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Inside SEC reporting: Acquisitions and divestitures · PwC's accounting podcast

0:00
SPEAKER_00: Thought Leadership from PWC's National Office.
0:07
SPEAKER_05: Welcome to PWC's Accounting Podcast.
0:10
SPEAKER_05: I'm Kyle Moffat, PWC's professional practice leader, and your guest host for this SEC-focused series.
0:16
SPEAKER_05: As with the rest of this series, we're taking a back-to-basics approach.
0:20
SPEAKER_05: But when it comes to SEC reporting, even the basics can get complex quite quickly.
0:25
SPEAKER_05: And from what I can see, what I see on a daily basis in the national office, these are real-world issues that come up across all industries and all deal types.
0:35
SPEAKER_05: So it's important to get them right.
0:36
SPEAKER_05: And it never hurts to get a refresher.
0:39
SPEAKER_05: A quick reminder: this is also a video podcast series.
0:42
SPEAKER_05: If you're listening to the audio-only version and want to watch the video, just head to the show notes for the link.
0:49
SPEAKER_05: Today we're talking all things, acquisitions and divestitures, from the filing and reporting requirements to key insights and reminders.
0:56
SPEAKER_05: So I think it's going to be definitely a lot for us to cover today.
0:59
SPEAKER_05: I'm joined by Scott Feely, who is our SEC and Capital Markets leader in the national office, and Liz Crego, PDBC's U.S.
1:07
SPEAKER_05: Deals Clients and Markets Leader.
1:09
SPEAKER_05: Welcome to you both.
1:10
SPEAKER_05: Really happy to have you on today.
1:12
SPEAKER_05: Good to be here.
1:13
SPEAKER_05: So, Scott, can you just start us off?
1:15
SPEAKER_05: Just give us a sets the stage for what we'll be covering today and why it's important.
1:21
SPEAKER_01: Sure.
1:21
SPEAKER_01: Yep, happy to do it, Kyle.
1:22
SPEAKER_01: So as you said, it's part of an SEC series.
1:24
SPEAKER_01: So we'll be focused on public company reporting requirements.
1:28
SPEAKER_01: I would say it has a little bit broader appeal than that, in that, you know, it's certainly public companies will be interested, but anybody contemplating an IPO, you might even think about private companies that may sell a business to a public company.
1:40
SPEAKER_01: You know, this may likewise be of interest to them.
1:44
SPEAKER_01: It's always a bit of a hot topic and can get interesting because it's inherently non-recurring.
1:50
SPEAKER_01: So even sophisticated controllership organizations may not step through these requirements all the time.
1:57
SPEAKER_01: Additionally, large organizations may sometimes benefit from their sheer size, right?
2:01
SPEAKER_01: We will talk about significance a little bit.
2:04
SPEAKER_01: Um, but given the size of their organizations, you know, that may render some of this um less impactful to them on a regular, regular basis.
2:12
SPEAKER_01: So again, non-recurring in nature, say acquisitions and divestitures, of course, two sides of the same coin.
2:18
SPEAKER_01: Um perhaps from a reporting standpoint, acquisitions may be a little bit um easier just because a registrant in an acquisition has to deal with their own reporting requirements, whereas in a divestiture, they certainly have to deal with their own reporting requirements, but they also have to think about what the reporting requirements of their counterparty may be.
2:36
SPEAKER_01: That's great point.
2:37
SPEAKER_05: So it's a great point.
2:39
SPEAKER_05: Um, so just kind of given that as a backdrop, you know, just and before we get into the technical and and practical implications, so all the reporting that we've you know mentioned.
2:50
SPEAKER_05: Liz, you want to talk a little bit about just market update?
2:52
SPEAKER_05: What's going on right now?
2:54
SPEAKER_05: I mean, obviously, markets are you know all over the place.
2:57
SPEAKER_05: I think, you know, I've heard heard you know last week turmoil.
3:00
SPEAKER_05: I heard you know some positive comments.
3:02
SPEAKER_05: Today, I mean, just it's it's all over the map.
3:05
SPEAKER_05: Um, but as far as it relates to M ⁇ A, what are we seeing?
3:08
SPEAKER_03: We're seeing a lot, and it's changing every almost every day, right?
3:12
SPEAKER_03: The headlines, uh, it's really challenging right now to be a deal maker.
3:17
SPEAKER_03: Uh, you know, as you know, in the beginning of 2025, we thought the table was set, we'd have a more amenable deal environment, we'd have maybe less regulation, and maybe interest rates would go down.
3:28
SPEAKER_03: Many were expecting MA to rebound.
3:31
SPEAKER_03: Uh, we usually see that uh when uh there's a new president, the new administration.
3:37
SPEAKER_03: You have almost policy certainty.
3:40
SPEAKER_03: And it seems like we've sort of traded election uncertainty now for policy uncertainty.
3:47
SPEAKER_03: Um a lot of deal makers were waiting on the sidelines, uh, ready to press go at any moment.
3:53
SPEAKER_05: And no one's pressing go.
3:54
SPEAKER_03: So we looked at deal volume and value uh from Q1 of 2025.
3:59
SPEAKER_03: We compared it to Q1 of the prior year, and deal volumes and values are relatively flat right now.
4:05
SPEAKER_03: Um I said it, you know, it's really difficult to be a deal maker because valuations are really tough if you have an all-stock deal and the stock market is extremely volatile.
4:16
SPEAKER_03: Uh, the geopolitical concerns right now, supply chain, um, obviously, diligence is really key, really thorough diligence.
4:24
SPEAKER_03: But you know, these valuation models, deal models, have to have such robust scenario planning right now because all options are on the table.
4:32
SPEAKER_05: Yeah, that's what you think in your, like, as you're talking about, like, it's like scenario analysis.
4:36
SPEAKER_05: How do you how far do you go?
4:37
SPEAKER_05: I mean, it's that seems like it's almost impossible at this, at least this early on in the Trump administration, like it's completely unpredictable.
4:45
SPEAKER_03: Also, organic and inorganic growth strategy is really impossible now because one day your strategy could just be pulled out the window, yeah, and you have to come up with something very new.
4:57
SPEAKER_03: So a low cost, maybe um, you know, for for either labor or goods um could turn on its head in one day because of tariffs.
5:06
SPEAKER_03: Right.
5:06
SPEAKER_03: Right.
5:07
SPEAKER_05: Well, so I think that's the, you know, as you think about where we are, you mentioned tariffs, you think about, you know, when so it's this the trade war, right, that we're in.
5:14
SPEAKER_05: And then obviously we'll see, you know, I think, you know, hope hopefully and and see some some tax um action later on this year.
5:21
SPEAKER_05: And that's obviously the big talk on the hill.
5:24
SPEAKER_05: Um, so so what can deal makers be doing now, given the volatility?
5:29
SPEAKER_05: I mean, you mentioned scenario analysis, but what else can they do, at least as they're looking at their portfolios, their own portfolios, um, or even potential targets?
5:38
SPEAKER_03: Well, if you work in deals, you know, everybody is extremely.
5:42
SPEAKER_03: We're very busy right now.
5:43
SPEAKER_03: We're still busy.
5:45
SPEAKER_03: And the majority of our clients are staying very close to the competition.
5:49
SPEAKER_03: They're staying very close, obviously, to the news and these models that I was talking about.
5:53
SPEAKER_03: But they are critically evaluating their portfolios in very different ways than they did one or two years ago.
5:59
SPEAKER_03: You're looking at non-core assets, you're looking at what might not fit, and you're changing the way you uh scrutinize the business operations of your company.
6:09
SPEAKER_03: So many are looking at spins, RMTs even that never would have been on the table before for some corporates, now are coming into the picture.
6:18
SPEAKER_03: Right.
6:18
SPEAKER_03: Really creative uh deals that are happening right now and trying to just extract the most value that you can out of your portfolio.
6:26
SPEAKER_03: Volatility obviously offers a lot of opportunity, but you have to get ahead of your competition.
6:32
SPEAKER_03: Business model transformation is key.
6:35
SPEAKER_03: And really just staying on top of um your portfolios and making sure that there's no bias in those reviews.
6:43
SPEAKER_05: I think that's a great point when you just think about management bias, or you know, it's it's you got to be very thoughtful in this environment, especially.
6:50
SPEAKER_05: So you mentioned earlier, Scott, you talked about it kind of being two sides of the coin.
6:54
SPEAKER_05: You have kind of the acquisition side and the divestiture side.
6:57
SPEAKER_05: So we'll we'll start with you know acquisitions and you know, perhaps you can just talk a little bit about some of the potential reporting implications for registrants when they're contemplating an acquisition.
7:06
SPEAKER_01: Sure.
7:06
SPEAKER_01: Yeah.
7:07
SPEAKER_01: So maybe I'll maybe I'll start um by setting us up and saying that, you know, everything that we'll talk about today in terms of acquisitions or divestitures, we're gonna focus on um businesses, acquisitions and divestitures of businesses.
7:18
SPEAKER_01: Okay, so the acquisition of assets that don't constitute a business will will they may come with their own reporting implications.
7:25
SPEAKER_01: We're gonna ignore that.
7:26
SPEAKER_01: So while we're have this focus on businesses, this is probably a good time to highlight that the definition of a business in gap is different than the definition of a business that's embedded in the SEC's rules and regulations, right?
7:40
SPEAKER_01: So under GAAP, you have ASC 805.
7:43
SPEAKER_01: It governs the definition of a business.
7:46
SPEAKER_01: Um, from an SEC standpoint, when you start thinking about AK reporting, 305 financial statements, proformas, et cetera, we're going to look to the definition of a business in Article 11.
7:58
SPEAKER_01: And in Article 11, we'd say the definition focuses more fundamentally on the continuity of operations before and after the transaction.
8:09
SPEAKER_01: And it looks at factors like revenue-producing activities, employees, customers, operating rights, and a variety of other factors.
