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
2
Q
Business strategy changes
A
- vertical/horizontal integration
- expanding current business
- focusing on “core” business
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)
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)
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
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
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
8
Q
Recording purchase of single asset
A
record at acquisition cost
9
Q
recording purchase for group of assets
A
consideration allocated on a pro-rata basis
- also called ‘basket purchase’
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
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
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
13
Q
Disadvantages of acquiring shares VS assets
A
- non-controlling shareholders still involved
- must purchase all assets and assume all liabilities (not wanted)
14
Q
Hostile takeover
A
- when target company does not want the company to be purchase and fights against it
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)