Timing Really is Everything

When companies account for acquisitions, they assign “fair-market” value to the acquired company’s assets and liabilities and estimate a “useful life” for certain assets. The timing estimate is yet another clue for candidates interviewing at the company.

Example: In May 2015, LinkedIn completed its acquisition of Lynda.com, a 20-year-old company that focuses on providing tutorials through subscriptions. The initial purchase price was about $1.5 billion, including goodwill of $1.1 billion (the excess paid between the purchase price and the value of Lynda.com’s assets.)

LinkedIn identified five intangible assets with a definite life:

1. Subscriber relationships – Enterprise – 4 years
2. Subscriber relationships – Individuals – 2 years
3. Content, which is amortized 50% in the first year, 30% in the second year and 20% in the third year.
4. Developed technology – 2 years
5. Trade name – 1 year

What can be inferred: length of subscriber relationships, half of the economic value of Lynda.com’s tutorials occurs in the first year, and the trade name will likely sunset, which has partially happened with the launch of LinkedIn learning. The useful life assignments give job candidates, and employees substantive questions to ask of the company.

One last note on acquisitions: The most important decisions CEOs make is how to spend the company’s money. If acquisitions are part of your prospective employer’s growth strategy, look at how many times the company has written off goodwill in comparison to the number of acquisitions. If the company’s strategic and financial rationale is solid, they won’t need to write off goodwill.

We recently looked at two companies for candidates both with stable executive, finance, and corporate development teams. One company had never written-off goodwill from its many acquisitions. The other company had written off goodwill in more than half of its acquisitions. Outside of the strategy implications, the cultural insight is valuable too – one seems to work on merit and accountability – while the other company may not.
This is the final part of a multi-part series on acquisition accounting and how it benefits prospective and current employees. The first post was on where to find and verify the information and the second post explained the basics of purchase accounting and the implications of a company’s choices.