8:17
SPEAKER_01: You know, on the surface, you might sit and say, okay, I might expect that the definition of a business under 805 and under Article 11 are going to largely align.
8:25
SPEAKER_01: And I would say that that's it's probably true in most circumstances, but we do see deviations, maybe most noticeably, um, when people are arriving at an asset acquisition under gap by means of this the so-called screen test, okay, just because of the predominance of a particular asset, single asset in the acquisition.
8:47
SPEAKER_01: Um, and so when you see that, you can arrive at a different outcome under Article 11.
8:52
SPEAKER_01: And while you know that principle can be true across industries, it's most notable inside of um health industries and biotechs in particular.
9:01
SPEAKER_01: So just stay tuned to that.
9:02
SPEAKER_01: That when we're talking about a lot of these requirements, we're gonna be focused on the Article 11 definition of a business.
9:08
SPEAKER_01: It's a bit broader than what you might otherwise see under 805.
9:12
SPEAKER_05: Yeah, I think that's always been a topic of conversation.
9:15
SPEAKER_05: I think when, you know, when we would talk to clients, it's that confusion and especially in the biotech space of like, well, there's one employee, like, you know, it's a right to develop a compound.
9:24
SPEAKER_05: Like, really, what is it, what kind of financial statements are even useful, right?
9:27
SPEAKER_05: I mean, that's obviously the secondary question.
9:29
SPEAKER_05: Sure.
9:30
SPEAKER_05: First question is, well, it meets the definition of business under um, you know, the SEC's rules.
9:34
SPEAKER_05: But I think, you know, there's obviously a lot of noise about why why don't the rules align?
9:38
SPEAKER_05: Um, because I think it would certainly simplify reporting.
9:41
SPEAKER_05: But I won't ask you why the SEC, you know, did did what it did with respect to that rulemaking.
9:47
SPEAKER_05: I'm sure it's it's in the adopting release.
9:49
SPEAKER_05: So if people are interested, they can take a look there.
9:50
SPEAKER_05: But I want to talk a little bit about when you just think about the distinction between acquisition of a of a business versus an acquisition of assets.
9:58
SPEAKER_05: Um, but but let's talk about, like to your point, the the actual reporting implications.
10:02
SPEAKER_05: We're thinking about an acquisition of businesses.
10:05
SPEAKER_01: Sure.
10:06
SPEAKER_01: Yeah.
10:06
SPEAKER_01: So I'm gonna start um with the simplest of the scenarios, and then we'll layer on a bit of um a bit of complexity from from there.
10:14
SPEAKER_01: So for the moment, I'm gonna ignore registration statements, I'm gonna ignore prospectus supplements, I'm gonna ignore proxy statements, all of those things.
10:21
SPEAKER_05: Liz wishes she could do that when she's consulting with clients.
10:24
SPEAKER_05: Just ignore all these things, right?
10:25
SPEAKER_01: Right.
10:26
SPEAKER_01: Exactly.
10:26
SPEAKER_01: Okay, so when we get into 8K reporting requirements, existing registron, um, if they consummate an acquisition of a business that is significant, and we'll talk a little bit about um about significance, they have a requirement to file an 8K within four business days of consummation.
10:44
SPEAKER_01: Okay, and in that 8K, they'll report things like the date that the acquisition was consummated.
10:50
SPEAKER_01: They'll describe the business that they acquired, they'll talk about the counterparty, the amount of consideration that was exchanged, et cetera.
10:58
SPEAKER_01: Again, that initial 8K is required to be filed within four business days of consummation, okay, of a significant business, uh business acquisition.
11:09
SPEAKER_01: On the acquisition side, there's a secondary requirement.
11:13
SPEAKER_01: Again, if the if the acquisition is significant, there's a secondary requirement to file an amended 8K, okay, within 71 calendar days from that initial due date for the first um for the first 8K.
11:27
SPEAKER_01: And in in that amended 8K, they would include pre-acquisition financial statements for the target audited, um, as well as pro forma financial statements reflecting um, or taking the historical financial statements of the registrant and adjusting them on a pro forma basis to reflect um the acquisition as if it happened on the first day of the earliest um period presented.
11:52
SPEAKER_01: We're not gonna go deep on pro forma here because there's gonna be another podcast in this series that um that will.
11:58
SPEAKER_05: Well, that's obviously I think the thing that you highlighted, which is the unique piece, right, is you have the initial AK, right, which is just gonna include some of the basic information, right?
12:09
SPEAKER_05: You had an acquisition, um, the name of the entity, that sort of stuff.
12:13
SPEAKER_05: And then the amended AK with more detailed sets of financial information, whether it's you know, historical financial statements, pro forma financial statements.
12:22
SPEAKER_05: Um, you mentioned significance, obviously, and and you know, go into as as deep as you'd like, but how does a company go about making that determination?
12:30
SPEAKER_05: I think oftentimes, and and I know you probably deal with this a lot, right?
12:33
SPEAKER_05: Just the confusion and um uh thinking about materiality versus significance.
12:38
SPEAKER_05: And I think um talk a little bit about the distinction there.
12:41
SPEAKER_05: The way that kind of that I always look at it is look, there's there are two separate things here.
12:44
SPEAKER_05: It's significance, which is the formula test.
12:47
SPEAKER_05: The second piece is materiality, and that's a secondary question of whether you write into the SEC to try to get some sort of waiver or something like that of the financials.
12:55
SPEAKER_05: But I'll I'll start with how you think about significance.
12:59
SPEAKER_01: Yeah.
12:59
SPEAKER_01: So so as with a lot of things um when dealing with the SEC, there are very prescriptive rules that will, you know, tell you how to how to measure the significance of one of these, um, one of these acquisitions.
13:12
SPEAKER_01: Significance is different than than materiality, as you as you allude to.
13:16
SPEAKER_01: So, you know, from a disclosure standpoint and a set of historical financial statements or things like this, there'll be plenty of transactions that are material that will not trip these significance tests.
13:25
SPEAKER_01: Okay, so these significance tests are reasonably um high, high thresholds, and I'll step through um I'll step through each of them here in a second.
13:34
SPEAKER_01: So, what we have in terms of construct today was the result of rulemaking back in 2020.
13:40
SPEAKER_01: Okay, and prior to that, we saw a lot of volume that would go into the SEC under the old um construct for significance tests, where um, you know, registrants were measuring significance, they were following the rules to the to the T.
13:57
SPEAKER_01: And what they were getting was something that they thought was really anomalous, right?
14:01
SPEAKER_01: That, you know, the test was saying that they had a significant business acquisition, but they thought the test wasn't really reflecting reality.
14:09
SPEAKER_01: And so you you saw a situation where registrants would write a lot of letters into the SEC to try and explain their position.
14:17
SPEAKER_01: And you allude to this and you you were there for a lot of this.
14:20
SPEAKER_05: Process a lot of those letters, yeah.
14:22
SPEAKER_01: Where these letters would go in and they would make their case to say, we think we're getting an anomalous outcome.
14:27
SPEAKER_01: You know, either we don't think we should be subject to any of these reporting requirements, or we think we should be subject to reduced reporting requirements.
14:34
SPEAKER_01: Well, in 2020, we got new rules that I would call it codified a lot of the bases that people used to write in for um relief on.
14:44
SPEAKER_01: Okay.
14:44
SPEAKER_01: So we see a lot less relief, uh requests for relief that so you're seeing less.
14:48
SPEAKER_05: You're seeing less, or you're also seeing less, you don't have to write in as much as you used to under the new rules.
14:54
SPEAKER_03: I completely agree.
14:55
SPEAKER_05: Yeah.
14:56
SPEAKER_05: So it's so definitely come a long way um from where where it was.
15:00
SPEAKER_05: Um and I guess my kind of follow-up question to either or both of you is you know, are are we seeing companies oftentimes just looking at saying, well, this doesn't make any sense, it is significant, and then just jump right into like, okay, we just this is not material.
15:14
SPEAKER_05: We don't have this information, we don't want to even have to get these financial statements, audit these financial statements.
15:18
SPEAKER_05: This is ridiculous, like like what what is what's the reaction to to that?
15:22
SPEAKER_01: I mean, well, I would say I would say two things.
15:25
SPEAKER_01: I would say, you know, if a company could, you know, could not have a reporting obligation, right, for the pre-acquisition, these are not easy lifts, right?
15:33
SPEAKER_01: Pre-acquisition financial statements for for target companies.
15:36
SPEAKER_01: So, you know, undoubtedly, if they could avoid that, they'd be they'd be happy to do it.
15:41
SPEAKER_01: But I would say on the flip side, we see far fewer instances where companies step through, and I'm gonna talk about the revised tests, the mechanics of it here in a second.
15:50
SPEAKER_01: We see far fewer instances where companies step through the revised tests and come out the other side and say, I've got a result that doesn't make sense.
16:00
SPEAKER_01: Okay, again, because we got these changes in 2020.
16:03
SPEAKER_01: Maybe let me step through the shall I step through.
16:04
SPEAKER_01: That'd be great.
16:06
SPEAKER_01: Um, okay.
16:07
SPEAKER_01: So so you've got a test that is built on, I'll call it three, three legs.
16:12
SPEAKER_01: And on on one of the tests, there's two sublegs.
16:15
SPEAKER_01: Okay, so we have an investment test, we have an asset test, and we have an income test.
16:19
SPEAKER_01: Um on the acquisition side, when we're dealing with the investment test, we're gonna look at the consideration transferred, think purchase price, as a percentage of the worldwide market value of the registrant.
16:32
SPEAKER_01: Okay, and if they have no worldwide market value, we'll you think pre-IPO, right?
16:37
SPEAKER_01: We'll we'll look at we'll look at assets, okay, for the for the denominator.
