6.4 Partial Acquisitions
A “partial acquisition” is a business combination in which an entity acquires a controlling interest,
but less than 100 percent of the voting interests, in an entity. The ASC master glossary defines a
noncontrolling interest (also known as a minority interest) as “[t]he portion of equity (net assets) in a
subsidiary not attributable, directly or indirectly, to a parent.” Therefore, the portion of equity in the
acquiree held by other parties is presented as a noncontrolling interest in the acquirer’s consolidated
financial statements.
An underlying premise of ASC 805 is that obtaining control of a business makes
the acquirer accountable and responsible for all of the acquiree’s assets and liabilities,
regardless of the acquirer’s ownership percentage. Therefore, in a partial acquisition, the
acquirer recognizes in its consolidated financial statements the assets acquired,
liabilities assumed, and noncontrolling interest at 100 percent of their values, measured in
accordance with ASC 805 (generally at fair value). That is, even if the acquirer obtains a
less than 100 percent interest in the acquiree, all of the assets and liabilities, including
goodwill, are measured at 100 percent of their values, as calculated in accordance with ASC
805.
On the acquisition date of a partial acquisition, the acquirer only transfers
consideration for the portion of the equity interests acquired in that transaction.
Therefore, to determine the amounts to recognize for the assets acquired (including
goodwill), liabilities assumed, and any noncontrolling interests, the acquirer must include
in the calculation “the fair value of any noncontrolling interest,” in accordance with ASC
805-30-30-1. That guidance requires entities to measure goodwill in business combinations,
including partial acquisitions, as follows:
The acquirer shall
recognize goodwill as of the acquisition date, measured as the excess of (a) over (b):
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The aggregate of the following:
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The consideration transferred measured in accordance with this Section, which generally requires acquisition-date fair value (see paragraph 805-30-30-7)
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The fair value of any noncontrolling interest in the acquiree
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In a business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree.
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The net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with this Topic. [Emphasis added]
Once an entity has control of a subsidiary, any subsequent acquisitions of some
or all of the noncontrolling interests in that subsidiary are accounted for as equity
transactions under ASC 810-10, as long as the acquirer maintains control. For more
information about acquisitions of noncontrolling interests, see Deloitte’s Roadmap Consolidation — Identifying a Controlling
Financial Interest.
Example 6-16
Measuring Goodwill in a Partial Acquisition
Company A acquires 80 percent of the equity interests in, and control of,
Company B for $1,600. Company A had no prior ownership in B. The transaction
meets the definition of a business combination. The fair value of the
noncontrolling interest is $380. The fair value of B’s identifiable net assets
as of the acquisition date is $1,500.
Company A should measure goodwill as follows:
6.4.1 Measuring the Fair Value of a Noncontrolling Interest
ASC 805-20
Measuring the Fair Value of a Noncontrolling Interest in an Acquiree
30-7 Paragraph 805-20-30-1 requires the acquirer to measure a noncontrolling interest in the acquiree at its
fair value at the acquisition date. An acquirer sometimes will be able to measure the acquisition-date fair value
of a noncontrolling interest on the basis of a quoted price in an active market for the equity shares (that is,
those not held by the acquirer). In other situations, however, a quoted price in an active market for the equity
shares will not be available. In those situations, the acquirer would measure the fair value of the noncontrolling
interest using another valuation technique.
30-8 The fair values of the acquirer’s interest in the acquiree and the noncontrolling interest on a per-share
basis might differ. The main difference is likely to be the inclusion of a control premium in the per-share fair
value of the acquirer’s interest in the acquiree or, conversely, the inclusion of a discount for lack of control
(also referred to as a noncontrolling interest discount) in the per-share fair value of the noncontrolling interest
if market participants would take into account such a premium or discount when pricing the noncontrolling
interest.
ASC 805 requires an acquirer to determine the acquisition-date fair value of any noncontrolling interest
in the acquiree. If there is an active market for the noncontrolling interest, it must be measured “on the
basis of a quoted price in an active market for the equity shares (that is, those not held by the acquirer).”
However, ASC 805 does not provide detailed guidance on valuing the noncontrolling interest when
an active market does not exist, except to say that “the acquirer would measure the fair value of the
noncontrolling interest using another valuation technique” and that the “main difference [in valuing the
noncontrolling interests] is likely to be . . . the inclusion of a discount for lack of control.” The valuation
techniques used by entities to measure the noncontrolling interest should be consistent with the fair
value measurement principles in ASC 820.
Example 6-17
Impact of a Control Premium on the Fair Value of the Noncontrolling Interest
Company A acquires 60 percent (600,000 shares) of Company B for $6 million (or
$10 per share). However, on the acquisition date, B’s shares are trading at
$9.00 per share. The acquirer acknowledges that it is paying a premium over
the market because it believes that it will derive synergies from integrating
B with its own business.
Because A paid a premium over B’s market value per share, it may not be
reasonable to conclude that the fair value of each share held by
noncontrolling shareholders is $10.00.
Example 6-18
Determining the Fair Value of the Noncontrolling Interest
Company C acquired 75 percent (750,000 shares) of Company D, a privately held
entity, for $15 million in cash (or $20 per share). An independent third-party
valuation firm calculates the fair value of D as a whole (i.e., 100 percent)
as $19 million by using valuation techniques in accordance with the guidance
in ASC 820.
It may be appropriate for C to derive the fair value of the noncontrolling
interest as $4 million (or $16 per share), calculated as the fair value of the
entire business ($19 million) less the fair value of the consideration
transferred by C ($15 million), which includes a control premium.