Day 1 - M&A Accounting and M&A Modeling Issues

Day 1 a.m. - M&A Accounting Issues

This session reviews the fundamentals of M&A accounting. In addition, complex areas such as the valuation of noncontrolling interest, goodwill calculation and the treatment of fees are covered.

Key topics:

• Purchase accounting
• Recap of equity method and consolidation of subsidiaries
• Noncontrolling/minority interest
• Contingent consideration
• Equity issuance fees
• Financing fees
• Legal, accounting, tax and M&A advisory fees
• Fair value of net assets acquired
• Impairment testing
• Negative goodwill

Day 1 p.m. - M&A Modeling Issues

This session addresses four key complexities in M&A models: Non-coterminus year-ends, using a flexible deal date, currency translation and the creation of a noncontrolling interest.

We start by addressing the issue of calendarizing the financials of buyer and target when they have non-coterminous year ends. Using a simplified merger model, we demonstrate the issue and then we build a flexible calendarization structure. The issue of working with a flexible deal date is examined next. The balance sheets of acquirer and target are calendarized at deal date and the consolidation issues at deal date are addressed, thus creating the opening balance. We then proceed to build the consolidated financial statements post-deal. The next issue is the foreign exchange translation required when the acquirer and target financials are reported in different currencies. This is incorporated in the model using the latest known spot rate. Finally, we cover the creation of a noncontrolling interest (minority interest) when the buyer acquires control but purchases less than 100% of target's equity. This issue is analyzed using a separate mini-model.

In the last part of the session, participants are given an expanded merger model to complete, which includes all the complexities discussed during the session.

In order to get the full benefit of the session, participants need a pre-existing knowledge of the fundamentals of M&A accounting and some familiarity with financial modeling.

Key topics:

• Building a M&A model: overview
• Non-coterminous years: calendarizing the financials of the target
• Dealing with calendarization issues (e.g. lack of underlying data)
• Building a flexible deal date in the M&A model
• Explanation of stub and roll-forward periods in relation to flexible deal date
• Purchase accounting and the mechanics of full consolidation
• Modeling the completion balance sheet and consolidated financial statements post-deal
• Dealing with different currencies
• Creating a noncontrolling interest at acquisition date