16:41
SPEAKER_01: Um, on the consideration transferred, we'll we'll consider everything from a gap standpoint, including, you know, contingent consideration, you know, either at either at fair value, um, you know, if it's required to be recognized by gap at fair value.
16:54
SPEAKER_01: Otherwise, you know, the maximum that that could be could be payable.
16:58
SPEAKER_01: Um, we think about worldwide market value in the denominator, that's voting andor non-voting common.
17:04
SPEAKER_01: Um, but it has to trade.
17:06
SPEAKER_01: Okay.
17:07
SPEAKER_01: It has to, it has to be be traded.
17:09
SPEAKER_01: The idea here is that you want something that's really objectively um determinable, right?
17:13
SPEAKER_01: Um, and so it's the last five trading days of the month preceding the earlier of announcement or closing.
17:21
SPEAKER_01: Okay, so that's a bit of a mouthful, but this test was restructured and was really intended to yield, you know, um, outcomes that were more reflective of reality, right?
17:33
SPEAKER_01: It's a fair value to fundamentally, it's a fair value to fair value test numerator and um and denominator.
17:41
SPEAKER_01: So the second test is the asset test.
17:43
SPEAKER_01: Um it's just what you might pretty straightforward.
17:45
SPEAKER_01: Just what you might guess.
17:46
SPEAKER_01: Okay, it's so the target assets pre-acquisition as a percentage of the registran's assets pre-acquisition.
17:52
SPEAKER_01: What percentage does that yield?
17:54
SPEAKER_01: Okay, the third leg, and you're gonna you're gonna take each of these three percentages and you're gonna ultimately take the highest of the of the three.
18:01
SPEAKER_01: Okay.
18:01
SPEAKER_01: The third leg is the income test.
18:04
SPEAKER_01: And you have to stick with me here a little bit because there's two sublegs to this, okay, which could get a little bit um, a little bit convoluted.
18:12
SPEAKER_01: So recall that we have the the three tests.
18:14
SPEAKER_01: We're gonna take the highest observed significance of each: um, investment, asset, income.
18:21
SPEAKER_01: In the income test, you have two sublegs, and you're actually gonna take the lower of those two components, okay?
18:28
SPEAKER_01: One is a pre-tax, what we call the pre-tax income component, um, and one is a revenue, a revenue component.
18:35
SPEAKER_01: Okay, so on the income component, you'll deal with the absolute value of the registrant's equity and the target's net loss from continuing operations before income taxes.
18:44
SPEAKER_01: Um, and you'll take that as a percentage of the same metric for the registrant.
18:48
SPEAKER_01: Um, again, absolute values that you'll always have a positive, um, a positive result.
18:54
SPEAKER_01: Um, you're dealing with continuing operations, so discontinued operations would be excluded from the test, um, et cetera.
19:01
SPEAKER_01: This is a pretty volatile test because income can be volatile.
19:06
SPEAKER_01: Think I've got a big impairment in one period that either drives up a numerator or down.
19:12
SPEAKER_01: Right.
19:12
SPEAKER_01: Exactly.
19:12
SPEAKER_01: Yeah, exactly.
19:13
SPEAKER_01: So that can generate a lot of volatility.
19:15
SPEAKER_01: And so in this 2020 rulemaking, what we got was a second component of the income test, which we call the revenue component, which was thought to be a bit more, a bit more, um, a bit more stable, you know, and maybe a bit more reflective of true, true significance.
19:32
SPEAKER_01: And so again, this one is just what it sounds like.
19:34
SPEAKER_01: Okay, registrant's proportionate share of the target's consolidated revenue from continuing operations as a percentage of the same for um for the registrant.
19:43
SPEAKER_01: There's a few conditions that you have to meet to avail yourself of this test, including each each component has to have uh material material revenue, et cetera.
19:52
SPEAKER_01: But this has reduced tremendously.
19:55
SPEAKER_01: We've talked about the the decline in volume of of um waiver requests.
20:01
SPEAKER_01: Yeah.
20:01
SPEAKER_01: That is a big driver of it.
20:02
SPEAKER_05: Yeah, I mean, I look, I think like to your point, just kind of layering on, it's it really is you look at a company, you look at a company as being acquired, and let's say their revenues are like 5% of the total revenues of the company how that's acquiring them, but then you look and they're kind of in a break-even state, right?
20:23
SPEAKER_05: Then it's obviously going to always trip significance from an income or you know, perspective.
20:28
SPEAKER_05: And so I think that balance, and then you're looking and saying you're taking the lowest.
20:32
SPEAKER_05: So you're looking at in that case, you're just taking the revenue outcome.
20:36
SPEAKER_05: 5% in your fact pack.
20:37
SPEAKER_05: Right.
20:38
SPEAKER_01: Yep.
20:38
SPEAKER_05: And then you're saying that's the true, and so that's my number when I'm looking at the investment, asset, and income test.
20:45
SPEAKER_05: The income test is a 5%, good to go on that.
20:48
SPEAKER_05: However, the other two, if they're tripped, then I may still have to provide financial statements.
20:52
SPEAKER_05: And I think it would also you'd also look and say, well, maybe there's a reason.
20:55
SPEAKER_05: Like, like in a lot of times it is, you know, the outcome could potentially result in a write-in to the SEC for a potential waiver if the company believes that that the it is anomalous and and not obviously a material set of financial statements, which is again different and distinct from how we think about significance.
21:14
SPEAKER_05: Exactly.
21:14
SPEAKER_01: Yep.
21:15
SPEAKER_01: So we didn't say it, but when you when you take the highest of the three uh tests, right, your the mark you're initially looking for is 20%.
21:25
SPEAKER_01: Okay.
21:25
SPEAKER_01: If you're no if you're north of 20%, you're quote unquote significant.
21:29
SPEAKER_01: There's a reporting obligation that comes along with it to report that um acquisition on an 8K.
21:34
SPEAKER_01: If you're below 20%, you may have obligations under GAP to you know, disclose it in the footnotes of the financials, prepare for uh pro form of financial information under ASC 805, et cetera, but you're not significant for SEC purposes under 20%.
21:52
SPEAKER_05: I think that's a great point.
21:53
SPEAKER_05: So anything else from a kind of a you know significance perspective to add.
22:00
SPEAKER_05: On that and then potential impacts.
22:02
SPEAKER_01: So I'll say in terms other other than the binary consideration around is it significant or not significant at 20%, right?
22:11
SPEAKER_01: Do I have to report it on 8K or not?
22:13
SPEAKER_01: Um, the level of significance.
22:15
SPEAKER_01: So if you exceed 20, the degree to by which you exceed the 20% will dictate how many years of pre-acquis, what periods you need pre-acquisition financial statements for the target.
22:27
SPEAKER_01: Okay.
22:28
SPEAKER_01: So again, if you're less than 20%, you're not significant.
22:30
SPEAKER_01: There's no 8K, there's no pre-acquisition financial statements for the target.
22:35
SPEAKER_01: If you're greater than 20% but less than 40%, you will need one year annual pre-acquisition financial statements for the target, plus, to the extent there is one, a year-to-date um interim period, right?
22:50
SPEAKER_01: The period between the latest balance sheet and um and the last year end.
22:55
SPEAKER_01: If you're unlucky enough to exceed the significance test at the 40% level, you're gonna max out on these requirements and you're gonna need two years of pre-acquisition financial statements for the target, um, as well as year-to-date interims to the extent there is one, with comparatives for that year-to-date interim period.
23:18
SPEAKER_05: Right, right.
23:20
SPEAKER_05: It's a lot to unpack there.
23:22
SPEAKER_05: Um, and I think, you know, when when kind of thinking about that, then it's also the implications in the context of registration statements.
23:29
SPEAKER_05: You talk a little bit about that and how companies should be thinking about like the one thing I I think about is kind of the nuanced one where you may report an acquisition, you know, a target of an acquisition.
23:41
SPEAKER_05: You acquired the business and you filed two years of financial statements.
23:45
SPEAKER_05: Um, but because it's a target in the form S4 itself, exactly.
23:50
SPEAKER_05: You may need to have three years of financial statements, which is a bit a bit strange, right?
23:54
SPEAKER_05: I know we we've we talk about that a lot of kind of that that distinction, but what else should should companies be think thinking about?
24:01
SPEAKER_01: Yeah, so I was maybe I'll add a couple of points here, and then I'm gonna I want to go a little bit deeper on the registration statement proxy.
24:08
SPEAKER_01: So maybe we'll we'll push that off just a little bit.
24:10
SPEAKER_01: And maybe what I'll add here is that while we're still talking, I'll just finish out on the 8K, while we're still talking about 8K requirements, I'll say that, you know, all of those pre-acquisition annual financial statements, whether it's one or two years for the target, those need to be audited.
24:29
SPEAKER_01: Okay, so just for the avoidance of doubt, those need to be audited.
24:32
SPEAKER_01: Um that audit can be performed in accordance with AI CPA standards, doesn't need to be but not ISA standards, not international, right?
24:39
SPEAKER_01: Not international.
24:40
SPEAKER_01: No, and it and and doesn't need to be PCOB.
24:42
SPEAKER_01: So it can be performed by a firm who's not necessarily registered with um with the PCAOB.
24:48
SPEAKER_01: And then I would say that, you know, audit standards aside, once you're filing financial statements, even for a private company that you went and acquired, right?
24:57
SPEAKER_01: Once you're filing financial statements with the SEC, um, they're gonna be what we would call SX or they're gonna need to be SX compliant financial statements.
25:06
SPEAKER_01: Okay, so think like have private company accounting alternatives that have been applied in those financial.
25:10
SPEAKER_01: That's not gonna work from an SEC standpoint.
25:13
SPEAKER_01: Okay, so there can be a fair amount of work involved in these acquisitions, even outside of the registration statement and other transactional environments that we're gonna speak about, um, just to deal with the AK reporting requirements.
