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Net Identifiable Assets, in the context of M&A, refer to the fair value of an acquisition target’s assets once the corresponding liabilities have been deducted. by the target company.
How to Calculate Net Identifiable Assets
Net identifiable assets (NIA) are defined as the total value of a company’s assets net of the value of its liabilities.
Identifiable assets and liabilities are those that can be identified with a certain value at a specific point in time (and with quantifiable future benefits/losses).
More specifically, the NIA metric represents the book value of assets belonging to an acquired company once liabilities have been subtracted.
It is important to note that the terms:
- “Net” means that all identifiable liabilities as part of the acquisition are accounted for
- “Identifiable” implies that both tangible assets (e.g. PP&E) and intangible (e.g. patents) can be included
Net Identifiable Assets Formula
The formula to calculate a company’s net identifiable assets is as follows.
- Net Identifiable Assets = Identifiable Assets – Total Liabilities
Goodwill and Net Identifiable Assets
The value of a target’s assets and liabilities is assigned a fair value post-acquisition, with the net amount subtracted from the purchase price and the residual value recorded as goodwill on the balance sheet.
The premium paid over the value of the target’s NIA is captured by the goodwill line item on the balance sheet (i.e. excess over purchase price).
The value of goodwill as recognized on the books of the acquirer remains constant unless the goodwill is deemed to be impaired (i.e. the buyer overpaid for assets).
Net Identifiable Assets Example Calculation
Suppose a company has recently acquired 100% of a target company for $200 million (i.e. asset acquisition).
In an asset acquisition, the target’s net assets are adjusted for both book and tax purposes, whereas in a stock acquisition, the net assets are written up for just book purposes.
- Property, Plant & Equipment = $100 million
- Patents = $10 million
- Inventory = $50 million
- Cash & Cash Equivalents = $20 million
The fair market value (FMV) of the target’s net identifiable assets on the date of the acquisition is $180 million.
Considering the FMV of the target’s NIA is greater than its book value (i.e. $200 million vs $180 million), the acquirer has paid $20 million in goodwill.
- Goodwill = $200 million – $180 million = $20 million
The $20 million is recorded on the balance sheet of the acquirer because the acquisition price exceeds the value of the net identifiable assets.