Adding M&A fee to Goodwill

Edit: I was wrong.

Sorry the above is wrong. Acquisition fees are expensed as incurred and should reduce retained earnings. The theory, per FASB, is that M&A fees do not represent a portion of the fair value paid for the business. Financing fees, however, are capitalized as a long-term asset to be amortized into interest expense over the term.

http://www.pwc.com/us/en/transaction-services/assets/pwc_business_combi…

Yeah Kobayashi, thanks. That is what I figured. After the revised FAS 144, I believe you don't include the M&A fees towards good will, but DO take it out of SHE, so effectively, in a LBO your equity check would be greater by the M&A fee, correct?

Depends on how you want to fund the fees. No reason you can't target an equity check of $xmm and fund the fees with newly issued debt. But yes, if you are setting up your model to "plug" for the equity than, all-else-equal, the greater your M&A/legal fees the higher your equity check.

The way this actually works in practice is some sort of AcqCo or HoldCo created by the sponsor will incur these fees through a P&L and will actually reduce income taxes payable. So the hit to SHE is less than the full fee. If you're working on the sell-side nobody wants to deal with this level of complexity so it's fine to just debit SHE the full fee amount on your opening/closing BS and ignore the P&L impacts.