Net Cash Paid for Acquisitions

Category

Cash Flow

Units

Currency

US-GAAP elements

PaymentsToAcquireBusinessesNetOfCashAcquiredPaymentsToAcquireBusinessesAndInterestInAffiliatesCashAcquiredFromAcquisition

Reference

ASC 805, Business Combinations; ASC 230, Statement of Cash Flows (investing activities)

Source

Reported in SEC EDGAR filings (US-GAAP XBRL taxonomy)

Net cash paid for acquisitions is the cash a company spent during a period to acquire businesses and interests in affiliates, after subtracting the cash those businesses held on the date they were acquired. It is an outflow in the investing section of the cash flow statement.

The "net" refers to the cash acquired. The measure reflects the buyer's true cash cost: the price paid in cash less the cash that came with the target.

Business combinations are accounted for under ASC 805, and ASC 230 classifies the cash paid as investing. In XBRL, the common element PaymentsToAcquireBusinessesNetOfCashAcquired already nets out the target's cash. Companies that present acquisitions of businesses and of equity-method or joint venture interests together use PaymentsToAcquireBusinessesAndInterestInAffiliates, which is broader than purchases of controlling interests alone. Some filers show the gross price and report the target's cash on a separate line tagged CashAcquiredFromAcquisition; the net figure is then the gross payment minus that amount.

The measure can understate the size of a deal. The headline purchase price in a press release often includes stock issued, debt assumed or refinanced, and contingent consideration to be paid later, none of which appear in this line. When the buyer repays the target's debt at closing, some companies report that cash as a debt repayment in financing rather than as part of the acquisition price. The acquisitions footnote reconciles the total consideration and shows how it was allocated among identifiable assets, liabilities, and goodwill.

For analysis, net acquisition spending is the cash measure of external growth. Adding it to capital expenditures gives a fuller view of total reinvestment than capital spending alone, and subtracting it from free cash flow shows how much cash was left after deal-making. Comparing several years of acquisition spending with the revenue and operating income gained is one of the simplest tests of whether an acquisition program is creating value.