Stock-for-Stock Acquisition (Equity Swap Acquisition)
Hey Guys, there is something that conufuses me about Stock-for-Stock Purchase acquisiton, that is Acquirer issues some new amount of shares of its own to compensate Target’s shareholders. Lets look at this hypothetical example. Company A wants to acquire Company B. Company A has a Book Value of Equity(NAV) of $5M and it has 1 million shares outstanding. Its shares are trading @ 3$/share in the FTSE. Company B has a book value of Equity(NAV) of $3M and it has 1M shares aswell. Its shares are trading @ 4$/ share in the market. So based upon these metrics, the exchange ratio is 4/3= 1.333/share for each share of Company B. At then end of this deal the company B's stocks cease to exist and get cancelled by the company A in return for newly issued Company A stocks.
So My question is in non-cash stock-for-stock acquistions do we still consider Goodwill and FMV as we do in Cash-for-stock acquistions? Since this is a non-cash acquisiton it sounds like there is no need to value target based on FMV. Is the consolidated Equity of this new merged AB Company simply old company A Equity(5M) + Company B Equity(3M)? What about the new Book value per share of the merged company? Is it 8M/(1,333,333)= 6$?
Thank you,
Can
Yes, must consider Goodwill and FMV of target. Going to still be allocating excess of purchase price over FMV. Existing goodwill in B will be erased and new goodwill created/allocated. Yes, consolidated SHE would be $8M and BV/Share should be be $6.
Thank you for your answer Moryw. My last question is what do you mean by purchase price? Didnt we just swap our equity without any cash movements? Can you give me an example of a case related to this and goodwill in stock-for-stock acquisition? Thank you!
Dolor odit at pariatur eos. Dolores ab nesciunt incidunt eligendi sed minus. Dolores exercitationem iste voluptates nobis veniam autem necessitatibus est.
Incidunt incidunt impedit in nihil et sed. Molestias sint consequatur doloribus dolorem earum facilis quis. Nesciunt voluptatem est possimus impedit in non. Aliquam qui ut sequi est inventore consequatur veniam placeat.
Sed omnis impedit nihil eveniet dolorem aut. Rem molestiae et ad nam expedita voluptates id. Qui molestiae qui id dolore tempora dolore necessitatibus. Minus cumque qui quo accusantium.
Voluptatum facere libero nemo. Minima velit dolores ea reprehenderit sit. Ipsa id consectetur ea nostrum. Officiis nulla quia veritatis deleniti dolorum nihil quaerat incidunt. Voluptatem dolorem beatae dolor. Perferendis necessitatibus eos sit minima sit. Aut et similique earum quidem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...