Understanding Mergers and Acquisitions for Non Profits (FAS 164)
FASB recently issued Statement No. 164 in an effort to clarify M&A transactions among non-profits. According to the FASB, the statement aims to “improve the relevance, representational faithfulness and comparability of the information that a not-for-profit entity provides in its financial reports about a combination with other not-for-profit entities, businesses or nonprofit activities by establishing principles and requirements. The Statement provides guidance on how a not-for-profit entity: - Determine when a combination is a merger or an acquisition - Apply the carryover method in accounting for a merger - Apply the acquisition method in accounting for an acquisition, including identifying the acquirer between or among the combining entities - Determine the information to disclose to allow users of financial statements to evaluate the nature and financial effects of a combination Statement 164 takes effect for mergers whose initial reporting period is on or after Dec 15, 2009 and for acquisitions whose 1st annual reporting period begins on or after December 15, 2009. Early applications are not permitted. The only way to make clear accounting disclosures is to ensure that your financial statements conform to these new standards. A panel of distinguished experts and key regulators will help nonprofits understand FASB Statement No. 164. This LIVE Webcast produced by The Knowledge Group will teach you how to account for mergers and acquisitions as well as guide you through the necessary disclosures.
SEGMENT 1: Lee Klumpp, CPA, Senior Technical Manager, Institute for Nonprofit Excellence , BDO Seidman, LLP SFAS 164 – Mergers of nonprofits and goodwill: Not-for-Profit Entities: Mergers and Acquisitions – Including an amendment of FASB Statement No. 142 Accounting for combinations of not-for-profit organizations: - SFAS 164 distinguishes between a Merger and an Acquisition - Mergers accounted for on ‘carryover basis’ – similar to pooling accounting under APB 16 - Acquisitions accounted for on ‘acquisition basis’ – similar to SFAS 141(R) - Determining factor of a merger: ceding of control by the governing bodies of two (or more) organizations to a new organization; the governing board of the new entity must be newly formed, but establishing a new legal entity is not a requirement - Other factors such as relative size, relative dominance of the process and of the combined entity, and relative financial health, can be considered in judging whether control has been ceded, but are not themselves determinants of a merger vs. an acquisition - All other combinations are acquisitions Accounting for a merger: - Add together the historical financial data of the merging entities as of the merger date (not, as under APB 16, as of the beginning of the fiscal year in which the merger occurs) - Financial statements of the period of the merger include data only since the date of the merger (except that for a public company (FSP 126-1), pro forma disclosure is required as if the merger had occurred at the beginning of the fiscal year) - Conform accounting policies, except, because this is not a ‘fresh-start’, a merger is not an event that permits the election of accounting options that are restricted to the entity’s initial acquisition or recognition of an item (or the reversal of a previous election). Thus, for example, one merging entity’selection of the fair value option (SFAS No. 159), for a particular financial asset or liability permits neither the new entity’s election of the fair value option for other financial assets or liabilities nor reversal of a previous election of this option. - Eliminate effects of any intra-entity transactions - All reclassifications, adjustments, and other changes needed to effect a merger are rolled into opening balances - Since the successor organization after a merger is a new entity, there is no prior period statement of activity or cash flows (an ‘opening’ balance sheet may be presented if desired) Accounting for an acquisition: - Identifiable assets and liabilities (and any noncontrolling interest) of the acquired entity are brought in at their fair values at date of acquisition - Exceptions specific to nonprofits: Collections are accounted for in accordance with the policy of the acquirer; conditional pledges are not recorded; no value is attributed to donor relationships - Exception for leases: Leases are classified (operating vs. capital) according to their terms at lease inception, unless they have been modified - If the value of the acquired assets exceeds the sum of the acquired liabilities plus any consideration, the difference is recorded as an inherent contribution and reported as a separate credit in the statement of activities - If the sum of the liabilities plus consideration exceeds the assets, the difference is recorded as goodwill, except: - if the entity is predominantly supported by contributions and/or investment return, the goodwill is written