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Value Accretion/Dilution in Business Combinations: An Integrated Perspective

CASELET, FINANCIAL MANAGEMENT
Institute of Management Technology, Ghaziabad, 8 Pages

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Value Accretion/Dilution in Business Combinations: An Integrated Perspective

 

ABT and CGRAM are two combining companies undertaking corporate restructuring activity via acquisition route whereby the ABT serves as the acquirer and CGRAM serves as the acquiree. The effective date of combination happens to be April 1st 2002. The standalone balance sheets of the combining companies as of the end of FY-2002 (March 31st 2002) is made available as Exhibit I, while Exhibit II offers a snapshot of FY-2002 accounting activities of the combining companies in their standalone capacity. As part of the due-diligence process in-connection with this M&A, the existing management of the ABT in general and ABT’s M&A Team in particular, analysed the historical performance of both ABT and CGRAM, and in-turn derived the 5-year accounting forecasts for the combining companies in their standalone  capacity.1 These 5-year accounting forecasts for the standalone entities are made available as Exhibit III and Exhibit IV.

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1 It may be noted that the 5-year standalone forecasts for ABT and CGRAM do not capture synergy in any form or fashion.

Teaching Note Preview

Value Accretion/Dilution in Business Combinations: An Integrated Perspective

 

This armchair caselet is an attempt to offer an integrated perspective of Business Combination that is anchored on Accounting of Business Combination. While topics such as Construction of Financial Statement Forecasts, M&A financing structure, M&A Purchase Consideration, Offer Premium, On-boarding of Net Identifiable Assets of target company on to the balance sheet of the acquiring company, Operational Synergies, and Value Accretion/Dilution are typically discussed, an integrated and logically progressive overview of how each of these factors affect one another in-connection with a Business Combination is mandated.

Expected Learning Outcomes

  • -Forecast the Standalone Income Statements, Standalone Income Tax Statements, and Standalone Closing Balance Sheets of Combining Companies
  • -Derive Purchase Consideration, Total Allocable Purchase Premium, Adjustments to Deferred Income Tax Liability and Goodwill Creation/Erosion in-connection with a Business Combination
  • -Construct the first post-M&A Consolidated Balance Sheet with acquisition effects
  • -Derive the Combined Income Statement Forecasts pursuant to incorporation of acquisition effects
  • -Assess the resultant Value Accretion/Dilution for the original shareholders the acquiring company

 

Case Positioning and Setting

This armchair caselet can be used in the following courses in an MBA Program:

  • -Mergers and Acquisitions – To obtain a holistic perspective of value creation/erosion owing to a business combination
  • -Financial Accounting – To understand Business Combination Accounting at a granular level

 

The following is the comprehensive solution for the armchair caselet on value accretion/dilution in the context of an M&A transaction via Acquisition route between ABT and CGRAM. Broadly speaking, the comprehensive solution to this caselet could be classified into the following five logically progressive steps.

Step 1: Forecasting Standalone Financial Statements
Step 2: Constructing Combined Income Statement Forecasts without acquisition effects
Step 3: Deriving the purchase consideration, Deferred Income Tax Liabilities Adjustments and Goodwill Creation

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$3.66
Rs 0
Product code: FIN-2-0028, FIN-2-0028A

Abstract

This armchair caselet is an attempt to offer an integrated perspective of Business Combination that is anchored on Accounting of Business Combination.

While topics such as Construction of Financial Statement Forecasts, M&A financing structure, M&A Purchase Consideration, Offer Premium, On-boarding of Net Identifiable Assets of target company on to the balance sheet of the acquiring company, Operational Synergies, and Value Accretion/Dilution are typically discussed, an integrated and logically progressive overview of how each of these factors affect one another in-connection with a Business Combination is mandated.



Pedagogical Objectives

  • To Forecast the Standalone Income Statements, Standalone Income Tax Statements, and Standalone Closing Balance Sheets of Combining Companies
  • To derive Purchase Consideration, Total Allocable Purchase Premium, Adjustments to Deferred Income Tax Liability and Goodwill Creation/Erosion in-connection with a Business Combination
  • To construct the first post-M&A Consolidated Balance Sheet with acquisition effects
  • To derive the Combined Income Statement Forecasts pursuant to incorporation of acquisition effects
  • To assess the resultant Value Accretion/Dilution for the original shareholders the acquiring company

Case Positioning and Setting
This armchair caselet can be used in the following courses in an MBA Program:

  • Mergers and Acquisitions – To obtain a holistic perspective of value creation/erosion owing to a business combination
  • Financial Accounting – To understand Business Combination Accounting at a granular level



This Case Pack Includes:
- Abstract
- Caselet
- Teaching Note (**ONLY for Academicians)
$3.66
Rs 0

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