HI, Thanks for the video. It is such a wonderful video, can you share excel file plldnot be openedouase. File mentioned in the description couldnot be open
Thanks a lot for the video Brian. Quick Question about the PPA: (1)can you give a quick explanation about why you add/subtract write-up/off of exiting DTA/DTL? (2)The New DTL is created only when you can't account for D&A of Write-ups of PP&E and intangible Assets for tax purposes, right?
1) Because these items are written up or down depending on the tax code (too complicated to explain here), and when that happens, the Assets or Liabilities side may increase or decrease, meaning that the Goodwill required changes. If the Assets side decreases, for example, more Goodwill is needed, so you need to add the DTA write-down to factor that in. 2) The new DTL is created only in stock deals (not asset deals) because the D&A on write-ups is not deductible for cash-tax purposes there.
Hi Brian! Thank you for the amazing video. I have a question in my mind about writing down all existing DTL and add back the newly created DTL. Does it mean that the previous difference between cash tax and book tax will be cancelled and the tax department will only consider the new one? Could you briefly go through the basis of it? Thank you in advance! Hope to see your reply soon.
When a transaction closes, yes, all previous cash and book tax differences are reconciled and close and a new DTL is created for anticipated future book vs. cash tax differences.
I'm confused - so we are fair valuing the NCI portion based on the purchase price, which is not always true. The guidance says we often pay a premium for controlling interest in a company. (e.g. We purchase 80% of a company for $25/share and the fair value of the NCI is $20/share). How do we account for that and how does the final balance sheet look so the equity allocated to NCI is still 20% and parent is 80%?
It doesn't matter because the purchase price for 100% of the company, premium included, is assumed to correspond to the value of the Noncontrolling Interest as well. If you pay $1000 for 80% of a company, 20% of that company is worth $200. It doesn't matter if the $1000 represents a 0% premium, a 50% premium, or a 100% premium. The Balance Sheet will always balance because the Goodwill created makes up for the difference between the Equity Purchase Price and the target company's Common Shareholders' Equity.
@@financialmodeling Do you mean if you pay $800 for 80% of the company, 20% is worth $200? $1000/0.8*0.2=$250. Also that is incorrect - the purchase price should not be used to value the noncontrolling interest portion of the company per US GAAP. This is because the acquirer usually has paid extra to gain control of the company and it doesn't make sense to step up the value of the NCI for this. Goodwill is calculated as Purchase Price Consideration + FV of NCI - FV of Identifiable assets of the acquiree.
hi, i'm struggling with how this all effects the FCF for the consolidated parent company. I assume (i) delta intangibles-->new goodwill (ii) delta change in fixed assets=fixed assets of target (iii) delta working capital-->net change in net WC of target. My problem is target's existing cash: as this should not be part of the the FCF calculation, the resulting consolidated FCF should also be independent on how much of the purchase price is composed of acquiror's cash and target's existing cash. But then again, shouldn't the PURE result of an acquisition's FCF effect equal to the total purchase price? many thanks also for all the great videos.
This question is really beyond the scope of this video, which is just a simple illustration of the purchase price allocation mechanics. We do cover more about Equity Investments and Noncontrolling Interests in our full courses, so feel free to look there or ask a question if you have signed up. I think you are over-complicating this because a 51% acquisition is just like any other acquisition... combine the financial statements 100% and adjust for acquisition effects, end of story. "Free Cash Flow" as in Cash Flow from Operations minus CapEx will not be independent of the purchase price financing because it includes net interest expense...
Thanks for the video -can I ask what is the accounting treatment if a company increases its stake in a majoirty owned subsidairy to become a wholly owned subsidiary, for example, say increase from 65 % to 100%
The Balance Sheet stays consolidated, but the parent company's Cash/Debt/Stock balances will change to reflect what it spent on the remaining 35% stake, and the Noncontrolling Interest line item will disappear.
