Allocation of Purchase Price Complicated by Diverse Business Units and Foreign Operations; AccuVal Brings Clarity and All Regulatory Tests Met
Client: International Mail-Order Merchandiser of Beauty Products
Challenge: Analyze Diverse Reporting Units with Varying Costs and Growth Drivers and Value Aggregate Business
When a mail-order merchandiser of niche-market beauty products was being acquired by a private equity group, the company engaged AccuVal to provide a purchase price allocation for financial statement reporting purposes. In addition to doing business in the United States and the United Kingdom, the client – which generates about $75 million in revenue annually – also operated a division that provides mail-order distance-learning and continuing education, primarily in Canada. The challenge was to analyze the company's diverse reporting units, with their vastly different costs and growth drivers, and appropriately value the aggregate business.
AccuVal Approach
Since July 2001, accounting rules require that all business combinations are accounted for exclusively by the purchase method. Under purchase accounting, all assets acquired, including goodwill and other intangible assets, must be stated on financial statements at fair value. After conducting market research, AccuVal appraised the tangible assets and identified and appraised the intangible assets meeting the criteria for recognition apart from goodwill. The intangible asset appraisal included trademarks and brand names, copyrights, customer relationships and assembled workforce. Failure to accurately identify all intangible assets would have led to a large amount of goodwill on the balance sheet and increased the risk that the company would need to take a goodwill impairment charge in later years.
Bottom Line: Complicated Valuation Meets All Regulatory Tests
AccuVal produced a valuation that took into consideration the widely different business units and the effects of U.K. and Canadian accounting guidelines. With the appraisal conclusions carefully documented, the company was able to record an accurate level of goodwill on its balance sheet. Because accounting rules require that impairment testing be performed at least annually, the client also engaged AccuVal the following year. Once again, the firm's analysis allowed the company to remain in compliance.
The AccuVal AdVantage™
The expertise to tackle unusual, highly diverse situations and value them appropriately. An in-depth understanding of the differences in international reporting standards and how such differences affect analysis. That's The AccuVal AdVantage™ at work.
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