Step acquisition
Definition
Gaining control of a company in stages. The stake held before is remeasured to fair value at the date control is gained, with the difference in profit or loss.
Why does it matter in a group?
A step acquisition is a purchase of control in stages. When control is gained, the stake held before is treated as if it were sold and bought back at fair value on the acquisition dateAcquisition dateThe date on which a parent obtains control of another company. The new subsidiary's results are included in the group accounts from this date.Open the glossary entry. Any difference from its carrying amount goes to profit or loss.1 The fair value of that earlier stake then goes into the calculation of goodwillGoodwillThe amount by which the price paid for an acquisition, together with any non-controlling interest and any previously held stake, exceeds the fair value of the identifiable net assets acquired.Open the glossary entry, with the price paid for the new shares.
A small example
Zenvara holds 30 percent of Quillfern, carried under the equity methodEquity methodA way of including an associate or joint venture: the investment starts at cost and is adjusted each period for the investor's share of the investee's profit or loss and other changes in its net assets.Open the glossary entry at GBP 3,000,000. It buys a further 40 percent and gains control. The 30 percent is worth GBP 3,600,000 on that date, so a gain of GBP 600,000 goes to profit or loss.
Sources
- IFRS 3 Business Combinations, paragraph 42.