25:26
SPEAKER_05: I think it's a great point.
25:27
SPEAKER_05: And I think it's it's always one where you're always gonna comply with gap.
25:31
SPEAKER_05: There are gap requirements for a lot of this stuff, but there's also SEC reporting requirements.
25:35
SPEAKER_05: And so it's important to ground yourself in the form, right?
25:39
SPEAKER_05: What form is be needs to be filed that's gonna drive what information is included in the form.
25:44
SPEAKER_05: Um, and then of course the rules are referenced there.
25:47
SPEAKER_05: But but your point, you said you wanted to unpack the the form S4, the target a little bit more.
25:53
SPEAKER_01: I can.
25:54
SPEAKER_01: Yep.
25:54
SPEAKER_01: So, and I'm gonna do this by a little bit by difference to what we so we establish a baseline for the for the 8K.
26:02
SPEAKER_01: Um so I'll I'll deal with registration statements perhaps first and highlight there can be a lot of nuances here.
26:09
SPEAKER_01: Okay, so absolutely I'm just gonna highlight three nuances um that people ought to ought to focus on.
26:15
SPEAKER_01: Okay, so recall that with an 8K, we talked about consummated um acquisitions, right?
26:20
SPEAKER_01: That's your trigger for filing that initial 201, um, 201.8K.
26:25
SPEAKER_01: When you get into registration statements, you're gonna have to think more broadly about the possibility of probable acquisitions.
26:32
SPEAKER_01: Okay, so not just closed acquisitions, but probable acquisitions.
26:37
SPEAKER_01: There's a bit of relief built into this process, okay, you know, in terms of if it's probable or in fact if it's recently, um, if it's been recently consummated within the last seven 74 days, um, you know, there's some relief built in to say you can you can go effective with a registration statement if you have something that's probable or or recently consummated, as long as it doesn't exceed third threshold, 50% significance.
27:04
SPEAKER_01: Okay.
27:04
SPEAKER_05: And the idea here is that layer on another rule.
27:06
SPEAKER_01: Yeah, exactly.
27:07
SPEAKER_01: The idea is that if it's if it's greater than 50%, at some point it becomes so significant that you just can't, you know, you can't proceed with a new registration statement without, without those, those financial statements.
27:18
SPEAKER_01: Okay.
27:18
SPEAKER_01: Yeah.
27:18
SPEAKER_01: And so you will have heard the term probable in there.
27:21
SPEAKER_01: We're generally gonna defer to a company and their legal counsel, you know, and making that determination, but they'll consider things like deal timelines, financing contingencies, um maybe the antitrust process, um, things like this.
27:34
SPEAKER_01: And then I mentioned recently consummated.
27:38
SPEAKER_01: So that's really a concept that exists.
27:40
SPEAKER_01: You know, if you think about the 8K requirement that we talked about, where you have four um four business days plus 71 calendar days to get these target financial statements on file.
27:51
SPEAKER_01: If you didn't have this type of relief, you would you would functionally be blacking people out of the out of the marketplace, right?
27:59
SPEAKER_01: And so if it's not north of 50% and it's recently consummated, um, you know, you can you can proceed.
28:05
SPEAKER_01: And it's really intended to largely align with the 8K reporting requirements for an existing, existing registrant.
28:11
SPEAKER_01: So that's that's maybe one nuance is if it's probable or recently consummated, greater than 50% in a registration statement environment, we need to be, we need to be thinking about it.
28:21
SPEAKER_05: I think the the message there, right?
28:23
SPEAKER_05: And I think it's probably how all three of us, when we talk to clients, because we've been on calls together talking to clients, it it's the message is always look, if if it's material, like you kind of need to be that needs to trigger in your head.
28:34
SPEAKER_05: There's got to be something that's required by the FCC, right, for them to make an informed investment or voting decision in a company and the purchase of stock or whatever the investment might be.
28:44
SPEAKER_01: So um anything else that you wanted to add before I uh switch gears and let Liz start to talk a little bit about Let me hit one other one other nuance, okay, which is individually insignificant acquisitions, interpreting registration statement.
29:00
SPEAKER_01: Okay, so um in an individually insignificant with individually insignificant acquisitions, so they're below 20%.
29:06
SPEAKER_01: But if you think about a serial acquirer, okay, who is constantly closing acquisitions, they're always individually below 20%.
29:14
SPEAKER_01: Maybe I won't say a lot on these, other than to say that if that's you in a registration statement environment, there's a possibility that you may have either a pro forma requirement to address those financial statements, or in certain instances, you know, to accelerate a requirement to provide the pre-acquisition financial statements for the for the target.
29:35
SPEAKER_01: Okay, so again, we don't need to go deep here, but if you're a serial acquirer, you're not in a registration statement environment, you're not automatically out if it's below 20%.
29:45
SPEAKER_01: Okay, you if you have a lot of them that are below 20%, you may you may run into anything.
29:49
SPEAKER_05: It goes to that point that I made about materiality, right?
29:51
SPEAKER_05: If it's something that's material, you it definitely is something that should be considered.
29:55
SPEAKER_05: So go ahead.
29:56
SPEAKER_03: Well, I just wanted to mention, Scott, you just mentioned three nuances, and there are so many more, right?
30:02
SPEAKER_03: Yeah.
30:03
SPEAKER_03: I have been a part of our our advisory clients deals where I've seen corp dev uh folks come into the room to the chief accounting officer or the CFO and say, we we want to buy this target.
30:14
SPEAKER_03: What's it gonna take?
30:15
SPEAKER_03: What's the timeline?
30:16
SPEAKER_03: It's always the first question, right?
30:18
SPEAKER_03: Yeah.
30:18
SPEAKER_03: What what is the what do the accounting uh people and the financial reporting people need?
30:22
SPEAKER_03: And if you don't understand these nuances, if you're not planning for these things up front, you're gonna get yourself in trouble because it does take time to have audited financial statements of the target generally, right?
30:34
SPEAKER_03: How many years?
30:35
SPEAKER_03: If you're on the cusp, right?
30:37
SPEAKER_03: These can be very tricky decisions.
30:39
SPEAKER_05: I think that's I think that's a great point.
30:41
SPEAKER_05: And I think it's the corp dev example, which we we see it, right?
30:48
SPEAKER_05: And in every company, at least they see it internally.
30:51
SPEAKER_05: And so I think it's it's you know, it's it's a fire drill, right?
30:55
SPEAKER_05: And so absent, like you, this is why it's important to really engage the right people uh and have them along for the for the ride.
31:01
SPEAKER_05: So, so when you're dealing with those conversations, you're in the trenches, and and there's obviously certain a lot of practical implications of of you know their MA-related activities.
31:11
SPEAKER_05: So what should people, what should our audience be thinking about?
31:14
SPEAKER_05: What should they have their eye on when they're thinking about acquisitions, like anything that jumps off the page to you that, hey, look, keep this in mind.
31:21
SPEAKER_03: Absolutely.
31:21
SPEAKER_03: And here are some practical considerations where I've seen our clients or others maybe not pay enough attention to that can cause some problems down the line.
31:31
SPEAKER_03: For example, a robust closing balance sheet, something that you're gonna get from the target's accounting uh staff.
31:39
SPEAKER_03: However, if it's not, if it's late, if they don't have a robust accounting department, how are you gonna be able to do that opening balance sheet on time, right?
31:48
SPEAKER_03: So those are things that lag in timing is always key.
31:51
SPEAKER_03: So that's where there should be definite coordination between the two accounting teams, understand what you're gonna get and when, get your auditors comfortable with the level of detail that's gonna come through and come over.
32:02
SPEAKER_03: You know, this late data uh it can create a nightmare for some.
32:06
SPEAKER_04: Yeah.
32:07
SPEAKER_03: Um, pro forma financials, they're not just a check the box exercise.
32:12
SPEAKER_03: You have uh investor relations looking at this, you have potentially synergy disclosures in them.
32:17
SPEAKER_03: It's really hard to sometimes decipher what is appropriate to put in your pro forma financial statements and what is not.
32:24
SPEAKER_05: She is teeing up our podcast that we've done on ProFormas.
32:29
SPEAKER_05: You are all over this.
32:30
SPEAKER_05: This is great.
32:30
SPEAKER_05: This is great.
32:31
SPEAKER_03: Um, I think also uh, you know, system capabilities, uh, local controllership has to sometimes get involved in pushdown accounting.
32:40
SPEAKER_03: If you elect pushdown accounting in a global ledger or maybe a ledger that's really not fit for another company to come on from an acquisition, you might get into some trouble in terms of the mechanics of pushing those entries down.
32:55
SPEAKER_03: So that's when you take your fair value PPA adjustments, you're pushing them down to your, maybe sometimes even to your local ledgers.
33:01
SPEAKER_03: You're recalculating things like depreciation, amortization.
33:05
SPEAKER_03: Um, you're even looking at uh functional currency determinations, right?
33:10
SPEAKER_03: Uh this is there's a lot to think about, and it has to be this organized effort.
33:14
SPEAKER_03: Um, the the the other thing, divestiture is in reverse, which is kind of a weird uh concept, but it's when you acquire, you're making an acquisition, and you're immediately maybe going to sell off a piece of that target or even combine it with a piece of your company that's already existing, merge the two and then potentially.
33:32
SPEAKER_05: That was terminology I kind of picked up being here at PwC with dealing with with our deals, folks, right?
33:38
SPEAKER_05: Because at the SEC is not something that they necessarily talk a lot about, but certainly see it a lot, right?
33:42
SPEAKER_03: Well, I had to Google that, and I also used our AI accounting research assistant.
33:46
SPEAKER_03: So it is a term.
33:47
SPEAKER_03: Yep.
33:48
SPEAKER_03: Um but you know, in that scenario, you would think you would have to think about potentially new segment reporting, um, carve out financial statements that might be needed, and your potentially new internal reporting structure, right?