Thanks a lot Brian - this is very very helpful. Have you also done a free video here on "Exit of controlling stake" scenario ( just like you have done on "Exit of minority stake in an earlier video") ? I come across this scenario very often and find it complex. it brings whole lot of things like Discontinued operations, adjusting non controlling interests, adjusting future amortization etc. Can you please help on reaching me right source for this ? or which part of your course shall i buy - which could help in understanding "Controlling stake exit" scenario. Many thanks in advance.
We don't cover that specific scenario so I can't recommend anything. And, in general, we recommend against any of our courses if you need *one specific topic* because it's just not the approach we take. We don't move down a checklist trying to cover every last topic imaginable; we take a more holistic approach with case studies. If a company sells a controlling stake, all that happens is that the statements are de-consolidated, the NCI goes away, and a premium or discount on the sale is recorded. Goodwill may be written down to get the Balance Sheet to balance.
Great video! One little question, what if the valuation between my initial 30% purchase and the additional 40% has changed (or just entails a control premium) so that the book value of my 30% equity investment is less than what 30% of my new offer for the entire company would imply? I understand that the equity investment line gets wiped out anyhow but does this have implications on the goodwill? Hope it's not beyond the scope of this video!
When you from under 50% to over 50% of a company, you write down the old Equity Investment and then combine the statements and create Goodwill based only on the new value of the company. All that matters is the new value. So, no.
Hi, Thanks for the videos - they are truly lifesavers! just one question: Do these principles (creation of DTL, amortisation of financing fees etc. also work under the IFRS or are they only applicable in the US? Thanks!
+Tadas Balsys They apply under IFRS, US GAAP, and most other accounting systems as well (J-GAAP, etc.) though the specific percentages and amounts sometimes differ.
If company A own a) less than 50% ownership b) more than 50% in some company B, then the income from B will be cash flow from operating activities or cash flow from investing activities for company A??
If Company A owns less than 50% of Company B, Ownership Percentage * Company B's Net Income will appear at the bottom of Company A's Income Statement. It is then reversed on the Cash Flow Statement within Cash Flow from Operations. So it doesn't contribute to Company A's Cash balance. If Company A owns more than 50%, 100% of Company B's financials will be consolidated with Company A's, and Percentage Company A Does Not Own * Company B's Net Income will be subtracted out at the bottom of the Income Statement and will then be reversed on the CFS within CFO. So, Company A and B's CFO, CFI, CFF, etc. will be grouped together and will appear as if the company were one single entity.
Dear Mergers and Inquisitions, i am grateful to you for all the content that you provide. You have made videos on balance sheet and income statement accounting in M&A. Can i request you to make a video on cash flow statements accounting in M&A??
Hi Brian, when analysing an M&A target, do you analyZe it’s consolidated or unconsolidated financials ? Specially if the subsidiaries operate in businesses different from the parent
If you're acquiring the entire target, the consolidated financials. If only one division, only the financials of that division (but you still need to look at the consolidated version to capture corporate overhead and other support expenses).
Hi Brian, correct me if I am wrong, but would the TargetCo's BS not have 30% ($360) of the AcquiredCo's existing stake as non-controlling interested in SE. If so, does this affect the PPA calculation?
The $360 representing the buyer's existing stake in the target is already represented under Equity Investments in row 60. It's only a Noncontrolling Interest when the parent company owns a majority but less than 100%. Under 50% ownership is just an Equity Investment or Associate Company. It doesn't affect the PPA calculation at all because it's simply written down in the deal. PPA is based on the seller's financials, not the buyer's.
Question can you share your email. I can you apply the same method but in greenfield projects. Buying 51% of a company that is still in development stage reaching FC
![How to Calculate Goodwill in M&A Deals and Merger Models [Tutorial]](http://i.ytimg.com/vi/m5p0D3kV72g/mqdefault.jpg)
thanks for your detailed explanation of the M&A
Thanks for watching!
Great explanation, thank you very much.
Thanks for watching!
