How can an acquirer and a seller combine financial resources?

This means combining them (e.g., consolidating cash reserves) and then tracking them through both accounting and controls.

Combining financial resources. A company’s primary financial resources are cash, accounts receivable, and securities (e.g., equity investments). As mentioned in Chapter 8 on Closing, in an asset transaction, the acquirer purchases these along with the other assets, unless they are excluded by the target in the acquisition agreement.   In a stock transaction, by contrast, the target cannot simply exclude assets in an agreement and expect to possess them after closing. Instead, the target. It has to take them prior to closing. If sellers want to retain any assets in the target, they need to distribute those assets out of the target prior to the sale so they no longer belong to the target when ownership of the target changes at closing. [i]Immediately following the closing, acquiring managers must take possession of the acquired company’s resources—transferring bank accounts and claiming ownership of any equity or debt securities held by the seller (unless excluded in an agreement supporting an asset sale).[ii] These are fairly straightforward matters that can be entrusted to the acquirer’s chief financial officer and the CFO’s team, as long as the acquiring company has adequate financial controls. Even in a merger of equals, for ease of transfer one company should be designated for the acquirer’s role in this sense.

Tracking financial resources. The optimal value of cash, stock, and bonds, of course, is their liquidity, aka ability to move—to be spent or paid (in the case of cash), or to be exchanged (bought or sold, in the case of stocks and bonds). Movements of financial resources at any time, including following a merger, must be tracked and controlled.

• The main tool of financial tracking is financial accounting. Chapter 5, on structuring, explains how acquisitions must be reported to conform to certain accounting practices under generally accepted accounting practices (GAAP) as determined by the Financial Accounting Standards Boards (FASB) for public companies in the US.
• The main tool for financial controls is the set of processes known as internal financial controls. For more about internal financial controls, see the discussion later in this chapter about integration of key processes.

What does the combination of intangible resources involve?

Following a merger, intangible resources, much like financial resources, must be combined and tracked.

Combining intangible resources. Appendix 9B lists a number of key intangibles to be considered for combination. Discussing all of them would exceed the scope of this chapter. The next sections discuss what to do about company names and brand names after a merger or acquisition.

Tracking intangible resources. Chapter 5 talks about the accounting issues that arise after purchasing a company that has intangibles.