While 2014 brought the highest level of merger and acquisition activity since 2007, the first quarter of 2015 was the best first quarter for mergers and acquisitions in the United States since 2000. This increase was due partially to 14 large “mega-deals” valued at over $10 billion each. However, the number of deals in Q1-2015 also increased compared to the first quarter of 2014. This increase in merger and acquisition (“M&A”) transactions is in line with the results of the KMPG 2015 M&A Outlook Survey report in which KMPG surveyed over 735 M&A professionals from corporations in the United States, private equity firms and investment banks. Based on this survey, 79% of the respondents had made at least one acquisition in 2014 while 82% expected to enter into at least one acquisition in 2015. Also, 41% of the people that responded to the survey expected to enter into more than one acquisition during 2015 which was higher than the number of expected acquisitions in prior years.
As companies enter into M&A transactions, they will need to consider the accounting implications of the deals and the potential impact the terms of the transaction may have on earnings. For instance, it is not uncommon for a portion of the consideration that will be paid to the acquirer to be contingent on future earnings or for the deal financing to include embedded derivatives that need to be recorded at fair value and revalued each reporting period.
If you or company is contemplating entering into an M&A transaction, we encourage management to involve the appropriate legal and accounting professionals early in the process. Ensuring that the proper expertise is in place can help prevent legal and accounting issues resulting from the transaction.