Keane’s Acquisition of Metro Information Services Case Solution & Answer

Keane’s Acquisition of Metro Information Services case Solution

It is suggested that the price paid was calculated and formulated in this way because as per the legal rules in order to qualify as a tax free organization two requirements are needed to be satisfied. One of the requirements is that the consideration should only consist of the voting stock and rights of the buying company. The second requirement is to that the buying company should gain the statutory control on the acquired company. Hence, in order to make this acquisition tax free, the acquisition is made in this way.

As per the page 5, information the calculation of goodwill is made as:

Total Cost of acquisition/Consideration Price	142.5
Metro Debt	88
Net Total Consideration Price	230.5
Goodwill Calculation
Net Tangible Assets	24.8
Net Liabilities	-68
Customer Contracts	30.2
Non-compete agreements	1.9
Net Assets	-11.1
Net Total Consideration Price	230.5
	241.6
Less: write off to fair value of Tangible Assets	14
Goodwill	227.6

The total cost of the acquisition is $142.5 million as well as the debts of Metro, which is $88 million as per the balance sheet amount. The net assets are in negative due to more liabilities as compared to the assets based on the information provided in the case on page 5. Moreover, the assets are in excess of their book value.The calculation shows that the amount of $14 million is allocated to the fair value of the tangible asset which is assumed to include only property, plant and equipment,and the remaining amount is allocated to goodwill which is $227.6 million (Anthony, 2008). The goodwill (acquired from Metro) or intangible assets might include the following:

1. Primarily the skilled and professional I.T workforce
2. Customer base and contacts
3. Developed brand image and reputation in the industry
4. Quality of services and perceived customer satisfaction
5. Synergies achieved through established systems and procedures etc.
6. The net value, out of the fair value and book value of the assets of the acquire firm
7. Fair values of other unidentified or unrecognized assets
8. Fair value of the Going Concern Element of the firm
9. Synergies, fair value of combined operations
10. Excess or limited consideration paid by the acquirer
11. Over valuation by the acquirer

• What other intangible assets acquired from Metro would investors like to know about?

The investors might want to know about the customer base, as per the notes to the financial statements of the Metro, the intangible assets include customer base as well. These intangibles that are customer base will bring business and more revenues in future. By using the customers and contacts of the Metro, Keane will expand its business and provide services to these new clients and will earn more revenues. Furthermore, the investors will interpret the business potential and future growth, as well as the customer base.Other intangible items of whose information would be required by the investors might be those that are identified in the previous question.

• Why doesn’t Keane allocate part of the acquisition price to those assets?

Due to the reason that the intangibles assets cannot be recognized with reliability as well as the amount of the asset cannot be estimated reliably,thus, this is one of the reasons which made it impossible to allocate the acquisition price to these intangible assets.

As per the recommendations on the different components of goodwill and their valuation, it can be said that:……………..

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