medium · Investment Banking ma-lbo
What is the impact of an 'Asset Step-Up' in an M&A transaction?
- It is a firm legal requirement under U.S. GAAP rules that entirely prevents any Goodwill from ever being created in an acquisition.
- It permits the acquirer to immediately deduct the full purchase price paid in the deal as a tax expense in the year the transaction closes.
- It increases the book value of acquired assets to their fair market value, leading to higher future D&A and potentially lower GAAP Net Income.
- It is an informal process in which the acquirer boosts its own publicly traded stock price by revising upward its forward earnings projections and guidance.
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