do so is unlikely to have sufficient information to conduct a thorough independent assessment and is therefore more likely to consume time and money only.

Don’t let us tell you “You need to impair”

There have been times when our valuation unearths a market value of an asset that is materially different from your reported carrying amount. Usually this is because assumptions have not been analysed in as much depth or because a fully independent valuation has not recently been performed.

Before entering into a transaction conduct an internal assessment to protect yourself against an unplanned impairment that creates time delays and raises questions on the quality of your transaction planning and strategy.

For those without a dedicated Audit Committee please see ASIC INFO Sheet 203 Impairment of non-financial assets: Materials for directorswhich may be of assistance. It is also worth being aware of your continuous disclosure obligations once you become aware of such an impairment rather than waiting for the IER itself to be released.

The use of research reports

The ASX has recently updated its Guidance Note 8 Continuous Disclosure: Listing Rules 3.1 -3.1B to stop companies using research reports as de facto announcements that provide information that may not necessarily comply with listing rules or the law.

It is also important to be aware that we do not take into consideration research reports on your company when preparing an IER.

This is because we are required to critically evaluate the reliability and accuracy of any information we use to evaluate your transaction and assets. We are also required to have reasonable grounds for our opinion. In drawing this information together, we rely on the data and information sourced from you and reliable data sources, not from third parties who may have an interest or been paid for their report.

Read the factual accuracy drafts carefully

To protect independence, we will only provide a full draft report for factual checking when we believe our conclusion is unlikely to change. Prior to the full draft, we may provide you with extracts of the draft report without our valuation analysis to ensure we have included all material information and have articulated the facts correctly.

When we provide these drafts it’s important you read them carefully so that we can be confident that the statements in our report are accurate and you have provided us with all the necessary information to carry out our valuation.

A prompt and thorough review by you will also assist us with accuracy and deadlines.

More importantly, a careful review of the full draft will assist in identifying any inconsistencies between transaction documentation and our IER.

Attending the meeting

Sometimes we are asked to attend the shareholder meeting called to consider the transaction and our report. We are unable to do this because it can jeopardise the due process of the meeting and the transaction.

Our reports are prepared carefully to stand on their own and any questions should be addressed to the company who must contact us if relevant to our report. We will then consider the question, review our report, and if additional material information needs to be provided we will prepare a supplementary report.


In our next article we will discuss some of the topics that will assist you in limiting the likelihood of a successful challenge to your IER.

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.

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