Company context
The client is a $200M PE-backed holdco completing the third tuck-in acquisition in its current platform thesis. The target is a $42M revenue specialty business — a complementary product line — being acquired for $42M cash plus $3M earnout contingent on year-1 revenue. The PE sponsor needed clean ASC 805 purchase accounting reflected in Q+1 reporting, including identifiable intangibles, deferred-tax positions, and goodwill recognition that wouldn't produce auditor findings.
ASC 805 (Business Combinations) is dense. The acquirer recognizes the assets acquired and liabilities assumed at fair value, identifies intangibles separately from goodwill (customer relationships, technology, trade names, non-compete), establishes deferred tax positions for book-tax differences, and recognizes goodwill as the residual. Common errors at close that surface in audit: under-allocation to identifiable intangibles, inconsistent valuation methodology, missed deferred tax, and incomplete bargain-purchase analysis.
- Acquirer: $200M PE-backed holdco on NetSuite OneWorld
- Target: $42M revenue specialty product line (asset deal structure)
- Purchase price: $42M cash + $3M contingent earnout
- Target stack pre-deal: QBO Advanced
- Post-close: 90-day ASC 805 timeline + planned QBO → NetSuite migration in months 4–9
- External audit cycle: December year-end (acquirer); audit fieldwork in February
Before — what was actually broken
Two acquisitions in the prior year had been booked with under-allocated intangibles — most of the purchase price went to goodwill, with token allocations to customer relationships and trade names. The auditor pushed back during fieldwork; the acquirer ended up restating intangibles and goodwill, recognizing additional amortization in current year, and producing a management-letter comment on M&A control design.
The CFO didn't want a third miss. We were brought in pre-close with a 90-day timeline to: identify and value intangibles per ASC 805, establish deferred-tax positions, complete the opening balance sheet, document methodology for the auditor walkthrough, and integrate the target's QBO actuals into NetSuite consolidation.
- Two prior acquisitions resulted in audit pushback on intangibles allocation
- Restatement and management-letter comment in prior year
- No standard ASC 805 methodology in place
- Target on QBO Advanced; acquirer on NetSuite OneWorld
- Timeline pressure: Q+1 close 60 days post-deal-close
What Ledger Summit implemented
A six-track ASC 805 implementation: (1) pre-close due-diligence support to identify intangibles in advance; (2) third-party valuation of identifiable intangibles using income, market, and cost approaches; (3) opening balance sheet with fair-value adjustments; (4) deferred-tax establishment for each book-tax difference; (5) goodwill calculation as residual; (6) post-close integration into NetSuite with measurement period adjustments.
- Pre-close diligence support: identifiable intangible inventory, customer-relationship modeling, technology assessment
- Third-party valuation specialist engaged: customer relationships (Multi-Period Excess Earnings Method), developed technology (Relief from Royalty), trade names (Relief from Royalty), non-compete (With/Without Method)
- Opening balance sheet: fair value of all identifiable assets and liabilities at close date
- Deferred tax: established per book-tax difference (intangibles, fixed assets, deferred revenue, working-capital items)
- Goodwill: residual of purchase price minus identifiable net assets fair value
- Bargain-purchase analysis: ruled out (purchase price > identifiable net assets)
- Contingent consideration (earnout): fair-valued at close; remeasured at each subsequent reporting date through P&L
- Measurement-period adjustments: tracked for adjustments within 1 year of close
- Working capital true-up: per purchase agreement, settled at day 60
- Disclosure preparation: ASC 805 disclosures including pro forma revenue and earnings
ASC 805 mechanics — what the engine handles
Each step has documented methodology with reviewer sign-off and audit walkthrough memo.
| Topic | What it requires |
|---|
| Identify acquirer | Per ASC 805-10-25; usually obvious from deal structure |
| Acquisition date | Date acquirer obtains control; not necessarily legal close date |
| Consideration transferred | Cash + assumed liabilities + contingent consideration at fair value + replacement awards (where applicable) |
| Identifiable intangibles — customer relationships | Multi-Period Excess Earnings Method (MPEEM); typically the largest intangible |
| Identifiable intangibles — technology | Relief from Royalty Method; useful life based on technology obsolescence |
| Identifiable intangibles — trade name | Relief from Royalty; useful life often indefinite |
| Identifiable intangibles — non-compete | With/Without Method or Lost Profits; useful life = covenant period |
| Identifiable intangibles — backlog | MPEEM or Lost Profits; useful life = backlog runoff period |
| Inventory step-up | Fair value at close; step-up flows to COGS as inventory sells |
| Fixed assets | Fair value at close (replacement cost or market); useful life reset |
| Deferred revenue | Re-measured to fair value (legal performance obligation only); may reduce vs. carrying |
| Deferred tax | Established for book-tax differences; future reversal pattern impacts subsequent provision |
| Goodwill | Residual; purchase price + NCI + step-up of prior interest − fair value of identifiable net assets |
| Bargain purchase | When fair value of identifiable net assets > purchase price; tested before recognizing goodwill |
| Contingent consideration | Fair value at close (probability-weighted); remeasured each period to fair value through P&L |
| Measurement period | Up to 1 year post-close to refine fair values; adjustments applied retrospectively |
| Bargain purchase gain | Recognized in P&L immediately if material |
| Disclosure | Pro forma revenue and earnings; intangibles by type and useful life; goodwill changes |