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What CFOs of SEC registrants should know about the acquisition process

Information you should consider

Chief financial officers (CFOs) provide vital financial leadership and often play an integral role in supporting company growth and long-term investments of a company. One such strategy, acquisitions, can have important implications for accounting and financial reporting. Here are key areas to consider before undertaking the acquisition process.

Information to be gathered upfront

Typically, an acquired business (hereinafter referred to as, “acquiree”) will need to provide certain financial information to the acquiring company as part of the due diligence process. If either party to the acquisition process is a Securities and Exchange Commission (SEC) registrant, incremental information may be required. Determining the SEC reporting and public company acquisition disclosure requirements for a transaction often requires judgment and evaluation of the areas below, among others:

  • The definition of a business. The definition of a business for SEC reporting purposes isn’t the same as the definition under US GAAP. Judgment is often required to determine whether an acquiree meets the definition of a business according to SEC rules. A company may consider seeking concurrence from SEC staff before the acquisition closes.
  • Significance of the acquired business. The size of the acquiree (which the SEC refers to as “significance”) will determine what financial information, if any, must be included in the SEC filing. Your company will want to understand if the acquiree can make available audited annual and unaudited interim financial statements as part of negotiations in the acquisition process.
  • Pro forma financial information. A pro forma balance sheet, based on the registrant’s latest balance sheet, and income statement, based on the registrant’s latest fiscal year and interim period, are generally required under SEC rules if the business acquisition is deemed to be significant.
  • Term sheet or purchase agreement. After identifying the financial statement requirements, your company can include a provision in the term sheet or purchase agreement to require the acquiree to provide the financial information as a condition precedent for the transaction. Your company should also consider requiring certain other specifications related to the financial statements.

When information is required

As with so many other business considerations, timing is everything when it comes to SEC reporting and public company acquisition disclosure requirements. Key deadlines to consider during the acquisition process include:

  • Form 8-K filings
  • Completion of debt offerings to finance the acquisition
  • Proxy statement requirements for the acquiree
  • Updating requirements for future registration statements

Other important considerations

Once the deal closes, other requirements and internal control considerations come into play, such as:

  • Internal control over financial reporting
  • Purchase accounting considerations
  • Annual and quarterly disclosure requirements

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Changing lanes

In May 2019, the SEC issued a proposed rule that would amend the financial statement requirements for acquisitions and dispositions of businesses and related pro forma financial information. These changes could be significant for many companies, so it’s important to monitor developments in this area.

Let’s talk

If your company is considering an acquisition or being acquired in the coming year, early consideration of and action regarding the issues described above can help smooth the acquisition process.

Deloitte is a leading adviser in the M&A space. Through a range of accounting and reporting advisory services, we assist our clients in achieving their transaction’s potential while helping them identify potential ways to minimize risk during the acquisition process.

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The services described herein are illustrative in nature and are intended to demonstrate our experience and capabilities in these areas; however, due to independence restrictions that may apply to audit clients (including affiliates) of Deloitte & Touche LLP, we may be unable to provide certain services based on individual facts and circumstances.

This article contains general information only and Deloitte is not, by means of this article, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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