HI, Thanks for the video. It is such a wonderful video, can you share excel file plldnot be openedouase. File mentioned in the description couldnot be open
Please see: mergersandinquisitions.com/noncontrolling-interests/
Thanks a lot for the video Brian. Quick Question about the PPA: (1)can you give a quick explanation about why you add/subtract write-up/off of exiting DTA/DTL? (2)The New DTL is created only when you can't account for D&A of Write-ups of PP&E and intangible Assets for tax purposes, right?
1) Because these items are written up or down depending on the tax code (too complicated to explain here), and when that happens, the Assets or Liabilities side may increase or decrease, meaning that the Goodwill required changes. If the Assets side decreases, for example, more Goodwill is needed, so you need to add the DTA write-down to factor that in.
2) The new DTL is created only in stock deals (not asset deals) because the D&A on write-ups is not deductible for cash-tax purposes there.
Could you please share the Excel template used in the video ?
Click "More" or "Show More" below the video and scroll down to the Resources.
Hi Brian! Thank you for the amazing video.
I have a question in my mind about writing down all existing DTL and add back the newly created DTL. Does it mean that the previous difference between cash tax and book tax will be cancelled and the tax department will only consider the new one? Could you briefly go through the basis of it?
Thank you in advance! Hope to see your reply soon.
When a transaction closes, yes, all previous cash and book tax differences are reconciled and close and a new DTL is created for anticipated future book vs. cash tax differences.
I'm confused - so we are fair valuing the NCI portion based on the purchase price, which is not always true. The guidance says we often pay a premium for controlling interest in a company. (e.g. We purchase 80% of a company for $25/share and the fair value of the NCI is $20/share). How do we account for that and how does the final balance sheet look so the equity allocated to NCI is still 20% and parent is 80%?
It doesn't matter because the purchase price for 100% of the company, premium included, is assumed to correspond to the value of the Noncontrolling Interest as well. If you pay $1000 for 80% of a company, 20% of that company is worth $200. It doesn't matter if the $1000 represents a 0% premium, a 50% premium, or a 100% premium.
The Balance Sheet will always balance because the Goodwill created makes up for the difference between the Equity Purchase Price and the target company's Common Shareholders' Equity.
@@financialmodeling Do you mean if you pay $800 for 80% of the company, 20% is worth $200? $1000/0.8*0.2=$250.
Also that is incorrect - the purchase price should not be used to value the noncontrolling interest portion of the company per US GAAP. This is because the acquirer usually has paid extra to gain control of the company and it doesn't make sense to step up the value of the NCI for this. Goodwill is calculated as Purchase Price Consideration + FV of NCI - FV of Identifiable assets of the acquiree.
hi, i'm struggling with how this all effects the FCF for the consolidated parent company. I assume (i) delta intangibles-->new goodwill (ii) delta change in fixed assets=fixed assets of target (iii) delta working capital-->net change in net WC of target. My problem is target's existing cash: as this should not be part of the the FCF calculation, the resulting consolidated FCF should also be independent on how much of the purchase price is composed of acquiror's cash and target's existing cash. But then again, shouldn't the PURE result of an acquisition's FCF effect equal to the total purchase price? many thanks also for all the great videos.
This question is really beyond the scope of this video, which is just a simple illustration of the purchase price allocation mechanics. We do cover more about Equity Investments and Noncontrolling Interests in our full courses, so feel free to look there or ask a question if you have signed up. I think you are over-complicating this because a 51% acquisition is just like any other acquisition... combine the financial statements 100% and adjust for acquisition effects, end of story. "Free Cash Flow" as in Cash Flow from Operations minus CapEx will not be independent of the purchase price financing because it includes net interest expense...
@@financialmodeling Thanks. I meant this as a theoretical question, e.g. full cash payment, no debt, and 100% acquisition.
Thanks for the video -can I ask what is the accounting treatment if a company increases its stake in a majoirty owned subsidairy to become a wholly owned subsidiary, for example, say increase from 65 % to 100%
The Balance Sheet stays consolidated, but the parent company's Cash/Debt/Stock balances will change to reflect what it spent on the remaining 35% stake, and the Noncontrolling Interest line item will disappear.
