Indicators of the acquirer

Learning objectives

• Analyse the indicators (relative voting rights, composition of management, a large minority interest, relative size) to identify the acquirer when the control guidance does not clearly do so.L2, L3
• Justify the identification of the acquirer by weighing the conflicting indicators in a case.L2, L3

Normative references

• IFRS 3 §B15Business combination effected primarily by exchanging equity interests: the acquirer is usually the entity that issues its equity interests, except in a reverse acquisition (B19 to B27). Other pertinent facts are also considered: the relative voting rights in the combined entity (taking into account any unusual or special voting arrangements and potential instruments), the existence of a large minority voting interest when no other owner has a significant interest, the composition of the governing body, the composition of senior management and the terms of the exchange (premium paid over fair value). These factors are assessed together; the Standard does not designate any of them as predominant.
• IFRS 3 §B16Relative size: the acquirer is usually the combining entity whose relative size (measured, for example, in assets, revenues or profit) is significantly greater than that of the other combining entities.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

4 questions

• When the business combination is effected by issuing securities, the entity that issues the securities is identified as the acquirer without any need to analyse control.L1
• For each business combination, one of the combining entities must be identified as the acquirer. On what basis is this identification made in the first place?L1
• The guidance on control does not clearly indicate the acquirer. Which factors are among the additional guidance to consider? More than one answer is possible.L2
• Aurèle SA and Brisac SA merge by exchanging shares; the IFRS 10 guidance does not clearly indicate the acquirer. The former owners of Aurèle hold 55% of the voting rights of the combined entity, but the board is split equally and the chief executive comes from Brisac, whose revenue is higher. Write a short note concluding on the acquirer, distinguishing the facts of the case, the rule and professional judgement.L3