1 / 42

Latest M&A Outlook & Accounting for Acquisitions

Latest M&A Outlook & Accounting for Acquisitions. Presented by: Anthony Giordano BKD Corporate Finance Matthew List, CPA BKD, LLP. BKD, LLP Overview. 32 offices in 12 states Approximately 250 partners More than 2,000 employees Six industry niche groups

chandler-nelson
Download Presentation

Latest M&A Outlook & Accounting for Acquisitions

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Latest M&A Outlook & Accounting for Acquisitions Presented by: Anthony Giordano BKD Corporate Finance Matthew List, CPA BKD, LLP

  2. BKD, LLP Overview • 32 offices in 12 states • Approximately 250 partners • More than 2,000 employees • Six industry niche groups • Clients in all 50 states and internationally • End-to-end client service proposition • Audit & Tax • BKD Corporate Finance • BKD Technologies • BKD Wealth Advisors • Forensics & Valuation Services • Risk Management • Special Tax Services

  3. BKD Corporate Finance Overview • Subsidiary of BKD, LLP • FINRA broker dealer • Investment bankers • Financial analysts • Corporate finance services • Mergers, acquisitions, divestitures, management buyouts, recapitalizations • Debt & equity financing • Strategic options analysis

  4. Current Market Conditions Strategy to Achieve Your Goals

  5. U.S. Middle Market M&A Activity * Disclosed middle market transactions

  6. U.S. Middle Market Deal Statistics – Q4 2009 Middle market disclosed transactions (enterprise value between $10 and $500 million) Source: Capital IQ, W.Y. Campbell

  7. EV/EBITDA Valuation Multiples

  8. EV/EBITDA Valuation Multiples

  9. EBITDA Multiples – GF Data Resources U.S. PEG Middle Market Deal Statistics

  10. Credit Markets Strategy to Achieve Your Goals

  11. Credit Markets

  12. 3.5x 3.3x 3.3x 1.0x 2.7x 0.8x 1.0x 2.5x 2.5x 2.5x 1.2x 0.7x 2.0x 0.9x 0.9x 2.5x 2.3x 2.5x 2.0x 1.6x 1.8x 1.5x 1.6x Credit Markets – PE Deals Historical Leverage Multiples

  13. Credit Markets – PE Deals Equity & Debt Contributions

  14. Private Equity Group Fundraising $ billions

  15. Financing Structures • Several ways financing is being arranged • Debt financing (still tight, but loosening) • PE investments • Earnouts • Seller notes • Royalties

  16. Mold a strong management team Business plan Financial statements Invest in the future Improve margins & profitability Customer concentration Balance sheet Controlled ownership Pre-due diligence Timing Tools for Building Value – Plans to Accelerate Value

  17. Accounting for Acquisitions

  18. FAS 141 Self-sustaining set of activities & assets conducted for purpose of providing return to investors FAS 141R Integrated set of activities & assets capable of being conducted & managed for purpose of providing return in form of dividends, lower costs or other economic benefits directly to investors or other owners, members or participants Definition of a Business

  19. FAS 141 Occurs if entity obtains control of business through acquisition of equity interests or net assets FAS 141R Transaction or other event in which acquirer obtains control of one or more businesses Definition of a Business Combination

  20. Example: Share Repurchase • Company A owns equity investment in investee • Investee repurchases its own shares from other parties • Proportional interest of Company A increases, causing Company A to obtain control

  21. Example: Contract • Company C & Company D enter into contractual agreement to combine their businesses • Company C will control all operations

  22. FAS 141 Most considered part of cost of business combination FAS 141R Recognized separately from business combination & generally expensed as incurred Acquisition & Restructuring Costs

  23. Impact • Lower earnings • Less goodwill

  24. FAS 141 Recognized using cost accumulation approach. Any outstanding minority interest is recorded at its carrying amount FAS 141R Recognized at fair value, with limited exceptions Acquired Assets & Liabilities – Partial Acquisition

  25. Example – Partial Acquisition Acquirer purchases 75% of Target’s common stock for $250M in cash Facts • FV of NCI is $75M • FV of 100% of identifiable assets & liabilities is $100M • Carrying value of Target’s net assets is $50M

  26. Analysis FV of consideration transferred FV of NCI FV of consideration & NCI FV of 100% of assets/liabilities Goodwill $250M 75M 325M (100M) $225M Example – Partial Acquisition

  27. Partial Acquisition • FAS 141 – ($100*75%) + ($50*25%) • FAS 141 - $50*25%

  28. Example – Step Acquisition • Acquirer has 30% previously held equity interest with carrying value of $150M • Acquirer purchases additional 50% interest for $300M & obtains control • FV of previously held equity interest is $200M • FV of NCI is $100M • FV of net assets is $500M • Carrying value of net assets is $400M

  29. Step Acquisition • FAS 141 – $400*20% • FAS 141 – ($500*50%) + $150 + ($400*20%) • Gain on previously held equity interest ($200 - $150)

  30. FAS 141 Allocate pro-rata to first reduce noncurrent assets then to earnings as extraordinary item FAS 141R Recognized in earnings Bargain Purchase

  31. Example – Bargain Purchase • Acquirer pays $200M in cash to acquire 100% of Target • FV of current assets is $100M • FV of long-lived assets is $150M

  32. Bargain Purchase

  33. ASC 810, Consolidation (FAS 160 – Noncontrolling Interests)

  34. Before Proportionate amount acquired recorded at FV After After control obtained, subsequent changes in ownership accounted for as capital transactions (i.e., investments by owners) Step Acquisitions

  35. Before Issuance of new shares by sub – gain/ loss recognized in income or directly to parent’s equity Sale by parent of existing sub shares – gain/loss recorded in income After Capital transaction (i.e., distribution to owners) Decrease in Ownership (Control Maintained)

  36. Before Deconsolidate & recognize gain/loss equal to FV of consideration received less carrying value of interest sold Any remaining NCI recorded based on historical carrying value After Similar to before, except retained NCI revalued to FV & gain/loss recorded Loss of Control

  37. Example – Control Lost • Company A owns 100% of sub B • A sells 60% of B for $360M (control lost) • B will be deconsolidated & accounted for under equity method • FV of sub B is $600M • Carrying value of identifiable net assets is $440M & goodwill of $60M

  38. Example – Control Lost • Before – ($440+60)*40%; After - $600*40%

  39. Example – Control Maintained • Co. A owns 60% of Co. X; Co. B owns remaining 40% • Co. A purchases 40% from B for $300M • FV of X is $750M • FV of X’s identifiable net assets is $600M • Carrying value of net assets is $520M • Previously recognized GW is $130M • Carrying value of NCI is $260M

  40. Example – Control Maintained • ($600-520)*40% • $300 – ($600*40%) • Before – $520*40%

  41. Effective Date • Fiscal years & interim periods beginning on or after December 15, 2008 • Early adoption prohibited

  42. Thank You agiordano@bkd.com mlist@bkd.com

More Related