Chapter_12

Chapter_12 - Structuring the Deal: Tax and Accounting...

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Structuring the Deal: Tax and Accounting Considerations
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Course Layout: M&A & Other Restructuring Activities Part IV: Deal Structuring & Financing Part II: M&A Process Part I: M&A Environment Payment & Legal Considerations Public Company Valuation Financial Modeling Techniques M&A Integration Business & Acquisition Plans Search through Closing Activities Part V: Alternative Strategies Accounting & Tax Considerations Business Alliances Divestitures, Spin-Offs & Carve-Outs Bankruptcy & Liquidation Regulatory Considerations Motivations for M&A Part III: M&A Valuation & Modeling Takeover Tactics and Defenses Financing Strategies Private Company Valuation Cross-Border Transactions
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Learning Objectives Primary Learning Objective: To provide students with knowledge of how accounting treatment and tax considerations impact the deal structuring process. Secondary Learning Objectives: To provide students with knowledge of Purchase (acquisition method) accounting used for financial reporting purposes; Goodwill and how it is created; and Alternative taxable and non-taxable transactions.
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Accounting Treatment Background Statement of Financial Accounting Standard 141 (SFAS 141) required effective 12/15/01 purchase accounting to be employed for all business combinations by allocating the purchase price to acquired net assets. Limitations included difficulty in comparing transactions and mixing of historical and current values. Effective 12/15/08, SFAS 141R required that acquirers must Recognize, separately from goodwill, 1 identifiable assets, and assumed liabilities at their acquisition date 2 fair values; 3 Recognize goodwill attributable to non-controlling shareholders; – Revalue acquired net assets in each stage of staged transactions to their current fair value; – Compute fair value of contingent payments as part of total consideration, revalue as new data becomes available, and reflect on income statement; – Capitalize “in-process” R&D on acquisition date with indefinite life until project’s outcome is known (amortize if successful/write-off if not); and – Expense investment banking, accounting, and legal fees at closing; capitalize financing related expenses 1 Goodwill is an asset representing future economic benefits from acquired assets not identified separately. 2 Acquisition date is the point at which control changes hands (i.e., closing). 3 Fair value is the amount at which an asset could be bought or sold in a current transaction between willing parties with acces to the same information.
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Purchase (Acquisition) Method of Accounting Requirements: Record acquired tangible and intangible assets and assumed liabilities at fair market value on acquiring firm’s balance sheet. Record the excess of the price paid (PP) plus any non- controlling interests over the target’s net asset value (i.e., FMV TA - FMV TL ) as goodwill (GW) on the consolidated balance sheet, where FMV TA and FMV TL are the fair market values of total acquired assets and liabilities.
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Chapter_12 - Structuring the Deal: Tax and Accounting...

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