34:01
SPEAKER_03: So I think I'll just end it with the cross-functional coordination is really key.
34:07
SPEAKER_03: People always say, don't forget about tax.
34:09
SPEAKER_03: Don't forget about the accountants and the financial reporting folks, the valuation teams.
34:14
SPEAKER_03: Everybody has to be lockstep, including corp dev, investor relations.
34:19
SPEAKER_03: You're also probably going to be asked to track uh post-closed synergies.
34:23
SPEAKER_03: That's really hard to do.
34:25
SPEAKER_03: Maybe you'd like to get off of TSAs faster, recording recognition of TSAs.
34:30
SPEAKER_03: Um, there's just filing deadlines, early alignment is key.
34:34
SPEAKER_05: Yeah.
34:35
SPEAKER_05: No, those are those are all fantastic points.
34:38
SPEAKER_05: And I think, I think the biggest one when it comes to any any kind of reporting issue, right?
34:43
SPEAKER_05: Any reporting topic that's new is having ensuring that you're coordinating, right?
34:48
SPEAKER_05: You're coordinating with the right people, at the right people at the table, um, you know, internally and externally, you know, you have the right advisors.
34:54
SPEAKER_05: Um and and obviously, you know, it's it's some of this stuff is work to your point.
35:00
SPEAKER_05: They there are deadlines, right?
35:02
SPEAKER_05: There are deadlines for the SEC reporting.
35:04
SPEAKER_05: If you don't hit those marks, then you may not be eligible, let's say, to use Form S3, or there may be, you may not be a Wixie.
35:10
SPEAKER_05: There may be some other um things that that could negatively impact your ability to raise capital moving forward.
35:15
SPEAKER_05: So um cover the basics in terms of SEC reporting obligations for existing registrants and um, you know, and understand it's it's obviously complicated for anything contemplating an IPO, an existing registrant intending to raise capital, or even existing registrants, it's actually dealing with an issuance of shares to affect an acquisition, which we talked a little bit about the you know, target financial statements.
35:37
SPEAKER_05: But um, can we cover some of those nuances?
35:40
SPEAKER_05: And I think it's probably to you, Scott, to start with you.
35:43
SPEAKER_01: Okay.
35:43
SPEAKER_01: Yeah.
35:44
SPEAKER_01: And so we we covered off some of the nuances that come with new registration statements and you know, individually significant uh acquisitions and the need to potentially aggregate them and so on and so forth.
35:54
SPEAKER_01: So a couple of other unique um transactional documents or considerations that people also ought to consider when they're thinking about acquisitions.
36:02
SPEAKER_01: One of them you alluded to earlier.
36:03
SPEAKER_01: So when we start talking about a proxy or an S4 or a joint document to affect a business combination.
36:09
SPEAKER_01: So either a vote or shares being issued to affect a business combination, shares to the to the target shareholders.
36:16
SPEAKER_01: I would say pretty simplistically, once you're asking someone to vote, you don't get any breaks.
36:22
SPEAKER_01: Right.
36:22
SPEAKER_01: Right.
36:23
SPEAKER_01: Okay.
36:23
SPEAKER_01: You're you're asking them to make a discrete choice on that transaction.
36:28
SPEAKER_01: Um, there are no breaks.
36:30
SPEAKER_01: And so significance kind of goes out the goes out the window to some degree.
36:35
SPEAKER_01: And unlike in 305 that we talked about earlier, where if you're north of 40%, you're gonna need two years of target financial statements.
36:43
SPEAKER_01: Um, in in the vast majority of scenarios with a proxy in S4, you're gonna need three years of um pre-acquisition um financial statements for um for the target.
36:54
SPEAKER_01: There's a few exceptions to that involving, you know, SR smaller reporting company accommodations, um, maybe some limited exceptions for a registrant who's an EGC who's yet to file their first annual report.
37:05
SPEAKER_01: But again, by and large, if there's a vote happening, um people need to be thinking about three years of target financial statements.
37:13
SPEAKER_01: And then maybe the last transactional nuance that I'll hit is prospectus supplements.
37:17
SPEAKER_01: So this, of course, is when you have an already effective registration statement that you're gonna draw down on via um via a prospectus, prospectus supplement, okay, ordinarily an S and S3.
37:30
SPEAKER_01: Um so the underlying registration statement would have had the financial statement requirements assessed at the time it went effective.
37:40
SPEAKER_01: Once you go effective, now, and you want to draw down, now you're into what we call a fundamental change model, right?
37:48
SPEAKER_01: And that's a pretty high hurdle.
37:50
SPEAKER_01: So you might have a significant business acquisition, okay, north of the 20% that we talked about earlier, that doesn't constitute a fundamental change and won't necessarily need to have its financial statements included in a document, um, you know, to draw down on an And so let me ask you this fundamental change, who's the one that makes that call?
38:10
SPEAKER_01: Yeah.
38:11
SPEAKER_01: So that as we said earlier, um, in the context of a different different concept.
38:15
SPEAKER_01: So this probability concept, this is another one where, you know, fundamental change is, you know, um clearly in the domain of company and their counsel, right?
38:24
SPEAKER_01: And so we will we will defer to them to make that um make that make that determination.
38:30
SPEAKER_05: Gotcha, gotcha.
38:31
SPEAKER_05: So so let's switch gears.
38:33
SPEAKER_05: We're gonna hit the other side of the coin.
38:34
SPEAKER_05: And um, it was interesting as as we were preparing for this, Scott and I, you were you're out of the room.
38:38
SPEAKER_05: And Scott said, you know, maybe we need to, her title might be this divestiture champion.
38:44
SPEAKER_05: Like you're the one that knows all things about divestiture.
38:46
SPEAKER_05: So I think it's it's great that we have you to sit and talk a little bit about kind of what you know what we're seeing there.
38:53
SPEAKER_03: Thank you, by the way, Scott, for the title.
38:55
SPEAKER_05: I'm high hopes, high hopes for you.
38:56
SPEAKER_05: Yeah.
38:57
SPEAKER_03: Exactly.
38:57
SPEAKER_03: No pressure here.
38:59
SPEAKER_03: And uh, you know, Scott said earlier that divestitures uh may be more challenging, I think, than acquisitions, but I think there's a reason for that, which is when you're an acquirer, you are only thinking about the target and how it relates to your books and records, your accounting policies, and how the Proformas and the Go Forward combined companies will look.
39:21
SPEAKER_03: When you are reporting a sale and you're undergoing a separation, you're not only thinking about your own books and records as the parent company, but you're thinking about the divestiture company's financials as well, the standalone carve-out financial statements.
39:40
SPEAKER_03: So, from a parent company's perspective, undergoing a separation, um, things that you would think about would be the when do you file, you know, your your AK, for example, for a significant disposition if it does reach that threshold.
39:54
SPEAKER_03: Uh, things like held for sale, discontinued operations thresholds.
39:58
SPEAKER_03: Um, you could potentially need to resegment your business uh based on the impacts of that separation.
40:05
SPEAKER_03: But you also incrementally need to think about the CARVCO or DVSCO's reporting requirements as well.
40:11
SPEAKER_03: And that's where you have to think about who's gonna use these financial statements.
40:15
SPEAKER_03: So who are the readers, practically the timing of when this is gonna be needed, and if they're going to be needed, either from a diligence perspective to maybe give more assurance to the deal, to the buyer, or even from a regulatory requirement perspective.
40:31
SPEAKER_05: No, I think those are great points.
40:33
SPEAKER_05: And you know, it's just I I like the the one thing you were you were saying is who's the reader, right?
40:39
SPEAKER_05: And I think a lot of times that kind of gets lost.
40:41
SPEAKER_05: And I can tell you that as you know, the SEC staff, when they're looking at disclosures and they're thinking they're thinking about it through that lens, who is the user?
40:50
SPEAKER_05: Who is the intended audience for this?
40:52
SPEAKER_05: And it's gonna drive obviously a lot of comments that they issue.
40:54
SPEAKER_05: And I think putting themselves in those shoes, I think probably would help them uh highlight it, you know, any issues that might arise in the process.
41:03
SPEAKER_01: I was just gonna say, interestingly, you you speak to the to the reader.
41:06
SPEAKER_01: So if we're talking about the you know, the the registrants reporting obligations, it may be clear, right?
41:13
SPEAKER_01: It's registrant's investors.
41:15
SPEAKER_01: What's really interesting about divestitures is certainly early in the process, you know, the pool of possible readers is potentially very large, right?
41:24
SPEAKER_01: Because companies may contemplate, you know, not only multiple possible buyers for a business, but multiple possible paths to the to effectuate the divestiture itself, right?
41:35
SPEAKER_01: They might run a spin path side by side with a with a sale path, and that sale path could involve, you know, existing registrant buyers, private buyers, et cetera.
41:46
SPEAKER_01: Right.
41:46
SPEAKER_01: So trying to anticipate all of those needs um can be really, really complicated in a divestiture.
41:53
SPEAKER_03: Especially because no accountant, no chief accounting officer ever wants to say this deal needs to slow down because we don't have the financial reporting requirements for it.
42:03
SPEAKER_05: That's the last thing that you'll ever hear, right?
42:04
SPEAKER_05: Exactly.
42:05
SPEAKER_05: You wish you hear that more often.
42:07
SPEAKER_05: Um anything else to add to that before we uh move on to just the reporting obligations of the registrar.
42:13
SPEAKER_01: Scott, you want to start with that.
42:16
SPEAKER_01: So again, you know, we've got two, unlike the acquisition thing, we're gonna break this up into two pieces.
42:20
SPEAKER_01: We'll try and do it pretty pretty quickly here because we've got you know some um some anchors to work with in terms of what we talked about on the on the acquisition side.
