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Planning a Merger? Your World Gets a Lot Harder Next Week

If you are on the C-Suite floor or are a director, your world is going to get more complicated next week, especially if you are planning mergers.

Yes, I know that things probably couldn't seem any tougher than they are now. But guess what?

They are and you can blame accounting changes that are, in part, predicated on the growing acceptance of the International Financial Reporting Standards (IFRS) that is due to replace the usual American system of accounting in coming years. That's because Financial Accounting Standard 141 R becomes effective Dec. 15.
Here's how it could affect your merger plans:

  • Any assets or liabilities being acquired must be accounted for at fair market value on the date of acquisition. Before, your best guess was good enough, so this means that you, your board and your accounting and legal staffs are in for a lot more work.
  • If you are exchanging stock as part of the M&A, the value of the stock must be measured on the closing date of the deal, not on the date that you announce the acquisition. If the stock goes wildly down or up in between these times, too bad. You have to deal with it.
  • Any fees as part of the deal that go to lawyers, bankers or accopuntants have to be expensed in the quarter in which they occur.
  • If you are a tech firm with lots of R&D and are merging, your life also got more difficult. You have to spread the cost of R&D in process across the life of the project. Before, you could book the expected R&D fees up front and write them off as part of the M&A cost.
Ouch! Aren't the meltdown and the recession enough to deal with?
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