Guide: Accounting for Reverse Acquisitions – Handling Non-Controlling Interests, Part 2


In share-for-share exchanges, some shareholders may choose not to participate. As a result, they remain owners of the original subsidiary rather than becoming part of the post-acquisition parent entity. These shareholders are classified as non-controlling interest (NCI) shareholders in the consolidated financial statements.

For example, let’s say in a group of 200 shareholders, 150 agree to a share exchange, but 50 (25%) do not. The impacts are illustrated below.

Illustration of the Impact on Consideration Exchanged

The non-participation of some shareholders affects the calculation of the consideration exchanged as follows:

All shareholders150 shareholders (50 shareholders abstanining from the transaction)
Public Company number of shares issued300300
Private Company number of shares issued200200
Private Company shares relevant to transaction200150
Share for share exchange (3:1)33
Shares issued to the Private Company600450
Total number of share in the Combined Company900750
Post-acquisition ownership by the Private Company’s shareholders67%60%
Number of shares as-if accquired in an ordinary manner (Public Company’s shares less non-participating Private Company’s shareholders)300250
Shares given to other shareholders (300 x post-acquisition ownership)100100
Private Company’s Price per share, $66
Deemed consideration, $600600

The decrease in post-acquisition ownership (60%) increases the consideration exchanged. However, this is balanced by a reduced number of shares (250) compared to participation of all shareholders, which has an offsetting impact. Thus, the total consideration exchanged remains unchanged.

Illustration of the impact on equity section

NCI is valued based on the net assets at their carrying amounts in the acquirer’s books before acquisition. The NCI is treated under the proportional method, and impairments of goodwill are not allocated to it. The necessary adjusting entry is:

Retained earnings (25% x 2,200)550
Share capital (25% x 200)50
Non-controlling interest (balancing figure)600

The resulting adjusted financial statement will show a decrease in Share capital by 50 due to the non-participation of shareholders holding 50 ordinary shares, and a reallocation of retained earnings to them.

Private company standalone financialsPublic company standalone financialsTransaction adjustmentsConsolidated
Current assets400400800
Non-current assets3,7001,9003005,900
Total assets4,1002,3006,800
Current liabilities8004001,200
Non-current liabilities9001,1002,000
Total liabilities1,7001,5003,200
Retained earnings2,200500-5501,650
Other equity1,2001,200
Share capital (300)300
Share capital (200)200-50150
Non-controlling interest600600
Total equity2,4008003,600
Total liabilities and equity4,1002,3006,800


This guide demonstrates how to account for non-controlling interest in reverse acquisition transactions.

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