42:28
SPEAKER_01: So just focusing on um the registrant um and their reporting obligations initially.
42:35
SPEAKER_01: So as with acquisitions, I'll start with the basic, okay, which is you know, no, no transactional documents involved.
42:43
SPEAKER_01: Okay, I'm just an existing registrant.
42:46
SPEAKER_01: I've sold a portion of my existing business.
42:50
SPEAKER_01: Um if that disposition is significant, okay, there's that, there's that term again, but if that disposition is significant, similar to the acquisition side of the equation, I'm gonna have an obligation to file a form 8K, item, also item 201, to report that disposition.
43:09
SPEAKER_01: Okay, as with acquisitions, that 8K is gonna need to be filed within um four days of consummation.
43:18
SPEAKER_01: And in that 8K, again, very similar to the acquisition side, you're gonna deal with the date of consummation, a description of the business divested, the counterparty, and the amount of consideration um involved.
43:31
SPEAKER_01: So up to now, pretty similar to what we talked about on the acquisition side.
43:35
SPEAKER_01: Unlike acquisitions, um, you're you're not going to have a requirement in an 8K to file standalone financial statements for the divested business.
43:47
SPEAKER_01: Okay, that could be different in a transactional environment.
43:50
SPEAKER_01: We'll talk about that in a second.
43:52
SPEAKER_01: Um so you have no no pre uh predisposition um financial statements for the for the target.
44:00
SPEAKER_01: Target, you do have a requirement to file pro forma financial statements.
44:04
SPEAKER_01: And you'll recall that with acquisitions, you have the four four business days plus 71 calendar days to finalize all of that.
44:12
SPEAKER_01: With the disposition, you don't get that extension.
44:14
SPEAKER_01: Okay.
44:15
SPEAKER_01: That this all needs to be filed in that initial 8K within four days of consummation.
44:22
SPEAKER_01: And again, I think that if you take one step back and think about it, it makes sense, right?
44:26
SPEAKER_01: Unlike in an acquisition where you don't control necessarily all of the information you need to prepare and comply with the reporting requirements, you know, prior to close, with a disposition you do.
44:37
SPEAKER_01: Yeah.
44:38
SPEAKER_01: Right.
44:38
SPEAKER_05: So you you don't need the, you shouldn't need the do you advise registrants to always like, hey, if you want to do something, make sure you consummate it on a Friday so you have Saturday, because it is the four business days, right?
44:48
SPEAKER_05: Right.
44:49
SPEAKER_05: Exactly.
44:49
SPEAKER_05: It's four business days.
44:50
SPEAKER_01: Yeah, you can buy yourself a couple of extra days anyway.
44:52
SPEAKER_01: A long weekend is even better, right?
44:54
SPEAKER_01: With a holiday attached.
44:55
SPEAKER_01: That's right.
44:55
SPEAKER_05: That's right.
44:57
SPEAKER_05: Yeah.
44:58
SPEAKER_05: All right.
44:59
SPEAKER_05: So just kind of you you you mentioned a little bit about significance.
45:04
SPEAKER_05: Um, and and and look, I I we obviously with we talk a lot about that when it comes to SEC reporting because there are these significance tests that are grounded in in regulation SX.
45:15
SPEAKER_05: Um is that the same concept as what we talked about for acquisitions for the dispositions?
45:20
SPEAKER_01: Yeah, same, same basic concept.
45:22
SPEAKER_01: So I'm not gonna I'm not gonna say too much about that here.
45:25
SPEAKER_01: Obviously, it's a it's a different perspective.
45:26
SPEAKER_05: I knew the answer to that question.
45:28
SPEAKER_05: I just wanted to ask you to see if you get it right.
45:32
SPEAKER_01: Yeah, so it's it's really just a mirror image, right?
45:34
SPEAKER_01: So instead of you know the consideration paid, you might be focusing on, you know, the consideration, um, the consideration received instead of you know the pre um pre-acquisition, pre-tax income or revenue of the target, you might be looking at what's being eliminated from from the registrar.
45:50
SPEAKER_01: But in principle, it's just a mirror image of what you would do on the acquisition side.
45:55
SPEAKER_01: And that 20% threshold that we talked about on the acquisition side is the same on the on the divestiture side.
46:02
SPEAKER_05: High level ProFormas.
46:05
SPEAKER_05: Just I we're gonna have a separate podcast.
46:07
SPEAKER_05: People can can look and and listen to our podcast that's on Proforma Financial Information.
46:12
SPEAKER_05: But high level, what should people be thinking about if they don't have a chance to listen to that uh podcast?
46:18
SPEAKER_01: Yeah, so maybe maybe I'll just focus on a a couple of concepts here specifically related to um to dispositions, right?
46:28
SPEAKER_01: So you know the pro forma requirements in in some ways will hinge on um how much is already reflected in the historical financial statements.
46:38
SPEAKER_01: Okay, think discontinued operations that may already be reflected there.
46:42
SPEAKER_01: And then um secondarily, whether the disposition is gonna qualify for discontinued operations or not in the in the first place, right?
46:53
SPEAKER_01: And we won't cover off how you're gonna make that determination under GAP, but it does drive different outcomes, right?
47:03
SPEAKER_01: So if you have a disposition, significant disposition that qualifies as a discontinued operation, um, and we will cover this in more detail on the on the Proforma um Proforma oriented podcast, it's gonna drive a requirement for three years of Proforma um financial statements.
47:20
SPEAKER_01: Whereas if you have a disposition significant that does not qualify as a discontinued operation, you're gonna be in the more standard one year plus um interim period.
47:33
SPEAKER_01: Yeah, gotcha.
47:34
SPEAKER_01: Gotcha.
47:35
SPEAKER_05: Okay, that was a lot to unpack.
47:37
SPEAKER_05: Um any anything else that you want either of you wanted to add before I jump to kind of maybe a how to think about these, you know, we think about the acquisitions, we talked about the complexities when it relates to an another type of document.
47:51
SPEAKER_05: So proxy statement, registration statement, prospective supplement.
47:55
SPEAKER_05: Um anything else?
47:56
SPEAKER_05: Or we can go there.
47:57
SPEAKER_05: Okay, so so let's go there.
47:59
SPEAKER_05: Um, so so I know you're talking about like when there's a vote involved.
48:02
SPEAKER_05: So talk a little bit about that and and what what the requirements are.
48:06
SPEAKER_01: Yeah, so I would just say, you know, again, I'll reiterate what I said earlier where once, you know, you're gonna go ask your shareholders to vote, you you don't get you don't get any breaks, right?
48:15
SPEAKER_01: And so in the context of an AK, I know I said no pre-acquisition, uh predisposition financial statements for the divested, divested business.
48:24
SPEAKER_01: Um that's not true when we're talking about proxies and or in some cases information, information statements.
48:32
SPEAKER_01: Um, in those scenarios, you will need you know, financial statements for the divested business in addition to the pro formats that we've already we've already talked about.
48:43
SPEAKER_01: Um maybe just moving quickly through some of these other nuances.
48:46
SPEAKER_01: So when we talk about new registration statements, very similar to the acquisition side, um, you know, recall that the 8K is triggered off of consummation.
48:57
SPEAKER_01: When we're talking about a registration statement, we're gonna broaden the broaden the lens, open it up a little bit.
49:02
SPEAKER_01: We're gonna look at both consummated and probable dispositions when thinking about um, again, proformas, not historical financial statements outside of a proxy.
49:13
SPEAKER_01: Um, and then with prospectus supplements, I'll just reiterate that that one again comes with the highest hurdle of them all.
49:19
SPEAKER_01: This is you drawing down on an existing registration statement.
49:22
SPEAKER_01: And that hurdle for lawyers and companies to make, not accountants, is going to be fundamental, fundamental change.
49:29
SPEAKER_05: So that's a lot.
49:31
SPEAKER_05: You know, I said it's a lot to unpack.
49:32
SPEAKER_05: It is a lot that the registrant will have to deal with.
49:35
SPEAKER_05: And so, kind of switching gears, Liz, like when you're you mentioned previously the the divested business itself and kind of being prepared.
49:44
SPEAKER_05: And um, you know, obviously you see things in the spin transactions.
49:48
SPEAKER_05: So, spin co, what does spin co have to do?
49:50
SPEAKER_05: So, talk a little bit about what the standalone reporting requirements might be for that entity, just so people get a flavor for maybe what the impacts might be to these types of transactions.
50:00
SPEAKER_05: Absolutely.
50:00
SPEAKER_03: And and I think just the population of things that we normally like to scenario plan for would be maybe a spin, a subsidiary IPO, or just a straight-up sale.
50:09
SPEAKER_03: Um, and you have different readers and buyers of the financial information that you're preparing Carve Out Financials for.
50:16
SPEAKER_03: And we'll touch on in a little bit like how do sellers gear up, get ready for a potential deal without really knowing who the buyer might be or what the transaction actually is.
50:26
SPEAKER_03: So let's first start off with spins, which are actually my favorite.
50:30
SPEAKER_03: So in spins, you're filing a form.
50:33
SPEAKER_05: You are in the very select view.
50:35
SPEAKER_05: Spins are my very favorite.
50:37
SPEAKER_05: Yes.
50:39
SPEAKER_03: But you know, if you're embarking on a spin, and you might also be doing a dual track, right?
50:43
SPEAKER_03: So you're mate, let's assume that you're embarking on a spin only for now.
50:46
SPEAKER_03: You're gonna prepare three years of carve out financial statements.
50:49
SPEAKER_03: They're gonna be audited and they are gonna have um, you know, foot, full footnotes, obviously.
50:55
SPEAKER_03: You're gonna have an MDNA, you're gonna have proformas in there, but it's really trying to show in your carve out financial statements how the business historically operated under the parents construct.
51:06
SPEAKER_03: Right.