off immediately as a separate charge in the statement of activities (‘predominantly supported by’ means that contributions and investment return are expected to be significantly more than the total of all other revenues) - Any noncontrolling interests are accounted for in accordance with SFAS 160 - Acquisition-related costs are period expenses, except for debt issuance costs SFAS 142 (Goodwill) is made fully effective for not-for-profit entities (goodwill is no longer amortized, rather it is tested for impairment) Various descriptive, quantitative, and qualitative (why the merger/acquisition occurred) disclosures are required. Effective date: - Combinations occurring in reporting periods beginning on or after 15 December 2009; - Early adoption prohibited SFAS 142 does not apply to: a. The formation of a joint venture b. The acquisition of assets that do not constitute either a business or a nonprofit activity c. A combination between entities under common control d. An event in which a not-for-profit entity obtains control of another entity but does not consolidate that entity, as permitted or required by AICPA SOP No. 94-3. SEGMENT 2: Mark L. Zyla CPA/ABV, CFA, ASA, Managing Director, Acuitas, Inc. ** Speaker Talking Points to be added soon.. ** SEGMENT 3: Jerald A. Jacobs, Partner, Pillsbury Winthrop Shaw Pittman LLP Focusing on the legal aspects of nonprofit mergers and consolidations, as distinguished from the accounting aspects, several things stand out. First and foremost is process. Mergers and consolidations are creatures of state nonprofit corporation law. Observing the requirements of that law — for deadlines, approvals, filings, and other processes — is one key to success. Conventional “acquisitions” rarely occur among nonprofit organizations because by definition none has “owners.” Instead when a small group joins a large one, or a weak one joins a strong one, the former usually dissolves and transfers assets to the latter. The main legal-related steps are: (1) a preliminary NDA; (2) legal and financial reciprocal due diligence reviews; (3) a comprehensive merger/consolidation agreement with key attachments; (4) reciprocal governing board approvals; (5) reciprocal membership approvals where organizations have voting members; and (6) closing. Three-to-six months for all steps is typical; but it’s been done as fast as one month or as slow as several years. Legal and financial due diligence reviews have some commonality but are usually quite different in scope and result. Most failed attempts fail over seemingly trivial issues; so “deal breakers” and “near deal breakers” should be exposed early and accommodated if possible. Failure to achieve approvals usually results from inadequate attempts; so “marketing” is a key factor. SEGMENT 4: Darren S. Cordier, CFA, President and CEO, FV Specialists, Inc. Fair Value Issues - Criteria/Definition - Assumptions - Hierarchy of support - Assets with uncertain cash flows - Assets subject to operating leases in which the acquire is the lessor - Assets That the Acquirer Intends Not to Use or to Use in a Way Other Than Their Highest and Best Use - Measuring the Fair Value of a Noncontrolling Interest in an Acquiree Measuring Consideration for an acquisition - Fair value criteria - Contingent consideration - Acquisition related costs - Effective Settlement of a Preexisting Relationship between the Acquirer and the Acquiree - Transfer of Consideration in Which the Acquirer Retains Control - Measurement Period - Determining What Is Part of the Acquisition Recognition of assets and liabilities - Reacquired rights - Non-identifiable assets - Identification criteria - Exceptions to identification Sample intangible assets - Marketing related intangible assets - Customer and donor related intangible assets - Artistic related intangible assets - Contract-based intangible assets - Technology based intangible assets
Who Should Attend:
- Controllers - Chief Financial Officers - Vice Presidents of Finance - Assistant Controllers - Accounting Managers - Attorneys - Finance Managers - Treasurers - Auditors - Tax Analysts - Directors of Accounting - Business Valuation Specialists
Lee Klumpp is a Senior Manager with BDO Seidman, LLPs’ Assurance Division in Bethesda, MD. Prior to joining BDO Seidman, Lee worked in the audit practices of Ernst and Young, LLP and KPMG. His representative clients included Children’s National Medical Center, World Wildlife Fund American Cancer Society, Gift in Kind International, and American College of Cardiology. Mr. Klumpp is an accomplished speaker who has presented on numerous occasions on a variety of issues relating to nonprofi t organizations with signifi cant emphasis on Offi ce of Budget and Management Circulars A-133, A-122 and A-110 through the Greater Washington Society of CPAs, Virginia State Society of CPA’s and the American Institute of Certifi ed Public Accountants, as well as internally developed continuing professional education programs for the firms that he has worked for.
