Purchase, Expansion, or Sale of Business Flashcards

1
Q

How to change operating asset mix:

A
  • acquire new assets
  • enter into strategic alliances/joint ventures
  • divest business units/assets
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2
Q

Business strategy changes

A
  • vertical/horizontal integration
  • expanding current business
  • focusing on “core” business
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3
Q

Synergies

A
  • when 2 or more business are worth more operating together than separately
  • if looking to change operating mix consider synergies (between existing and new units)
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4
Q

Issues in changing Asset mix

A
  • specific assets to buy/sell (AR, inventories, PPE, Intangibles, income tax loss cf)
  • liabilities to be transferred/assumed (sometimes they can be attached to the asset, such as mortgage, otherwise AP, loans, retirement obligations, contingencies)
  • synergies gained (purchase) or lost (sale) (synergies arise when costs/resources can be shared across business units, gains synergies could be revenue enhancements, cost reductions, lower tax rate)
  • form of transaction (what will be acquired/divested and what will consideration be)
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5
Q

How to acquire new assets

A
  • purchase assets
  • purchase group of assets
  • purchase net assets of existing corporations
  • purchase shares of corporation
  • strategic alliance
  • joint arrangement
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6
Q

Benefits of acquiring assets (group or net) VS shares

A
  • acquirer can pick and choose which assets to purchase
  • contingent/hidden liabilities are not unknowingly assumed
  • tax basis = acquisition price
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7
Q

Disadvantages of acquiring assets (group or net) VS shares

A
  • selling company may not sell certain assets
  • higher price may be paid when limited liabilities
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8
Q

Recording purchase of single asset

A

record at acquisition cost

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9
Q

recording purchase for group of assets

A

consideration allocated on a pro-rata basis
- also called ‘basket purchase’

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10
Q

Recording purchase of net assets

A
  • if net assets acquired meet the definition of a business under IFFRS3 then consideration is allocated to assets based on FV and the remainder of goodwill
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11
Q

Control on purchase

A
  • if control acquired on purchase: consolidate FS (ASPE choice not to)
  • if control not acquired on purchase: record as significant influence investment
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12
Q

Benefits of acquiring shares VS assets

A
  • control can be had for cheaper (only have to purchase 51%)
  • easier to sell shares than assets later
  • acquirer can use tax loss cf
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13
Q

Disadvantages of acquiring shares VS assets

A
  • non-controlling shareholders still involved
  • must purchase all assets and assume all liabilities (not wanted)
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14
Q

Hostile takeover

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  • when target company does not want the company to be purchase and fights against it
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15
Q

Forms of consideration (determine FV)

A
  • cash
  • preferred shares, options, warrants
  • common shares
  • note payable
  • contingent consideration (payable only if future event occurs)
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16
Q

Future implications of share consideration

A
  • future cash flows that may not be wanted by payee or not given up by payer
  • consider the tax implication between tax and account difference (CG or deemed dividend)
17
Q

Risk of consideration

A
  • risk is associated with any consideration received other than cash because of risk of value fluctuation
18
Q

Control de jure

A
  • control more than 50% and has ability to appoint directors
19
Q

Control de factor

A
  • control without ownership greater than 50%