Comments (12)

Jul 29, 2009

hmm, depends.

if the 'transaction' fees are related to financing, then they can be capitalized. new rule makes it so you can't include restructuring, retention, etc. fees as a part of total consideration for an M&A transaction, these fees have to be expensed now.

Jul 30, 2009
hisabness:

hmm, depends.

if the 'transaction' fees are related to financing, then they can be capitalized. new rule makes it so you can't include restructuring, retention, etc. fees as a part of total consideration for an M&A transaction, these fees have to be expensed now.

what about fees paid to ibanks?

Jul 30, 2009

an LBO is an M&A, only that the merger with the shell company created has alot of debt...

Jul 30, 2009

I believe that those are all expensed in the current period

Jul 30, 2009

do amortized financing fees have a useful life equal to the life of the loans?

Jul 31, 2009

the new accounting rule is that you expense all transaction fee expenses aside from debt financing fees - those still get amortized. previously, you only expensed equity fees, but now you also expense legal, etc.

Jul 31, 2009

the new accounting rule is that you expense all transaction fee expenses aside from debt financing fees - those still get amortized. previously, you only expensed equity fees, but now you also expense legal, etc.

Jul 31, 2009

From a GAAP perspective, I agree. Capitalize debt financing fees only and amortize over life of the debt.

From a cash taxes perspective, I believe it differs. Last I recall, all deal expenses accrued following submission of an LOI can be amortized.

What periods do people use to amortize from a cash taxes perspective?

Jul 31, 2009

If the cash amount of the transaction fee is paid upfront and you are amortizing the capitalized balance, don't forget to add back the amortization amount below net income but above cash flow from operations on the statement of cash flows, as the amortization is a non-cash expense. Net the cash transaction fee with the debt issuance proceeds to get the "net debt" proceeds, and that is what you bring in on the cash flow from financing line.

Jul 31, 2009

amort fee of $1m in first period, here is how it should work...

Income Statement - Net income decreases $1m due to write-off (I'm assuming no taxes, but it will work at any tax rate)

CFS - Starts off with NI down $1m, add-back the $1m in amortization as a non-cash expense. No change to cash.

BS - L&E is down $1m due to decrease in net income. Assets are also down $1m, due to no change in cash and the $1m amorization to your asset.

idk where you are going wrong. feel free to PM me and i can take a look, but considering you have the basic logic now you should be able to figure it out... i think your L&E is correct, you need to amortize the asset though. or you are not accounting for this on the CFS correctly.

peace out - hope that helped.

Jul 31, 2009
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