Lee Klumpp is a Senior Manager with BDO Seidman, LLPs’ Assurance Division in Bethesda, MD. Prior to joining BDO Seidman, …
Mark L. Zyla is a Managing Director of Acuitas, Inc. an Atlanta Georgia based valuation and litigation consultancy firm. Mark has provided valuation consulting for various types of entities for the purposes of mergers and acquisitions, financial reporting, tax planning, corporate recapitalizations, as well valuing various types of intellectual property and other intangible assets for many purposes. Prior to rejoining Acuitas, he was a Principal with a national business valuation and financial advisory firm. Additionally, he was formerly a practice leader for PricewaterhouseCoopers’s Corporate Finance Consulting Group for the Southeastern U.S.
Mark received a BBA degree in Finance from the University of Texas at Austin and an MBA degree with a concentration in Finance from Georgia State University. Mark also completed the Mergers and Acquisitions Program at the Aresty Institute of The Wharton School of the University of Pennsylvania and the Valuation Program at the Graduate School of Business at Harvard University. He is a Certified Public Accountant, Accredited in Business Valuation (“CPA/ABV”), a Chartered Financial Analyst (“CFA”), and an Accredited Senior Appraiser with the American Society of Appraisers certified in Business Valuation (“ASA”).
Mark is a member of the American Society of Appraisers (“ASA”), the American Institute of Certified Public Accountants (“AICPA”), CFA Institute, and the Atlanta Society of Financial Analysts. Mark is a former member of the Business Valuations Committee of the AICPA, and a current Chairman of the ABV Examination Committee of the AICPA. He is also a former member of the Business Valuation Standards Subcommittee of the ASA. He was recently named as Vice Chairman of The Appraisal Foundation’s Business Valuation Best Practices Working Group. He is also a member of the Atlanta Venture Forum, a professional organization of the venture capital community. He is one of the authors of the International Glossary of Business Valuation Terms which has been adopted by the major valuation organizations.
Mark is a frequent presenter and author on valuation issues. He has presented to such corporations as Northup Grumman and Coca-Cola. He has taught valuation courses at the FBI Academy in Quantico Virginia, and since 2002 has been on the faculty of the National Judicial College teaching business valuation to judges. He is a co- author of two books on business valuation, Valuation for Financial Reporting: Intangible Assets, Goodwill and Impairment Analysis, SFAS 141 and 142 (2002) and Financial Valuation: Application and Models, (2003) bothpublished by John Wiley & Sons, Inc. Mark is also the co-author of the courses, “Fair Value Accounting: A Critical New Skill for All CPAs” and “Valuing Goodwill and other Intangible Assets” published by the AICPA. Mark is also co-author of Fair Value Measurements: Valuation Principles and Auditing Techniques to be published in late 2007 by Tax Management, Inc., a division of the Bureau of National Affairs.
Mark L. Zyla is a Managing Director of Acuitas, Inc. an Atlanta Georgia based valuation and litigation consultancy firm. Mark …
Jerry Jacobs is a Washington attorney and head of the Nonprofit Organizations practice of the Pillsbury Winthrop Shaw Pittman LLP law firm. That practice annually provides legal counseling and advocacy for over 150 national trade associations, professional societies, cause organizations, and charities. He is also head of the 75-attorney Public Practices Section of the firm. Mr. Jacobs has been focused on the legal representation of nonprofit organization clients for over two decades. His practice includes antitrust and trade regulation, health law, litigation, nonprofit corporate governance and transactions, federal income tax exemption, and federal legislative and regulatory issues affecting nonprofit organizations.
Mr. Jacobs is General Counsel for ASAE & The Center for Association Leadership, the 24,000-member national professional society of nonprofit organization staff executives. He founded ASAE & The Center’s 4,000-member Legal Section and chaired its Section Council for three years, and for the past ten years he has been the keynote speaker at its Legal Symposium. He has also served on ASAE’s Board of Directors and on the Board of Directors of the ASAE Foundation. He chaired ASAE’s Government Affairs Committee for two years. He has received ASAE’s Distinguished Service Award, the highest honor presented to associate members of the Society.
