Although the prospect of acquiring a company may seem intimidating, many businesses succeed with strategic acquisitions. Given the need for due diligence, negotiating financing options, and Financial Accounting Standards Board (FASB) guidelines that affect the mergers and acquisitions (M&A) accounting process, involving knowledgeable CPAs is more important than ever before. Let’s consider the key FASB standards and recommended steps for merger & acquisition success.
The M&A landscape changed dramatically with FASB’s issuance of Accounting Standards Codification (ASC) Topics 805 and 810. Let’s explore these in greater detail.
- ASC 805-Business Combinations: Elements of this standard affect how items such as M&A-related professional services fees, goodwill, and contingencies are accounted for. It also reshapes the accounting process for acquisitions by U.S. companies by mandating the use of ASC Topic 820 — Fair Value Measurements and Disclosures. Additionally, it emphasizes transparency and changes several accounting practices, including requiring ongoing fair value testing of acquired assets and liabilities, heightened disclosure requirements, and decreased flexibility for write-offs and other loopholes.
- ASC 810-Consolidations: Overall, this standard aims to ensure that controlling and noncontrolling interests are reported as part of consolidated entities and to encourage transparency and detail in the reporting of these interests during mergers and acquisitions.
Elements for M&A Success
When done correctly, a merger or acquisition can be a viable part of a growth strategy. Key ingredients for success include:
- Due diligence. Pay close attention to the assets and liabilities of the company you plan to acquire and how those fit into your overall business strategies. Evaluate the deal’s impact on your cash flow position. Receive or create supporting details for both tangible and intangible assets (e.g. customer lists) to be acquired.
- Proactive communication with all involved parties encouraging interaction. Pay particular attention to accounting, operations management, and human resource departments. Employee issues can be the biggest hurdle in any acquisition, so involve your human resources department early and encourage interaction between employees at both companies.
- A solid integration plan. Even deals that look perfect on paper can go sour because of culture clashes, key employee losses, or management disagreements. Your plan should include tight timelines that involve integration teams to make the process as seamless as possible. It’s also smart to create employee communication and retention strategies after any merger or acquisition—potentially including workshops with key executives from both companies to prevent clashes in management styles.
- Comprehensive integration plans and timelines. Timing is an important element that allows you to stay on track with financial goals. Be sure that your management team manages and supports these schedules to improve success.
All mergers and acquisitions are different — as is your company. So while these principles are guidelines for success, they should be tweaked to satisfy your firm’s needs. With our experience in a broad range of industries, CRI can help you achieve M&A success.