Accounting Standard
IFRS 16 Impact on M&A Valuation and Deal Execution
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29.06.2021With its mandatory implementation for listed companies on January 1st 2019, IFRS 16 has changed the way financial statements are prepared and analyzed. Even though the impact is relatively limited for lessors, lessees must keep up to speed with this wholly different accounting policy. From an M&A perspective, understanding a lessee’s financials, valuing the business, and managing potential changes in M&A processes post-IFRS 16 tend to be more challenging for deal executers.
IFRS 16 consists in capitalizing leases which were not recorded on financial statements under IAS 17. On the balance sheet, right-of-use assets appear on the active side, referring to the right of using a leased item for a duration determined contractually. Additionally, lease payments are now accounted for as a financial obligation on the passive side, calculated as the present value of future lease payments due. Unsurprisingly, this results in a substantial increase in net debt, especially for businesses considerably relying on leasing strategies. ...
