What You Need to Know About Mergers and Acquisitions

What types of projects do you expect to work on in your career as an accountant? Your first answer might have to do with corporate tax documentation, shareholder reports, or regulatory compliance. If your thoughts didn’t run to mergers and acquisitions, however, you owe it to yourself to give this area some attention. Here’s a primer on an accountant’s role in mergers and acquisitions.

Make the Case

Image via Flickr by thetaxhaven

The decision to merge with or acquire another company is driven by business strategy. Sanat Rao, Director of Corporate Business Development at Intel, explains that accountants help determine the financial wisdom of the move by comparing the base case, or the value of the companies as separate entities, with the acquisition case, or their value when combined. The challenge in doing so is finding the best and most accurate way to determine those values.

Learn the Lingo

Mergers and acquisitions might seem straightforward, but they involve complex calculations. Until recently, accountants used what’s known as the purchasing method when structuring merger and acquisition deals. As The Motley Fool explains, the purchasing method involved determining the value of a potential partner by adding up its respective assets and liabilities.

In the early 2000s, however, The Financial Accounting Standards Board mandated a shift to the acquisition method. The Motley Fool explains that this new approach uses a similar methodology, but adds an important level of detail. Under the acquisition method, accountants must also disclose potentially financially significant contingencies, such as pending litigation or financial obligations beyond the company’s balance sheet.

A strong understanding of the differences between these two methods is an important part of preparing to work in M&A. The best post-graduate accounting programs include mergers and acquisitions in their curricula. This reflects employers’ need for accounting professionals who have M&A in their skill set.

Analyze the Future

Current and past data sets aren’t the only useful tools for M&A. The acquisition method seeks to not only identify a company’s current valuation, but also to predict how that value is likely to change over time and how the deal will affect the newly structured company’s financial position in the future. This kind of predictive analysis may be more art than science, given that an estimated 50 percent of mergers and acquisitions fail, as reported by The Financial Times. Accountants with a talent for predictive analysis could be assets to companies that plan to use M&A as a strategic tactic.

Once the decision is made to merge or acquire, an accountant’s responsibilities shift to structuring the deal to maximize benefit and minimize risk.

In addition to the fundamentals of accounting, a career in mergers and acquisitions offers the opportunity to put your leadership, organization, and communication skills to work. Financial professionals play a role in every step of the process, from initial investigation and analysis to bringing the parties together to sign on the dotted line. If this area interests you, choose a program that gives you a solid foundation in the fundamentals of the data behind the deal. Within the New England College Masters of Science in Accounting curriculum, AC5730 Accounting for Mergers and Acquisitions addresses this process. This course fully examines the lifecycle of Mergers and Acquisitions and areas of consideration involved.

Resources

http://www.readyratios.com/reference/accounting/purchase_method_of_accounting.html

http://www.accountingtools.com/acquisition-method

http://www.forbes.com/sites/quora/2013/05/23/what-should-everyone-know-about-mergers-and-acquisitions/

http://www.pwc.com/us/en/audit-assurance-services/accounting-advisory/business-combination-accounting.html

http://www.pwc.com/us/en/audit-assurance-services/valuation.html

http://www.ftpress.com/articles/article.aspx?p=2164982

http://accounting-financial-tax.com/2008/08/role-of-the-financial-manager-in-mergers-and-acquisitions/

http://www.investopedia.com/articles/financialcareers/08/merger-acquisition-career.asp?header_alt=g

http://onlinedegrees.nec.edu/docs/NEC_MSA_Brochure.pdf