Companies engaging in business combinations must navigate a thicket of accounting guidelines and tax treatments, any one of which can have a profound impact on the ultimate success of a transaction.
Under Accounting Standards Codification 805 (ASC 805), an acquirer must recognize any assets acquired and liabilities assumed, and any non-controlling interest in the acquiree at the acquisition date, measured at fair value as of that date. Assets most commonly meeting the identification criteria include tangible assets, such as real and personal property, and intangible assets, such as trademarks, technology and customer relationships. The latter is typically the most challenging for companies to evaluate, but they increasingly comprise the bulk of the value acquired in today’s deals.
Other items regularly valued for allocation purposes include inventory, deferred revenue and contingent consideration.
An additional purchase price allocation consideration for acquirers is the tax treatment. Transactions that meet certain criteria, including a requirement that the acquirer is obtaining 80 percent or more of the vote and value of the target’s outstanding shares, may qualify for advantageous tax elections under Internal Revenue Code Section 338—specifically Section 338(g) for acquisitions of foreign entities and 338(h)(10) for domestic deals—that can have a big impact on establishing the tax basis of an acquisition. In both cases, valuation comes into the picture when the acquirer must allocate the purchase price to various legal entities and categories/classes.
Clients rely on our valuations—and our advice—for everything from tax planning to preparing financial statements.
VRC produces opinions of value for both tangible and intangible assets, liabilities and equity interests. Our clients rely on our valuations—and our advice—for everything from tax planning to preparing financial statements. Our valuations have withstood the scrutiny of their auditors as well as the Securities and Exchange Commission and the Internal Revenue Service.
In addition, for certain clients, especially those that are publicly traded, VRC also provides pre-acquisition valuations. There are multiple benefits to obtaining a pre-acquisition valuation:
- It assists management in assessing whether a deal is accretive or dilutive
- It helps management meet the post-transaction accelerated disclosure requirements mandated in ASC 805