Is the deal accretive? With some estimating more than half of transactions fail to add shareholder value, pre-acquisition valuation services can help a company determine if a deal will be accretive or dilutive to earnings.

ASC 805 and ASC 350 have made it critical for buyers to consider how a business combination may impact their financial reporting. Publicly traded firms are especially sensitive to reported earnings per share, which can be affected by intangible asset amortization and other accounting/valuation adjustments, including a haircut to the value of deferred revenue, a step up in the value of inventory, or an accelerated amortization of an asset.

In many acquisitions, intangible assets are the key assets acquired and materially impact the acquiring company’s balance sheet and have a material impact on their income statement. Buyers who wait until the closing of the acquisition may be surprised by the impact of accounting/valuation-related adjustments and their impacts on earnings. To avoid any unpleasant surprises and, in some cases, to design an efficient acquisition structure, it is beneficial to consider the accounting/valuation issues for the acquired assets and liabilities in the early stages of acquisition.

At VRC, we are experienced working with the management teams, during the due diligence process to understand the impact of intangible assets—as well as other complex variables such as inventory, deferred revenues, in-process research & development (IPR&D), earnouts, and other forms of contingent consideration among other items.

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