In the corporate world, the terms fusion and business acquisition are often used as synonyms, but have different legal, accounting and tax implications. Knowing these differences is essential to make strategic decisions and comply with the Financial Reporting Standards (NIF) in Mexico, especially the NIF B-7 Business Acquisitions.
1. What is a merger?
The fusion is the process by which two or more companies merge into one, whether by:
- Merger by absorption:
- An existing society absorbs another, which becomes extinct.
- Merger by integration:
- All the companies involved are extinguished and a new one is created new society.
Accounting and tax characteristics:
- The assets and liabilities of the merged companies are transfer to the surviving company or to the new company.
- The merger does not always involve a cash payment, since partners can receive shares in the resulting company.
- For tax purposes, the merger may not generate taxes if the requirements of the Federal Tax Code (CFF).
- Accounting-wise, the assets and liabilities acquired are recorded at fair value, following the NIF B-7.
2. What is a business acquisition?
A business acquisition It occurs when a company buy control from another company, but does not necessarily merge or extinguish it.
Examples:
- Purchase of more than 50% of the voting shares of another company.
- Acquisition of net assets that constitute a going concern.
Accounting and tax characteristics:
- The acquiring company recognizes assets and liabilities at fair value, applying NIF B-7.
- If more is paid than the net assets are worth, it is recognized goodwill.
- If less is paid, it is recognized buy at a bargain price as profit.
- The acquired company may continue to exist as an independent company.
3. Comparative table between Business Mergers and Acquisitions
| Feature | Merger of companies | Business acquisition |
|---|---|---|
| Legal effect | At least one company is extinguished. | The acquired company may continue to exist. |
| Creation of a new company | Possible in merger by integration. | Not applicable. |
| Consideration | It may be shares of the resulting company. | Usually money or stocks. |
| Accounting record (NIF B-7) | Assets and liabilities at fair value. | Assets and liabilities at fair value. |
| Goodwill | It arises if more is paid than the assets are worth. | It arises if more is paid than the assets are worth. |
| Bargain price | Possible if the acquiring company pays less. | Possible if the price is below fair value. |
| Tax effect | It can be considered reorganization and be deferred. | You may incur taxes on the acquisition of stocks or assets. |
| Main purpose | Complete integration of operations. | Control without necessarily integrating operations. |
4. Connection with NIF B-7
Both in mergers as in business acquisitions, the NIF B-7 establishes:
- Initial recognition of assets and liabilities at fair value.
- Determination of the Goodwill or of the profit from buying at a bargain price.
- Application of impairment tests for goodwill in subsequent periods.
5. Conclusion
- Fusion: It involves the legal and accounting integration of two or more companies into one.
- Business Acquisition: It involves take economic control, without the need to extinguish the acquired company.
- In both cases, it is essential to correctly apply the NIF B-7, document the valuation of assets at fair value and analyze the tax effects to avoid risks before the SAT and in the presentation of financial statements.
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