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As industries mature, it is common for them to experience consolidation: one company buying another. This has become the norm in many technology sectors. Under the standards of the Financial Accounting Standards Board, the acquiring company must allocate the consideration paid to the assets and liabilities acquired, according to their "fair value," and then periodically review those "fair values" for impairment. To make things even for more complicated, in a technology company much of that "fair value" may be allocated to "intangible assets," typically patents, software code, designs, or even in-process research and development.
SFAS 141
The FASB has published its standard governing the allocation of acquisition value to assets and liabilities, known as SFAS 141. It requires that the acquiring company determine the value of every asset and every liability, even intangibles.
This is difficult for many management teams. While they are comfortable with the analysis required to determine whether an acquisition makes sense and at what price, they are not specialists in determining individual asset values. In addition, the rules governing valuation of intangible assets, especially in-process research and development, are exceptionally complex and require very specialized knowledge.
Pagemill Partners provides complete SFAS 141 valuation and allocation reports. Unlike at traditional valuation firms, the professionals at Pagemill Partners understand technology and the special demands of rapid growth. We determine the total value of consideration (e.g. cash and/or securities, consulting and non-compete agreements, and liabilities assumed) and the individual value of every asset (e.g. tangible and intangible). Any excess of consideration paid over assets received is accounted for as goodwill.
SFAS 142
The FASB has published its standard governing testing and impairment of intangibles and goodwill, known as SFAS 142. It requires that a company annually conduct a two step test. 1.) The company must compare the "fair value" of each reporting unit to its carrying value. 2.) If the "fair value" is less than the carrying value, then the company must allocate the reporting unit's "fair value" to its individual assets and liabilities, including goodwill. If the "fair value" of goodwill is equal to or greater than the carrying value, then there is no impairment. However, if the "fair value" of goodwill is less than the carrying value, then there is an impairment loss equal to the difference in values.
Pagemill Partners assists management teams by valuing intangible assets, determining which have finite lives and determining the length of those lives, and valuing goodwill. Because of our focus on technology companies, our professionals understand the complexities of valuing specialized intangible assets such as patents, licenses, software code, maskworks, know how, and in-process research and development.
SFAS 144
The FASB also has published its standard governing the impairment or disposal of long lived assets, known as SFAS 144. It requires a company to recognize an impairment loss only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flows and measure an impairment loss as the difference between the carrying amount and fair value of the asset.
Like with SFAS 142, Pagemill Partners can assist management teams by
valuing long-lived assets, especially those used in technology companies,
and determining impairment.