Mr. Jacobs has written extensively on legal and governmental issues for nonprofit organizations. His book credits include Association Law Handbook, 4th ed. (2007) and its biennial supplement Association Law Update (2009); Certification and Accreditation Law Handbook, 2nd ed. (2004; with Jefferson C. Glassie); Associations and the Law (2002); Federal Lobbying Law Handbook, 2nd ed. (1993); and Legal Risk Management for Associations (1995; with David W. Ogden, currently Deputy Attorney General of the United States).
In 2002, Mr. Jacobs was named “Outstanding Nonprofit Attorney” by the American Bar Association. In 1998 Mr. Jacobs presented a paper on tort law risks to nonprofit organizations before the Litigation Section of the American Bar Association, and in 1999 he presented a paper on antitrust risks to ABA’s Section of Business Law.
Mr. Jacobs has advised the governments of the European Union and the Peoples Republic of China on nonprofit/nongovernmental organization issues.
Mr. Jacobs holds undergraduate and law degrees from Georgetown University and studied at the University of Fribourg, Switzerland. He has served as an adjunct professor in the area of nonprofit organization law at The George Washington University. He is admitted to practice law in the District of Columbia, before several federal district and circuit courts, and before the U.S. Supreme Court.
Jerry Jacobs is a Washington attorney and head of the Nonprofit Organizations practice of the Pillsbury Winthrop Shaw Pittman LLP …
Mr. Cordier is President and CEO of FV Specialists, Inc., a business valuation consulting firm focused on assisting with valuations for financial reporting, acquisition planning, and post acquisition tax compliance. FV Specialists’ consulting services include establishing internal procedures, developing internal training, and consulting on key issues related to business and intangible asset valuations. FV Specialists’ valuation services include fully documented and supported valuations prepared to fit our client’s needs and to withstand the scrutiny of review by auditors or regulatory authorities. Mr. Cordier founded FV Specialists after 14 years in business valuation, where he built a key expertise in valuations related to transactions including pre-acquisition planning, post-acquisition financial reporting, and pre and post-acquisition tax issues.
Mr. Cordier is well recognized for his expertise. He has assisted in the development an intangible asset training course for the American Society of Appraisers (ASA), has served as a technical reviewer on volumes 1 and 2 of the book “Valuation for Financial Reporting”, (John Wiley and Sons, Inc. 2002, 2007); co-authored the chapter on valuations for financial reporting in Financial Valuation: Applications and Models (John Wiley and Sons, Inc. 2003), was a co-author and co-course developer of Exploring Issues in Valuing Stock Options and Other Assets You Can’t See (AICPA, 2002, 2003), and prepared various presentations on valuation topics for professional associations including the American Institute of Certified Public Accountants, the ASA, and the Institute of Business Appraisers.
Mr. Cordier has served in senior roles at national firms and large, boutique firms, where he not only managed complex valuation engagements but also served a role in the development of valuation processes and procedures and in staff education and training. Prior to forming FV Specialists, Inc., Mr. Cordier served as a Director at Business Valuation Advisors LLC, a large, boutique business valuation firm headquartered in Dallas, Texas. He has also served as Senior Manager in charge of valuations for SEC compliance at Grant Thornton LLP’s Valuation Services Group and as an Engagement Director at American Appraisal Associates. Mr. Cordier began his valuation career at Ernst & Young LLP in 1994.
Mr. Cordier received his Master of Business Administration with a concentration in Finance from Texas Christian University’s M.J. Neeley School of Business in 1994. He received his Bachelor of Business Administration majoring in Finance from the University of Texas at Austin in 1991. Mr. Cordier holds a Chartered Financial Analyst designation from and is a member of the CFA Institute. He also is a candidate member of the ASA, member of the Appraisal Issues Task Force, and a member of the Association for Corporate Growth.
Mr. Cordier is President and CEO of FV Specialists, Inc., a business valuation consulting firm focused on assisting with valuations …
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