Hi Monkeys,
Here is a full-time investment banking interview question:
How Does Your 3-Statement Model Change After A Merger?/IPO?
My thoughts on this (for the first part of the question), if the buyer is acquiring the firm, then they are also acquiring their assets and liabilities as well so that will change their 3 statements.
For the second part, the shareholder's equity on the balance sheet will change, as well as cash from financing will go up, then we would also subtract the proceeds from the IPO from the equity value.
Any thoughts on this?
I'm still a student, so I might be wrong.
For mergers, the income statement and balance sheet would be combined, but you also have to take into account: 1. Revenue / cost synergies 2. Interest expense of debt used for the transaction 3. Forgone interest on cash 4. The goodwill created from the acquisition. 5. The cash used to purchase the target. (?)6. The effect of dilution if shares are issued
Not sure on an IPO.
What?
Assets and liabilities will increase of the acquiring company. Compare the purchase price paid with the book values of th net assets of the target company , if the purchase price exceeds the book value of net assets then the difference is treated as goodwill which is amortized over a fixed period of time , if its the other way round (bargain acquisition) then i think its adjusted in the retained earnings as an extra-ordinary gain. Do confirm the extra-ordinary gain part as IFRS standards may say something different
you forgot about DT A/L rewrites given the retained nature of the purchase (asset sale / stock/ section 368)
To my knowledge, Goodwill isn't amortized, but is instead impaired if the company reassesses the value of the acquisition and finds that they overpaid more than they thought.
not amortized on IFRS books but it is amortized for cash taxes purposes. over 15years.
are you saying compare book value with consideration price? use fair value, not book value of acquiree company Goodwill = Consideration price paid - FVINIA (Fair value of assets and liabilities, not book value).
Also, legal and issuance cost are not included in consideration price paid - they are expensed in P&L. Fairly sure Issuance costs are DB Share Capital.
If bargain purchase, instead of DB Goodwill, you Cr Bargain Purchase (immediately sent to P&L)
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