Merger Modelling Question
Hey guys, have two questions:
1) Company A acquires company B. B has a lot of NOLs due to losses over the years. These NOLs can be used against income of A (meets the requirements). My question is, does this show up on the consolidated financial statement in the form of a deferred tax asset or is it just an off the balance sheet item that the company keeps track of.
2) What are some differences in the merger model of a reverse takeover? I'm trying to model a company buying out a small crappy company to get a public listing?
Thanks!
work in FIG, so may be a little different. DTA generally does not show up and is an off balance sheet item. If the company does not realize the NOLs, there is a valuation allowance against the DTA. You can typically see the company utilizing the DTA in the tax expense line. For example, if you see a low/negative tax expense, and a large gain in retained earnings/common equity, they are probably using their DTA and reversing their valuation allowance.
A reverse merger is a very complicated structure. Generally the public company (target) is the legal acquirer; however, the private company (larger company) is the accounting acquirer. The private company utilizes the public company's public currency as part of transaction consideration. Most importantly, the private company must have a controlling ownership of the pro forma company. Keep in mind, this is FIG, so not sure how applicable this is to other industries, but I assume the structure is similar.
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