What is Acquisition?
An acquisition is a corporate transaction in which one company (the acquirer) purchases enough equity or assets of another (the target) to obtain control. The target may continue to operate as a subsidiary or be absorbed into the acquirer. Acquisitions are accounted for using the acquisition method under IFRS 3, which records identifiable assets and liabilities at fair value.
How It Works
- Identify the acquirer and the acquisition date.
- Measure the consideration transferred (cash, shares, contingent consideration).
- Recognize identifiable assets and liabilities of the acquiree at fair value.
- Calculate goodwill = consideration + NCI + previous interest – net identifiable assets.
- Test goodwill for impairment annually thereafter.
Saudi Context
Saudi acquisitions accelerated under Vision 2030, with PIF and major holding groups acquiring strategic stakes in banking, retail, real estate, and entertainment. CMA regulates tender offers on Tadawul, the GCC Competition Authority reviews larger deals, and ZATCA scrutinizes the tax-zakat consequences of acquisition structures.
Example
Company A acquires 100% of Company B for SAR 800 million in cash. B’s identifiable net assets at fair value are SAR 600 million. Goodwill = 800 – 600 = SAR 200 million, recorded on A’s consolidated balance sheet as an indefinite-life intangible asset subject to annual impairment testing.