Allocating Purchase Price for an LBO
Hey guys,
I'm having trouble getting my head around what the purchase price (for purposes of allocating it per ASC 805/FAS 141r) for a leveraged transaction.
Let's assume "PEG" offers to buy out "Acme" for $100M, composed of $60M cash, $15M seller note, and the rest in common equity of "Newco" (Newco being the newly formed acquisition entity). In terms of shares of Acme, the $75M would represent 66.7% sold to PEG, and the rollover equity constituting 33.3%.
Post-transaction, in terms of shares of Newco, PEG owns 52% and the Acme rollover holders (who rolled 33.3%) own 48% of Newco.
In terms of purchase price, would one look at the fact that $75M was paid for 66.7% of Acme -- and conclude a purchase price of $112M? Or would one look at the fact that PEG paid $75M, and when all was said and done, only owns 52% of Newco, and therefore conclude a purchase price of $144M?
Much appreciated.
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