Software Mergers And Acquisitions And The Accounting Treatment Of Exploration

The article discusses mainly on merge and acquisition of software businesses and the purchasing method for business combination. Most of the points are based on the author's working experiences and learning on the related finance theories. The first part introduces the valuation methods, and discounted cash flow method is widely used in valuation of software companies. The second part addresses on financial due diligence for software businesses. Its key elements include analysis of software revenue recognition, fair value of accounts receivable, and control of financial risks. The final part focuses on accounting method for business combination. The prevailing purchasing method is accepted by most of the countries. Its main concept is confirmation of Target Company's fair value, thus goodwill and intangible assets are generated when preparing consolidated financial statements. Based on the research and discussion M&A of software business in China, the paper concludes that: the forecasting growth rate of target business is key to valuation, companies need to consider priority of asset deal instead of equity deal and companies are object to highlight of software revenue recognition method in process of software business'M&A.