In late 2007, the FASB released new standards on mergers & acquisitions (FAS 141R) and non-controlling interests (FAS 160) that introduce pervasive changes to how companies track and report deal activity. The standards which are effective for most companies beginning on January 1, 2009, introduce new accounting concepts and valuation complexities. Several of the changes have the potential to generate greater earnings dilution and volatility in connection with an acquisition, both before and after close.
Management will need to re-evaluate the customary practices it uses to evaluate and structure potential acquisitions, to account for acquired companies at and after the close date, and to communicate to stakeholders the company's post-close performance and financial results.
Understanding the impact of these standards will be a critical component of a company's M&A strategy, execution, and reporting processes over the next several months. Companies involved in M&A should assess the broader impact of these standards now, as it could affect their thinking on potential transactions. Companies should also consider the standards' impact when formulating strategies on future business combinations and asset acquisitions that may not close until after the effective date of the new standards.
