We’re taking a close look at FAS 141R as it relates to M&A, especially in light of the traditional year-end wrap-up of deal flow and our upcoming webcast on FAS 141R this week.  CFOs are beefing up due diligence efforts to ensure they are seeing deals in the light of the new accounting rules - a practice that we wondered about when the revised rules were put into play in 2008.

It is no secret that deal flow has seen a dramatic dip since 2008, to the tune of a 50 percent drop in activity.  However, there are signs of life out there and 141R should never be an obstacle to closing a good deal.   Dealing with 141R simply means building in more upfront time to understand the implications of the new accounting, which is dramatically different from the old SFAS 141.

As we continue to adapt to the downturn, there are a number of factors around the valuation of companies that are coming into play and, in the end, motivating leaders to re-value options.  We’re seeing this trend develop in real time, and it prompted us to put pen to paper for our most recent Perspectives article, “Giving Stock Options A Second Look: The benefits of new grants at low values.”

In a nutshell, there is some opportunity that comes with economic free-fall: those companies that provide options are now in a position to get a new valuation and re-energize their workforces with incentives.  That means that even as downsizing and paycuts spread out across the country, management still has the power to provide strong compensation packages.

As we write in the article:

When the profits don’t exist to pass on in the way of high compensation, stock options are routinely used to incentivize the employee base and retain key people. With fair values near rock bottom, companies are seizing this opportunity to strategically grant additional options or reprice existing stock options.

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As we head for the New Year, identifying goodwill impairment is fast becoming a crucial activity for year-end filers and, indeed, for public and private companies at all stages of reporting.

The recent economic avalanche has brought about a great many challenges, and we can add one more to the mix:  businesses that have made acquisitions in the last few years and are carrying significant amounts of intangibles and goodwill on their books may suddenly find that the fair value of their reporting units have declined significantly, resulting in a potential write-down.

While it may be difficult to swallow such a hit (which could occur despite strong sales and effective operations management), avoiding the issue can worsen the situation significantly.

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