Deferred Revenue write downs

Hi guys,

Say target company A (Software business) expects to make $10m dollars in revenue in FY20 for $2m in EBITDA and that they currently have $2m in deferred revenue (for prepaid services) to be recognized in FY20.

If company B takes over A and writes down DRs to their fair value (say 100% writeoff to make it simple), am I correct to assume that A will only recognize $8m in revenue in FY20 and that its EBITDA will then be 0?

If so, can the acquirer make adjustments to its NON-GAAP / management accounts post acquisition to reflect that this is an exceptional situation (non-recurring item) and provide a bridge to investors to justify the difference between GAAP and NON-GAAP?

Thanks

 
Most Helpful
choubix:
Hi guys,

Say target company A (Software business) expects to make $10m dollars in revenue in FY20 for $2m in EBITDA and that they currently have $2m in deferred revenue (for prepaid services) to be recognized in FY20.

If company B takes over A and writes down DRs to their fair value (say 100% writeoff to make it simple), am I correct to assume that A will only recognize $8m in revenue in FY20 and that its EBITDA will then be 0?

If so, can the acquirer make adjustments to its NON-GAAP / management accounts post acquisition to reflect that this is an exceptional situation (non-recurring item) and provide a bridge to investors to justify the difference between GAAP and NON-GAAP?

Thanks

This is a decent write up on the subject

http://mikesandrik.com/deferred-revenue-treatment-in-acquisitions/

 

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