51:07
SPEAKER_03: So there's a lot of, I know Scott's favorite word is there's a lot of nuances.
51:10
SPEAKER_03: It's now my favorite.
51:12
SPEAKER_03: I'm I'm adopting that.
51:14
SPEAKER_03: There are a lot of nuances here, right?
51:16
SPEAKER_03: Um, so you're going through a spin and you're preparing carve out financial statements.
51:21
SPEAKER_03: There's also technical accounting memos.
51:22
SPEAKER_03: Yeah.
51:23
SPEAKER_03: You have to think of new segment reporting for for your spin co, right?
51:27
SPEAKER_03: Um, all of this, while your accounting and financial reporting teams are performing business as usual SEC reporting, right?
51:36
SPEAKER_03: Assuming we're obviously a public company here.
51:38
SPEAKER_03: So um there's a lot to do and lots to plan.
51:42
SPEAKER_03: Um and I think it's pretty similar to subsidiary IPOs.
51:46
SPEAKER_03: Um, you're likely gonna have, you know, an S1 filing for that.
51:49
SPEAKER_03: You're likely gonna have three years of historical carve-out financial statements.
51:53
SPEAKER_03: But here the timing is so critical, right?
51:55
SPEAKER_03: For spins and for subsidiary IPOs, you're still going through that SEC review comment letter process.
52:00
SPEAKER_03: Yep.
52:00
SPEAKER_03: And I can't tell you how many times we've told corp dev teams when the that question asks, how long is this gonna take?
52:06
SPEAKER_03: Put your best estimate down.
52:08
SPEAKER_03: Well, let's assume three or four rounds of SEC comment letters for this registration statement process.
52:13
SPEAKER_05: Yeah, yeah.
52:14
SPEAKER_05: No, yeah.
52:14
SPEAKER_05: You mean I I think that's a great point because one of the things the SEC does from a historically has done from a review program perspective is you have people that, you know, they're they're looking at new filings or filings for new issuers.
52:28
SPEAKER_05: And even though you mentioned the S1 versus whether it'd be, it could be a 34-act registrant reporting that it'd be a Form 10.
52:35
SPEAKER_05: So it may not be raising capital per se.
52:38
SPEAKER_05: Um, but again, it is still registering it for the first time.
52:40
SPEAKER_05: And so the SEC, they're gonna look at the Form S1 and the Form 10 in the same way.
52:44
SPEAKER_05: This is a new issuer, you know, bright light, and a lot of people looking at it, a lot of eyes.
52:49
SPEAKER_05: Um, so so it there certainly is is it a heavy focus um from the staff on getting it right.
52:56
SPEAKER_05: And of course, you know, obviously it's you know, the the big point, right, is the SECs, obviously you got to think about staleness.
53:02
SPEAKER_05: What what other things to think about there?
53:04
SPEAKER_03: You're definitely gonna look.
53:05
SPEAKER_03: So the staleness factor is key, right?
53:07
SPEAKER_03: Because you're always keeping up.
53:09
SPEAKER_03: As soon as you um, you know, file either confidentially, right, or publicly, you are keeping up with SEC comment letters, but then once it goes to a public flip, you're also keeping up with staleness rules as well.
53:20
SPEAKER_04: Yeah.
53:21
SPEAKER_03: So that's certainly tricky, especially because you also have your own SEC reporting uh requirements, right?
53:27
SPEAKER_05: So it's double duty for a period of time.
53:29
SPEAKER_03: It definitely is.
53:30
SPEAKER_03: Um, and people don't realize that as they're embarking into it.
53:33
SPEAKER_03: Um so not only stalus rules, but um I would say that uh, you know, because you're continuing to keep updating your financial statements, you're getting into a rhythm, right?
53:44
SPEAKER_03: So you now have all of your technical accounting memos hopefully done.
53:48
SPEAKER_03: But there is a risk that the SEC might look at your first filing and say, Well, show me how you determined your basis of presentation, or show me how, explain how you've determined your segment determination.
54:00
SPEAKER_04: Yeah.
54:00
SPEAKER_03: Right.
54:01
SPEAKER_03: So people really do have to be prepared for this.
54:03
SPEAKER_03: And that's why obviously advisors, auditors, national offices really do get involved in these types of decisions because there's a lot of judgment.
54:12
SPEAKER_05: Yeah, the the other thing is we that we would see when I was at the staff would be you would have something that maybe for the registrant historically wasn't that significant or material to its business.
54:24
SPEAKER_05: But then as a result of the spin, it's now is maybe it had not gotten the scrutiny of either the audit firm before, or like, and so that tended to be an area that's like, hey, like to your point about documentation, technical memos, that's why it's obviously so important to get all your ducks in a row prior prior to moving forward.
54:42
SPEAKER_05: So um thinking about we talked about subsidiary IPOs, but what about a straight sale, right?
54:47
SPEAKER_05: So, you know, financial buyer, strategic buyer comes in.
54:50
SPEAKER_05: Um, what what are the requirements to think about there?
54:53
SPEAKER_03: Well, it depends.
54:54
SPEAKER_03: It always depends, right?
54:55
SPEAKER_03: There's nuances.
54:56
SPEAKER_03: You should probably plan for both, right?
54:58
SPEAKER_03: Because upfront in a deal, you might not know yet who the acquirer will be.
55:03
SPEAKER_03: Right.
55:03
SPEAKER_03: So you have to really plan ahead and make sure that the carve out financial statements, maybe even the diligence or the uh deal financial statements that you're creating really do cover the whole world of requests that you might get down the line.
55:16
SPEAKER_03: But there's ways to do that, right?
55:18
SPEAKER_03: So um for a strategic buyer, for example, they might not need audited financials, but they'll still ask for rigorous business analysis through the quality of earnings.
55:28
SPEAKER_03: Uh financial diligence will be done.
55:30
SPEAKER_03: Um so they're similar to carve out financial statements or audited carve out financial statements, um, but they're gonna normalize uh some things for the quality of earnings, like PL.
55:40
SPEAKER_03: Um, they're gonna look at some of the outer period adjustments, right?
55:44
SPEAKER_03: So um the acquisition might trigger Rule 305, which is the opposite end of what Scott was talking about and requires audited carve out financial statements potentially for one or two years.
55:54
SPEAKER_03: Um, but for financial buyers, the ask can be even broader, right?
55:59
SPEAKER_03: This is when, for example, a private uh equity will come in and they might need audited financial statements.
56:04
SPEAKER_03: They might not, depending on the size.
56:07
SPEAKER_03: But typically we see them do ask for audited carve-out financial statements of the business, typically following significance of the SEC rules of 305.
56:17
SPEAKER_05: Yeah.
56:17
SPEAKER_03: But there might also be a debt financing, a debt raise in conjunction with that acquisition that they're making.
56:24
SPEAKER_03: And in that case, it could likely be any time, any, any number of years between one or three.
56:29
SPEAKER_03: We usually see two or three years being requested and audited.
56:34
SPEAKER_03: Yeah.
56:34
SPEAKER_03: So whether it's a a private debt raised raise through an offering memorandum, maybe a 144A, or even an S4, S3 filing for registered debt.
56:42
SPEAKER_05: Yeah.
56:43
SPEAKER_05: So you mentioned the, you know, maybe not knowing who who the type of what the type of buyer might be that you're dealing with.
56:49
SPEAKER_05: So what does that mean for the seller and more and provide more insight into that?
56:54
SPEAKER_05: Like what type of carve outside needed?
56:56
SPEAKER_03: A lot of frustration and planning up front, right?
56:59
SPEAKER_03: Because you want to be able to hit all of the bases so early on.
57:02
SPEAKER_05: I don't understand how she loves this stuff so much.
57:04
SPEAKER_03: I'm a planner, right?
57:06
SPEAKER_03: Um, but early on, you have to prepare for those multiple outcomes, which means standing up carve out financial statements that are flexible and agile so that you're almost, you don't, you won't have a deal perimeter that's established yet.
57:18
SPEAKER_03: Maybe.
57:18
SPEAKER_03: Maybe you'll put some more things into maybe you'll exclude them.
57:21
SPEAKER_03: But you want to get on the same page in terms of what are the possibilities that could go into this deal and then take out later.
57:28
SPEAKER_03: So you want to get your auditors involved early up front, make sure you understand the materiality level, make sure you understand what top-up testing they might need to do because there's now a chance that your materiality levels are gonna go way down.
57:41
SPEAKER_03: So that really means that your auditors are going to be, or you yourself are gonna be undergoing an audit maybe for two or three years in parallel, not just one year or one interim period, right?
57:51
SPEAKER_03: So this is a lot of work.
57:52
SPEAKER_03: I don't mean to scare any of our listeners here, but it's the planning that's essential, right?
57:58
SPEAKER_03: I would never recommend waiting to get carve out financial statements done or pick up the pen and you know, start them as soon as you really have a concrete deal and you know who your buyer might be or what the It's way too late, right?
58:10
SPEAKER_03: Because now in this age, remember, I started this with the MA update, and I said that people, deal deal makers are really doing creative things now.
58:19
SPEAKER_03: So you might think you're on a path, maybe you're a a serial divester and you've always done sales.
58:24
SPEAKER_03: Well, now maybe a spin might be on the table.
58:27
SPEAKER_03: Many of our clients who've only ever done sales are now thinking about RMTs, they're thinking about spin-offs, right?
58:33
SPEAKER_03: So you really have to be reverse Morse Trust.
58:35
SPEAKER_05: There you go.
58:36
SPEAKER_05: Love that reference.
58:37
SPEAKER_03: Yeah, I put that in there for you.
58:39
SPEAKER_05: That's great.
58:39
SPEAKER_05: That's great.
58:40
SPEAKER_03: Um, but again, never recommend waiting.
58:42
SPEAKER_03: You risk the delays in the deal, which could potentially leak value.