Thanks a lot Brian - this is very very helpful. Have you also done a free video here on "Exit of controlling stake" scenario ( just like you have done on "Exit of minority stake in an earlier video") ? I come across this scenario very often and find it complex. it brings whole lot of things like Discontinued operations, adjusting non controlling interests, adjusting future amortization etc.
Can you please help on reaching me right source for this ? or which part of your course shall i buy - which could help in understanding "Controlling stake exit" scenario. Many thanks in advance.
We don't cover that specific scenario so I can't recommend anything. And, in general, we recommend against any of our courses if you need *one specific topic* because it's just not the approach we take. We don't move down a checklist trying to cover every last topic imaginable; we take a more holistic approach with case studies.
If a company sells a controlling stake, all that happens is that the statements are de-consolidated, the NCI goes away, and a premium or discount on the sale is recorded. Goodwill may be written down to get the Balance Sheet to balance.
Great video! One little question, what if the valuation between my initial 30% purchase and the additional 40% has changed (or just entails a control premium) so that the book value of my 30% equity investment is less than what 30% of my new offer for the entire company would imply? I understand that the equity investment line gets wiped out anyhow but does this have implications on the goodwill? Hope it's not beyond the scope of this video!
When you from under 50% to over 50% of a company, you write down the old Equity Investment and then combine the statements and create Goodwill based only on the new value of the company. All that matters is the new value. So, no.
Hi,
Thanks for the videos - they are truly lifesavers! just one question: Do these principles (creation of DTL, amortisation of financing fees etc. also work under the IFRS or are they only applicable in the US? Thanks!
+Tadas Balsys They apply under IFRS, US GAAP, and most other accounting systems as well (J-GAAP, etc.) though the specific percentages and amounts sometimes differ.
If company A own a) less than 50% ownership b) more than 50% in some company B, then the income from B will be cash flow from operating activities or cash flow from investing activities for company A??
If Company A owns less than 50% of Company B, Ownership Percentage * Company B's Net Income will appear at the bottom of Company A's Income Statement. It is then reversed on the Cash Flow Statement within Cash Flow from Operations. So it doesn't contribute to Company A's Cash balance. If Company A owns more than 50%, 100% of Company B's financials will be consolidated with Company A's, and Percentage Company A Does Not Own * Company B's Net Income will be subtracted out at the bottom of the Income Statement and will then be reversed on the CFS within CFO. So, Company A and B's CFO, CFI, CFF, etc. will be grouped together and will appear as if the company were one single entity.
Dear Mergers and Inquisitions, i am grateful to you for all the content that you provide. You have made videos on balance sheet and income statement accounting in M&A. Can i request you to make a video on cash flow statements accounting in M&A??
Hi Brian, when analysing an M&A target, do you analyZe it’s consolidated or unconsolidated financials ? Specially if the subsidiaries operate in businesses different from the parent
If you're acquiring the entire target, the consolidated financials. If only one division, only the financials of that division (but you still need to look at the consolidated version to capture corporate overhead and other support expenses).
could you share me the example of this excel file? or where i could get it? thank you
Click "Show More". Scroll to the bottom. Click those files.
in which video, scenario 1 i.e. less than 50% has been covered??
ruclips.net/video/FKuczs2QNLA/видео.html
Hi Brian, correct me if I am wrong, but would the TargetCo's BS not have 30% ($360) of the AcquiredCo's existing stake as non-controlling interested in SE. If so, does this affect the PPA calculation?
The $360 representing the buyer's existing stake in the target is already represented under Equity Investments in row 60. It's only a Noncontrolling Interest when the parent company owns a majority but less than 100%. Under 50% ownership is just an Equity Investment or Associate Company. It doesn't affect the PPA calculation at all because it's simply written down in the deal. PPA is based on the seller's financials, not the buyer's.
Question can you share your email. I can you apply the same method but in greenfield projects. Buying 51% of a company that is still in development stage reaching FC
I mean to say how can you apply this same method to what I have mentioned
We do not cover project finance, so you will have to consult other sources for this question.