Today, I read an investment book, and it mentioned the issue of goodwill as an accounting subject, but after a brief taste, the pit of mergers and acquisitions is of course not just goodwill.
After removing the goodwill, the remaining pits are considered relatively high-end, and it is inevitable to say a few words:
Goodwill refers to the part of the acquisition price that is higher than the “assessed net assets” of the target being acquired during mergers and acquisitions, and is included in goodwill (not under the same control). Note that this is the “assessed” net worth, not the book net worth of the acquisition target.
In a nutshell, the acquired target is subject to an “asset revaluation” during an M&A. The revaluation of assets here can lead to a lot of tricks.
1. Inventory. Inventory is based on the assumption that all the inventory in the warehouse has been sold, and then the value obtained by subtracting the estimated expenses that will occur during the period. In other words, it is revalued by “inventory + estimated profit”. The estimated profit here is subjective. In the real estate industry, you know what it means.
2. Investment real estate. This item may also have more moisture after reassessment.
3. Intangible assets. There are mainly some items such as “sales network” and “customer relationship”, which are actually relatively imaginary. If you don’t want to be included in goodwill, you can plug them here. The difference is: most intangible assets need to be amortized year by year (except for those whose useful life cannot be clearly defined), while goodwill does not need to be amortized year by year, but is only “impaired” when the situation is bad.
4. In addition to the above accounting subjects that are easy to inject water, theoretically all assets may be revalued. If the accounting currency is switched (cross-border acquisition), there may be a large amount of exchange gains and losses.
If it is a merger and acquisition under the same control, there is no goodwill item. If the purchase price is higher than the net book value, the higher part will be deducted from the buyer’s capital reserve, so that the buyer’s net assets will decrease. This method can be used in the operation of open shares and real debts, and the interest will not be reflected in the profit and loss statement, but will offset the capital reserve.
There is a lot of confusion in the acquisition of many companies. Every merger and acquisition plan is very complicated, and it is not easy to understand, and many do not even provide specific information to minority shareholders.
Finally, if the buyer does not intend to consolidate the merger and acquisition, it will be more high-end, and nothing will be reflected on the buyer’s balance sheet. The report reflects only one purchase price.
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