58:45
SPEAKER_03: We did a divestiture study a couple of years ago where we studied the impact of not only portfolio bias, but the longer the deal takes to from announcement to close, the more value that could potentially be leaked.
59:00
SPEAKER_03: Remember, we never want the carve-out financial statements to and the audit to be the reason, right?
59:06
SPEAKER_05: Love that.
59:07
SPEAKER_05: I love that.
59:08
SPEAKER_05: So you you mentioned earlier too, Liz, basis of a presentation.
59:12
SPEAKER_05: So how do companies figure that out?
59:14
SPEAKER_03: Well, this is really hard.
59:16
SPEAKER_03: I'm I'm gonna be honest, this is really hard, and I do this every day, okay?
59:20
SPEAKER_03: Um, oftentimes, companies will not really understand the difference between these carve out financial statements and those deal financial statements.
59:27
SPEAKER_03: They'll say, oh, well, we already underwent diligence, right?
59:30
SPEAKER_03: We we know what the numbers are.
59:32
SPEAKER_03: Well, gap carve out financial statements are very different from deal financial statements that go into a quality of earnings.
59:39
SPEAKER_03: They're a historical look back, but also under US gap construct.
59:43
SPEAKER_03: So for the basis of presentation, we get tons of questions from our clients over, you know, what approach are we in?
59:49
SPEAKER_03: We have a lot of nuances about maybe businesses that were sold in the past, right?
59:54
SPEAKER_03: Should they still be in the carve out financial statements?
59:57
SPEAKER_03: Or maybe there was an internal transaction.
59:59
SPEAKER_03: So you basically have two um options for the basis of presentation.
1:00:04
SPEAKER_03: This will obviously go into any technical accounting memo.
1:00:07
SPEAKER_04: Yep.
1:00:07
SPEAKER_03: Your auditors will take a look at it.
1:00:09
SPEAKER_03: But the first is a legal entity approach.
1:00:11
SPEAKER_03: And that's where companies define the carve out perimeter solely based on legal ownership.
1:00:16
SPEAKER_03: So if the carve out is in a cons a single consolidating legal entity, um there aren't many nuances to that, then you're probably safe to look at a legal entity approach.
1:00:28
SPEAKER_03: But again, there's always nuances because we also have uh the management approach, which is where we look at the business and we include and exclude operations of the CARV co based on how that business was ultimately run by management in the past.
1:00:45
SPEAKER_03: So lots of nuances there, right?
1:00:47
SPEAKER_03: Because the legal entity approach might be more straightforward from a data and systems standpoint.
1:00:52
SPEAKER_03: It's almost like it's akin to uh a statutory financial statements where you have a couple of legal entities from a jurisdiction.
1:00:58
SPEAKER_03: Obviously, you'll have some carve out adjustments, some uh, you know, from corporate allocations, other things coming in, maybe some other judgments.
1:01:05
SPEAKER_03: But the management approach, I think, um, depending on the transaction, depending on what your deal perimeter looks like, yeah, might actually have a lot of judgments to it.
1:01:14
SPEAKER_03: Even when you think that you're taking, you know, a certain set of business operations, you're wrapping up in carve out financial statements, it still can get dicey when those judgments are applied and you're working with your auditors to be able to substantiate your judgments.
1:01:30
SPEAKER_01: So can I I was just gonna say on the because we have a lot of conversations on legal entity approach versus management approach, or sometimes referred to as a transaction perimeter approach, right?
1:01:39
SPEAKER_01: It's interchangeable with management approach.
1:01:41
SPEAKER_01: I guess I would just say on that um they're not necessarily alternatives.
1:01:47
SPEAKER_01: Okay, it's not a choice.
1:01:49
SPEAKER_01: A lot of times the form of the transaction, the manner in which a company reorganizes in anticipation of a transaction, those will dictate a path.
1:01:59
SPEAKER_01: Yeah.
1:02:00
SPEAKER_01: The key point here is not to um get really caught up in the details of these two approaches.
1:02:05
SPEAKER_01: It's to say that this is a big assessment and analysis that needs to um happen on the front end of these types of transactions.
1:02:15
SPEAKER_01: And so that's what we would encourage you to do.
1:02:16
SPEAKER_01: Get with your auditors and get with your advisors early to talk about um, you know, the basis of preparation.
1:02:25
SPEAKER_03: Especially when you're doing that dual path, the dual track, because there could be some nuances whether this type of deal might require a legal entity approach, whereas another might require a management approach.
1:02:37
SPEAKER_03: So, how do you do the best with the time that you have and the preparation time?
1:02:41
SPEAKER_05: So thinking about some of the challenges, I want to kind of close with this of just, you know, I think we've had enough takeaways in here that that people can listen back and hear there's a lot really to think about.
1:02:54
SPEAKER_05: But when you're you were talking about some of this stuff, you know, the historical records, how you're thinking, like, can you talk about some of the challenges?
1:03:01
SPEAKER_05: Um, and obviously they they I think you would say they can't be overstated.
1:03:06
SPEAKER_05: So what what are some of the things to think about?
1:03:09
SPEAKER_03: The the main challenge that we see in building carve out financial statements that are going to be audited is that you're rebuilding financial records from the company, from maybe a system that was never intended to produce cuts and slices and dices of data this way historically.
1:03:25
SPEAKER_03: Right?
1:03:25
SPEAKER_03: Everybody says, oh, we got through the K or the Q, we're done, it's closed, we got the opinion, right?
1:03:31
SPEAKER_03: You're literally opening up your books and records with a lower materiality where you're gonna look at the out-of-period adjustments.
1:03:37
SPEAKER_03: You're gonna be potentially going through another audit, right?
1:03:40
SPEAKER_03: With a with a much lower materiality level.
1:03:42
SPEAKER_03: So the the lack of readily available books and records and a comming, the commingling, I'd say, as well, in terms of the data, the historical books and records, serves for very challenging times when building carve-out financial statements because sometimes we see companies don't have a readily available PL for this type of a carve-out business, right?
1:04:03
SPEAKER_03: You you generally maybe it's just you know based on a reportable segment or even reporting unit, but now the deal has flipped somehow, and you're looking at pieces of a business that have never really been established in this way in your ledger.
1:04:16
SPEAKER_03: So that is extremely tricky.
1:04:18
SPEAKER_03: And that degree of commingling, the number of legal entities, for example, the global footprint, how much time is it going to take to operationally separate and actually identify these balances?
1:04:28
SPEAKER_03: Yeah.
1:04:28
SPEAKER_03: Right?
1:04:28
SPEAKER_03: That these are really complicated things, and that really has an impact on the timeline too.
1:04:33
SPEAKER_03: On average, with a not so commingled business, it usually takes between 12 and 16 weeks to create, prepare, carve out financial statements and footnotes, and also undergo audit.
1:04:45
SPEAKER_03: I know a lot of auditors out there will be very mad at me from that statement.
1:04:49
SPEAKER_03: But that is absolutely here's the disclaimer that is on average when things are going your way, that you have pretty much a deal perimeter already, you have readily standalone financial information, you're putting a couple of carve-out adjustments over that, like corporate allocations, you're unwinding a little bit of those intercompanies, identifying those intercompany balances.
1:05:06
SPEAKER_03: But again, that's not easy.
1:05:08
SPEAKER_03: It's not easy, but then it gets much harder, right?
1:05:11
SPEAKER_05: So look, I think it it really highlights it.
1:05:15
SPEAKER_05: It look, it is a it is a technical exercise at some point in time.
1:05:20
SPEAKER_05: But when you're looking at these these MA deals, you're looking at acquisitions and domestitures.
1:05:26
SPEAKER_05: It really is sophisticated planning, um involving the right people early on, um, but ensuring, right, that you have the flexibility, right?
1:05:35
SPEAKER_03: That flexibility is so important.
1:05:36
SPEAKER_05: I love that point.
1:05:37
SPEAKER_03: Because for our advisory clients, we've built some incredible tools and proprietary algorithms that make the carve out process when you don't have that readily available information, it goes so much smoother, right?
1:05:50
SPEAKER_03: To be able to identify what those balances are and roll them forward for the other periods.
1:05:54
SPEAKER_03: Yeah.
1:05:55
SPEAKER_05: Scott, any any takeaways to add here?
1:05:57
SPEAKER_05: More nuances.
1:05:58
SPEAKER_05: A lot, a lot.
1:05:59
SPEAKER_01: I don't think so.
1:06:00
SPEAKER_01: I would just say, I mean, it might feel like we went really deep here.
1:06:04
SPEAKER_01: I would say we didn't.
1:06:05
SPEAKER_01: No, I know.
1:06:05
SPEAKER_01: Right?
1:06:06
SPEAKER_01: There's a there's a lot more, there's a lot more to it.
1:06:08
SPEAKER_01: So I think I would maybe just close with one of the thoughts that I expressed earlier, which is this is inherently non-recurring.
1:06:16
SPEAKER_01: And so, you know, even sophisticated clients are not dealing with these um types of whether they're technical or practical.
1:06:23
SPEAKER_01: They're just not dealing with it all the time.
1:06:25
SPEAKER_01: Okay.
1:06:25
SPEAKER_01: And so I think I would just reiterate my encouragement that, you know, if you find yourself on the front end of an acquisition or a divestiture, you would be really well served to, you know, engage in those conversations again with advisors, auditors, lawyers, et cetera, at a very, very early, early stage to anticipate the requirements.
1:06:43
SPEAKER_05: Well said.
1:06:43
SPEAKER_05: Liz, Scott, thank you so much for your time.
1:06:47
SPEAKER_05: That was fantastic.
1:06:48
SPEAKER_05: A lot of great contact there, and looking forward to another time that we can do this.
1:06:52
SPEAKER_05: Thank you so much.
1:06:53
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SPEAKER_02: From Thought Leadership at PWC, I'm Heather Horn.
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