But under the current FAS141, not considering the FAS141(R), we calculate the goodwill based on the proportion that we bought, hence the calculation $1,000,000 + $20,000 - [80% * ($500,000 - $100,000)]. And when we do this, we are only considering 80% of the existing goodwill (the $100,000 in the f... But under the current FAS141, not considering the FAS141(R), we calculate the goodwill based on the proportion that we bought, hence the calculation $1,000,000 + $20,000 - [80% * ($500,000 - $100,000)]. And when we do this, we are only considering 80% of the existing goodwill (the $100,000 in the formula)... that's why I cannot balance my model, because WST's formula calculates GW based on tangible book value (I understand that you guys do it because we are calculating the total post-transaction GW), while minority interest is calculated on the book value - and that's the exact amount of the difference I'm having. I tend to believe that your Post-transaction GW calculation only works when purchasing 100%, because when you purchase less than 100% (but greater than 50%) the model does not balance because the MI is calculated on the remaining BOOK VALUE (not tangible book value) that you did not purchase. Does that make sense?
So, my question is: should we first calculate the goodwill created on the transaction and then sum the pre-existing goodwill to get to the consolidated GW? Or we are required by any accounting rule to do not book the pre-existing GW on target's balance sheet (which means we blow it out) when consolidating BS after the merger?

Thanks again. Read More

To be honest, we aren't sure. If you are only buying 80% - who owns the other 20%? If another investor is coming in, then there is 100% GW adjustment b/c the entire company is being bought. We are still questioning why there is Minority Interest created to begin with if this is an LBO. If this is ... To be honest, we aren't sure. If you are only buying 80% - who owns the other 20%? If another investor is coming in, then there is 100% GW adjustment b/c the entire company is being bought.

We are still questioning why there is Minority Interest created to begin with if this is an LBO. If this is a merger (A buys B) then fine, yes Minority Interest. If you are truly buying 80%, with 20% NOT exchanging hands, and if you are not balancing by that amount, then do what you need to do to make it balance - I would agree with you to follow FAS 141.

However, FAS 141 is in the context of a merger, not an LBO. In the LBO, the shell acquiror is all zeroes and so we assume the existing company with that 20% large minority shareholder which does not create Minority Interest. Read More

So maybe I'm a bit confused here. As per I could understand, we don't have LBO deals buying less than 100%, is that right? Because I assume that when we have it (less than 100%), what actually happens is that the remaining portion that the primary PE sponsor didn't buy out is either bought out by ot... So maybe I'm a bit confused here. As per I could understand, we don't have LBO deals buying less than 100%, is that right? Because I assume that when we have it (less than 100%), what actually happens is that the remaining portion that the primary PE sponsor didn't buy out is either bought out by other PE fund(s) or is roll-over equity, right?

If it is right, then I would agree with you that LBO does not create minority interest, and does not create 'partial' goodwill as well, because at the end of the day the entire company (100%) is being bought out, but with various equity sources.

Now, if this is a merger, my question is still open: don't you guys think that calculating the post-transaction GW for a 80% acquisition with the tangible book value would creat a difference in the model? So, in this case, can I calculate the transaction GW ONLY and them sum it to any existing GW on target's BS when consolidating? Are you guys sure that we are oblied to/must blow out the target's existing GW? Which FASB pronouncement says that? Read More

We agree with your summary which neatly summarizes our summary.
As for in the case of a merger - you would have to use our super-advanced merger model!
Unfortunately, as we stated earlier, you cannot (should not) use a LBO model for a merger!

P.S. pls do email us the list of previous Q&A!