DealLawyers.com Blog

March 1, 2019

When Are Acquired Co. Financials & Pro Formas Required?

Have you ever represented a public company buyer and had the accountants punt the issue of the need for acquired company financial statements to you? This is usually accompanied by a statement that that Reg S-X is a “rule” and so it’s a “legal issue.” That’s pretty lame, but okay, whatever. . .

Anyway, deciding whether you need target financial statements, what periods are required and when you need to have them can be a complicated issue. While an accountant may not have punted this issue to you yet, trust me – that day is coming. Keep this Mayer Brown memo around for that day. It provides a relatively brief and understandable primer on acquired company & pro forma financial statement requirements. This excerpt provides a good overview of the requirements:

In general, Rule 3-05 requires the filing of separate pre-acquisition, or historical, financial statements when the acquisition of a significant business has occurred or is probable. This means that the acquiring company must obtain separate audited annual and unaudited interim pre-acquisition financial statements of the target or business it acquires if such business or acquisition is “significant” to the acquiring company.

“Significance” is determined and measured by applying three significance tests prescribed by the SEC rules. The more significant an acquisition is, the more onerous the requirements relating to financial information of the target (e.g., years of historical annual audited financial statements). In addition, a registrant must also present pro forma financial statements that give effect to the acquisition, in compliance with Article 11.

As a general rule, the registrant must file these target and pro forma financial statements within 75 days after an acquisition is consummated, with a Current Report on Form 8-K. However, a registrant that registers or offers securities may need to provide these financial statements much earlier and include these in the relevant SEC filing or offering document; for instance, in its registration statement, prospectus supplement or merger proxy statement, as applicable.

The memo also points out that although these rules apply only to SEC filings and registered offerings, adhering to these requirements is the general market practice in the context of exempt offerings as well.

John Jenkins