When a powerhouse pharmaceutical made a major acquisition

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					                                      When a powerhouse pharmaceutical
                                      made a major acquisition
                                      Our business and accounting capabilities
                                      helped facilitate a smooth transition
                                      Abstract                                                         In this case, the acquiring company issued a request
                                      Our client, a world-leading pharmaceutical company, made         for proposal (RFP) for valuation and related accounting
                                      a major acquisition valued in the tens of billions of dollars.   services. The accounting services included building a
                                      The acquired business would become a wholly owned                customized tool for purchase accounting to assist the
                                      subsidiary. The acquiring company needed valuation and           company in accounting for the acquisition transaction.
                                      related accounting services.                                     The tool would facilitate company management to record
                                                                                                       the initial step-up in fair value in the initial period, as well
                                      Deloitte built a customized purchase accounting tool to          as control adjustments in subsequent period, until the
                                      facilitate the client to account for adjustments to fair value   transaction could ultimately be pushed down to its various
                                      of the assets purchased in the transaction. As a result, the     legal entities.
                                      company was able to efficiently and effectively control
                                      the purchase accounting adjustments associated with the

                                      In addition, we consulted with the merging companies to
                                      help them understand each other’s appetite for risk and to
                                      develop and implement controls that would allow smooth
                                      integration of the two entities.

                                      The Challenge
                                      The pharmaceutical industry is undergoing rapid and
                                      fundamental change on several fronts. In particular,
                                      it is seeing extensive consolidation as companies seek
                                      competitive advantage through new compounds,
                                      manufacturing capabilities, and intellectual property.

                                      But large mergers and acquisitions present complex
                                      accounting problems. Acquiring companies need
                                      to manage the transition, as they absorb the target
                                      organization into their financial processes.

As used in this document,
“Deloitte” means Deloitte LLP
and its subsidiaries. Please see
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a detailed description of the legal
structure of Deloitte LLP and its
subsidiaries. Certain services may
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under the rules and regulations
of public accounting.
            How We Helped                                                   different levels of review by various management groups
            Deloitte’s Financial Advisory Services (FAS) group and Audit    and external auditors. It also can interact directly with the
            & Enterprise Risk Services (AERS) group teamed to respond       client’s consolidation system to more efficiently feed the
            to the client’s RFP and win the work for Deloitte. The team     resultant adjustments to the close systems.
            then worked together to develop an innovative model
            to assist the client in accounting for the large business       According to the client’s assistant corporate controller,
            combination.                                                    “Deloitte has been instrumental in assisting us with the
                                                                            accounting for our recent significant acquisition. Their
                                                                            experienced subject matter experts worked with us to

Deloitte developed an innovative                                            develop a practical approach and a purchase accounting
                                                                            tool that facilitated us to effectively and efficiently manage

model to assist the client in                                               the purchase accounting associated with the transaction.
                                                                            Their dedication and commitment to client service was a

accounting for the large business                                           critical success factor of the project.

combination.                                                                Solution
                                                                            The accounting and business knowledge the team brought
                                                                            to the table, combined with its technological experience,
            In addition, Deloitte Consulting LLP worked with the client     facilitated it to build an innovative and powerful purchase
            and its target to promote a smooth merger. In particular,       accounting tool. At the same time, Deloitte provided
            we helped the two entities evaluate and manage key              understanding and controls that helped facilitate a smooth
            issues around integration. This started with gaining an         transition.
            understanding of their relative risk appetites. It continued
            with the development and implementation of appropriate          Recognizing a need in the marketplace, the team decided
            monitoring controls. We determined that controls were in        to create a baseline purchase accounting model from
            place on day one of the integration, and we also designed       which it could customize inputs and outputs and build
            and put in place controls that would help manage the            similar tools for other clients. With all of their knowledge
            interim merger state.                                           and experience, the team was able to sell similar services to
                                                                            another large pharmaceutical to assist it in accounting for a
            The FAS and AERS team worked closely with the client’s          multibillion-dollar acquisition.
            management to understand the complexities and define
            the functionality needed in the purchase accounting tool.       The building of the baseline model helped the team quickly
            This functionality included the ability to assist the company   respond to the needs of the new client. It also facilitated
            management in identifying, reviewing, tracking, and             the client to find efficient and effective solutions to some
            recording adjustments to the initial purchase accounting        of the complexities inherent in any large acquisition
            entries over the one-year measurement period, until it          transaction.
            could push down the accounting to its subsidiaries.
                                                                            The team built a customized tool in a short period of
            The tool that Deloitte created allows the client to manage      time to assist in the accounting and reporting for the
            purchase accounting and tracking of fair value changes,         transaction. Through understanding the client’s critical
            both retroactively and prospectively. Using inputs from         paths, the team is continually developing enhancements
            the client, it also calculates the deferred taxes following     to meet the client’s different requirements and assisting
            the layering-on approach, calculates the depreciation and       management with the push-down accounting process.
            amortization until push-down using methods consistently
            applied throughout the client, and calculates the currency      In the words of the client’s controller, “Deloitte’s work
            translation adjustments at periodic reporting dates. It         on the purchase accounting and internal controls project
            allows the client to track adjustments related to certain       was phenomenal. The team was responsive, but more
            transactions, such as impairment, write-offs, disposals,        importantly, the work created exceptional value for us.”
            approval of in-process research and development, tax rate
            changes, and change in remaining useful lives.                  Now, Deloitte is streamlining and standardizing the
                                                                            purchase accounting tool so that it can be adapted to
            Further, the tool provides customized management                business combinations across industries.
            reports on a consolidated and entity-level basis to allow

For more information, please contact:
Michael J. Dziczkowski
Deloitte & Touche LLP
+1 212 436 2813

Christine Zeikel
Deloitte Financial Advisory Services LLP
+1 973 602 6982

Ellen Stafford-Sigg
Deloitte Consulting LLP
+1 212 492 4296

This publication contains general information only and is based on the experiences and research of Deloitte
practitioners. Deloitte is not, by means of this publication, rendering business, financial, investment, or other
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Copyright © 2011 Deloitte Development LLC. All rights reserved.
Member of Deloitte Touche Tohmatsu Limited

Description: Our business and accounting capabilities helped facilitate a smooth transition