As M&A returns, reach out to clients on FAS141R

BVWireIssue #83-2
August 12, 2009

The market for mergers and acquisitions is not exactly “roaring back to life,” asserts Stamos Nicholas, Deloitte’s national business valuation service line leader, who spoke to the BVWire this week. “There is still a lot of skittishness in the market, and activity has been subdued because of the current turmoil.”  Still, there are signs that “things are stabilizing a bit,” he said. Corporate executives are preparing to make better, smarter acquisitions, including “refreshing themselves” on the requirements of FAS141R, which became effective for companies with fiscal years ending in December 2008—right as the credit markets and other M&A drivers crumbled.
In fact, a recent Deloitte poll of 2,000 executives discovered nearly half(44.3%) are rethinking their deal strategy as a result of FAS141R—a 10.5% increase since Deloitte asked the same question in February 2008 (several months before the effective date) and a 40.6% increase since June 2007, during the exposure period. “Since FAS141R took effect, we have definitely seen changes in how companies approach financial planning and reporting around mergers, acquisitions, and ownership transactions,” Nicholas said. In particular, executives are mindful of the new reporting and disclosure requirements, and the need to “book” these deals (and perform a purchase price allocation) at fair value during the same quarter they are completed. The FAS141R requirements “incentivize” the parties to get the numbers right the first time, he added.

How valuation analysts can help. “The rules of the [M&A] game have changed,” Nicholas said.  Executives are reaching out to valuation experts to educate them on the new rules and look at the numbers early on rather than “in the heat of the deal.”  “It would be helpful to have a dialogue with company executives as they get back into the M&A market,” he said, ”to minimize surprises.”
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