More than two out of five business executives said in a recent poll that an accounting standard on business combinations is causing them to reassess their strategy for M&A deals.
The online poll occurred during a webcast by Deloitte on the Financial Accounting Standards Boards SFAS 141R standard. The March 2009 webcast attracted more than 2,000 executives, of whom 44.3 percent indicated they are rethinking their deal strategy as a result of SFAS 141R, Business Combinations. Deloitte has been polling executives on the topic for three consecutive years. The response to the question has increased 40.6 percent since the same question was asked in June 2007.
Since SFAS 141R took effect for companies with fiscal years beginning after Dec. 15, 2008, we have definitely seen changes in how companies approach financial planning and reporting around mergers, acquisitions and ownership transactions, said Deloitte national business valuation service line leader Stamos Nicholas.
When asked their greatest concern about implementing SFAS 141R, 29.8 percent of executives indicated the shortened timeframe within which good fair value estimates subsequent to the acquisition are needed. Other major concerns included the increased likeliness of company earnings volatility for several years tied to new rules for fair value estimation (22 percent) and the uncertain impact on financial statements going forward, since some balance sheet amounts will be assessed based on future market performance (21.8 percent).
As companies consider re-engineering their deal processes to address the changes brought by SFAS 141R, Deloitte recommends that they fine-tune their due diligence requests, consider the value of intangible assets earlier during due diligence, make sure dealmakers and those preparing financial reports are communicating frequently and thoroughly, particularly when creative structures are contemplated, and closely track assets or liabilities that must be fair valued post-closing.
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