SEC Issues Proposal to Improve Disclosures Related to Businesses’ Acquisitions and Dispositions

Earlier this month, the Securities and Exchange Commission (SEC) voted in favor of creating amendments that would improve the amount of information that investors would receive in regard to acquisition and disposition of businesses. These proposed amendments would also help facilitate more timely access to capital as well as reduce compliance costs and complexity of related financial disclosures.

Proposed Amendments 

Under existing rules, when a registrant acquires a new significant business, there are a number of financial statements and procedures that must be adhered to. The proposed amendments intend to clarify and make these rules less cumbersome, helping reduce related fees and the difficulty often associated with acquiring a new business. The following includes a few highlights from the announcement. To learn more, contact a Florida business acquisitions attorney.

• Provide better clarity when financial statements and pro forma financial documents and information are necessary;
• Require that financial statements for the newly acquired business cover up to the two most recent fiscal years, versus up to three as previously required;
• Amend requirements for pro forma financial information in order to improve the relevance and content of the information — an example would be Management’s Adjustments that reflects reasonably estimated synergies and transactional effects;
• Eliminate the need for separate acquired business financial statements after the business is part of the registrant’s post-acquisition financial statements for at least one entire fiscal year;
• The addition of a significant subsidiary definition that is geared toward investment companies;
• Permit financial statement disclosure that omits specific expenses for particular acquisitions of an entity’s component;
• Amend Article 8 of Regulation S-X in regard to smaller reporting company requirements;
• Align rules 3-05 and 3-14 in situations where no unique industry considerations exist;
• Provide clarification of Rule 3-14’s application in regard to determining the significance of and the necessity for interim income statements, select provisions needed for blind pool offerings, and the scope of the rule’s requirements;
• Create a new Rule 6-11 and an amendment for Form N-14 to address financial reporting for fund acquisitions by business development and investment companies; and
• Under certain circumstances, allow the use of International Financial Reporting Standards as issued by the International Accounting Standards Board.

Background Information

Under existing rules, when a registrant acquires a significant business, apart from any real estate operations, they are bound by Rule 3-05 of Regulation S-X that typically requires the registrant to provide separate unaudited interim pre-acquisition financial statements and audited annual financial statements for that business.

Rule 3-05 also applies to a registrant who is a business development company or a registered investment company. With Rule 11 of Regulation S-X, registrants are required to file unaudited pro forma financial information that relates to the disposition or acquisition.

Contact a Florida Acquisitions Attorney

There are multiple provisions of these rules that are imperative to understand so you can be aware of how the changes to these rules may impact your future acquisitions and dispositions. Contact the Florida business and corporate lawyers at the Law Office of Clifford J. Hunt, P.A. today at 727-471-0444 to schedule a consultation.

Resource:

sec.gov/news/press-release/2019-65