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What is the impact of an 'Asset Step-Up' in an M&A transaction?

  1. It is a firm legal requirement under U.S. GAAP rules that entirely prevents any Goodwill from ever being created in an acquisition.
  2. 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.
  3. 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.
  4. 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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