M&A transactions are major undertakings that can require a thorough due diligence process. But that’s only part of the story — once the deal closes there are a number of other considerations that CFOs and Controllers must wrestle with. In Part 1 of this two-part webinar series we explored pre-acquisition due diligence. Now, in Part 2 our high-level overview of the M&A process continues with a look at post-acquisition considerations including business combination accounting and disputes. Please join us on December 13, 2016, at 11:00 a.m.
Who Should Attend?
CFOs and Controllers
Register to attend and recieve CPE Credit. Webcast participants can earn up to 1 CPE credit in the Management Advisory Services field of study.
Delivery: Group-Internet Based
Program Level: Basic
KBR Inc. (KBR), the Houston-based construction and engineering firm, expanded its Government Services segment in 2016 with two sizable acquisitions. KBR acquired Wyle Inc. (Wyle) for approximately $600 million in July, and then acquired Honeywell Technology Solutions Inc. (HTS), which is based in Columbia, Maryland for approximately $300 million in September. From a business combination accounting perspective, one might expect these two deals to look very similar. However, a look at KBR’s financial statement disclosures for each transaction reveals significant differences.
A few things jump out when you compare the purchase price allocations side-by-side. For one, in the Wyle acquisition goodwill represents a much higher percentage of purchase consideration than in the HTS acquisition. In terms of purchase price allocation mechanics, goodwill is a residual value and represents going-concern elements that don’t meet the criteria for separately recognized assets. But what specific things can we point to in these two acquisitions? We know that the value associated with operational synergies (each deal cites “growth opportunities based on a broader service offering of the combined operations” as primary goodwill components), and assembled workforces are subsumed within goodwill, so perhaps one or both of these were of greater value in the Wyle transaction. Deferred taxes, which are not measured at fair value, also have an impact on the reported goodwill amounts.
In the Wyle acquisition, $48 million of the purchase consideration was allocated to trademarks and trade names, whereas in the HTS acquisition no value was allocated to trademarks and trade names. This is likely explained by the nature of the HTS transaction, which was a divestiture by Honeywell International Inc. The “Honeywell” name was retained by the parent company.
Another observation relates to working capital, which comprised almost one-fourth of the purchase consideration in the HTS acquisition, but less than one-tenth of the purchase consideration in the Wyle acquisition. Perhaps the nature of the HTS business is such that it requires higher working capital levels to operate compared to the Wyle business.
If you find the questions raised above interesting, you may want to check out an upcoming Aronson webinar. Later this month we’re conducting a one-hour session for clients and friends where we will explore business combination accounting and purchase price allocations. Click here for more information.
Aronson LLC’s Financial Advisory Services practice assists clients in a variety of industries with numerous M&A-related activities, including pre-acquisition due diligence and post-acquisition purchase price allocation analyses and impairment testing. To learn more click here or contact Bill Foote at 301.231.6299.
A business line of credit loan helps businesses grow, operate, and can provide security in case the company runs into financial difficulties or unexpected situations. Your business has the flexibility to choose when and how much capital to use with a line of credit. In order to obtain a line of credit for your business, there is specific information that a financial lender must receive.
When applying for a line of credit, business owners typically need to provide the lender with financial information about the business. The financial documentation typically includes a profit and loss (P&L) statement, balance sheet and tax returns. The amount of the line of credit is commonly dependent upon the comfort level a lender obtains when reviewing the company’s revenue performance and ability to repay the line of credit. The ability to repay the line of credit is determined by reviewing the company’s cash flow history and balance sheet. It is also common practice for lenders to ask for a business plan to see what are the company’s long term goals and vision are.
Both the business and the individuals who own the business need to have a good credit rating in order to obtain a line of credit. The individual owners need a strong credit rating because lenders typically ask for a personal guarantee that the line of credit will be repaid. This is common when a startup company is applying for a line of credit.
Lenders may or may not require collateral to secure the line of credit. A well-established business might receive unsecured lines of credit when they can demonstrate a strong ability to repay the debt. It is harder to get a line of credit for startup businesses since there is no company financial history. Lenders require collateral in order to secure a line of credit for startup businesses. New businesses without a credit history typically have an asset based line of credit.
A line of credit loan is not intended for large long term investment purposes. Businesses should apply for line of credit before they need it.
For more information on this topic, please contact your Aronson business advisor or Alperen Okay at 301.231.6200.
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