MOS 4465 Acquisition Assignment Final

.docx

School

Fanshawe College *

*We aren’t endorsed by this school

Course

4444

Subject

Industrial Engineering

Date

Jan 9, 2024

Type

docx

Pages

Uploaded by DoctorCoyoteMaster974

MOS 4465 Acquisition Assignment December 14, 2023

Uber Technologies Incorporated’s Acquisition of Postmates Incorporated Details of Company Acquired Postmates Incorporated hereinafter referred to as “Postmates” was founded in 2011 by Sean Plaice, Bastian Lehmann, and Sam Street before becoming a prominent and well-respected player in the on-demand delivery service industry. Postmates gained popularity for its convenient and flexible approach to delivering a wide range of goods including food, groceries, alcohol and even non-food items. Postmates positioned itself on a few key features and aspects that aided in their increasing market share. These key features and aspects included a user-friendly application, promotions and discounts, expansions, and partnerships as well as its effective utilization of couriers and a gig economy model (functioned to allow flexibility in scheduling and provided opportunities for individuals seeking part-time or temporary work). Uber Technologies, hereinafter referred to as “UBER” acquired Postmates on December 1 st , 2020. The acquisition process, however, began on July 4th, 2020, when UBER announced the acquisition's commencement. UBER acquired 100% of Postmates for $3.494 billion in UBER stock, a $100 million dollar note, and a $308 million dollar stock-based compensation award based on pre- combination services. The share price of UBER stock is approximately $31.45 per share. A break-down of the total consideration given to acquire Postmates is shown in Figure 1 in the appendix. Based on the news articles published, the acquisition deal took over 5 months to finalize but the acquisition itself was completed all at once.

Allocation of Acquisition Differential There was no acquisition differential in UBER’s investment in Postmates. The figures used to compute the acquisition differential were collected from UBER’s financial statements as prior to the acquisition. UBER’s policy stipulates that in the event of an acquisition differential, the excess would be allocated to goodwill and intangible assets. The intangible assets acquired by UBER however, included Merchant Relationship, Fleet Relationship, Consumer Relationship, Developed Technology, IPR&D as well as Trade Names. Impairment of goodwill is to be tested annually and written down whenever necessary. Since the acquisition date there have been no goodwill impairment losses or other intangible asset impairment losses. Accounting Policies Both UBER and Postmates are American companies and follow the US Generally Accepted Accounting Principles which requires the cost method to be used when accounting for investments where the acquirer has control. UBER therefore consolidated their financial statements and, in the process, eliminated all intercompany balances. The purchase price is allocated to tangible assets and intangible assets acquired and liabilities assumed. The excess is then allocated to goodwill. UBER’s financial statements made no disclosures about the timing and expected impact of conversion to International Financial Reporting Standards.

Impact of Acquiring Postmates on UBER’s Financial Statements The balance sheet in the year of acquisition in Figure 8 shows that between 2020 and 2021:  Cash and cash equivalents decreased by 24%,  Accounts Receivable increased by 127%.  Investments increased by 30%.  Intangible assets increased by 54%.  Goodwill increased by 38%. This was traced to the recent Postmates acquisition.  The other assets figure increased by 220%.  Accounts Payable increased by 265%.  Long term debt increased by 22%. Figure 8 shows the financial ratios before and after the acquisition of Postmates. Based on the changes to financial ratios such as the Current ratio, Debt – to – Equity ratio and Return on Assets ratio. The current ratio decreased from 1.44 to 0.98 post-acquisition which could wither have been a result of a decrease in the amount of current assets or an increase in current liabilities. This reduction in the current ratio suggests that in 2020, UBER Technologies was better able to service their current liabilities with their liquid assets whereas in 2021 they do not have enough liquid assets to service their short-term debts. A current ratio of 1 is deemed good therefore 2021’s current ratio of 0.98 is no real cause for concern. The Debt–to–Equity ratio decreased from 2020 to 2021, which signaled an increase in borrowing levels for working capital needs or for further business development. The Return on Assets ratio’s improvement from –0.2 to –0.01 post-acquisition suggests that assets are being used more effectively. However, the ratio is still exceptionally low, and it can be assumed that there is much room for improving this ratio.

Regarding the income statement in Figure 6, revenue increased by 56.7% in the year following the acquisition. Cost of revenue increased by 81% between 2020 and 2021 which was not related to the percentage amount increase in revenue over the same period. During the financial year 2021, Sales and Marketing expenses increased by 33% whereas General and Administrative expenses decreased by 13%. Depreciation, a non-cash expense, increased by 56% but we must consider the addition of the depreciable assets to UBER’s balance sheet because of the acquisition that would have contributed to this increase. The loss on operations decreased by 21% whereas Net Other Income increased by 300%. Based on the notes to the financial statements, the Net Other Income line item includes Interest Income, Foreign Exchange Gains, Gains on Business Divestiture amongst many other items. Net loss attributable to UBER decreased by 92% during this period ending 2021. Based on insights from the Statement of Cash Flows, Net Cash used in Operating Activities decreased by $230 million between 2020 and 2021, a decrease of 84%. Net Cash used in Investing Activities decreased by 58% and Net Cash provided from Financing Activities increased by 23% over the same period, ending 2021. The amount of cash recorded as being paid for common stock issued with relation to acquisitions was $3,898 (in millions) in 2020 and $1,868 (in millions) in 2021. The acquisition had no impact on the company’s exposure to foreign currencies because both companies are headquartered in the United States of America. Monetary assets in other currencies are measured in the functional currency at the spot exchange rate in the market. Foreign currency policies at UBER have remained unchanged.

Note Disclosures on Acquisition US Generally Accepted Accounting Principles stipulates that a company must provide extensive disclosures regarding all business combinations. This includes the name and description of the acquiree, the date of acquisition, percentage ownership acquired, description of how control was obtained and the strategic rationale and purpose of the acquisition. The note disclosures to UBER’s financial statements included these items and so conform to the stipulations of the principles. UBER provided information including all acquisitions made in 2020, therefore, the pro forma financial statement information is not representative of the Postmates combination specifically. Strategic Rationale for the Acquisition The delivery space had been a bright light for UBER throughout the Covid-19 pandemic as more people turned to ordering food online through food delivery applications. UBER’s Eats business however was still making a loss. The online food delivery industry is an industry where growth seems exponential thus, the initial thought, was that by acquiring Postmates, Uber could cut its losses and gain pricing power because of an increase in market share. At the time Postmates was the smallest company among the major U.S food delivery applications and boasted a market share of about 8% in 2020 whereas UBER Eats controlled about 23% of the market share at that point, combining the business would help to cut administrative and technology related costs significantly. Additionally, removing a competitor from the market would improve pricing power, which could help lead to higher discounts and incentives for users, resulting in higher user retention rates. The combination therefore maximizes shareholder value as consumers get more options and restaurants get more exposure resulting in improved bottom lines. UBER and Postmates have

Your preview ends here

Eager to read complete document? Join bartleby learn and gain access to the full version

Access to all documents
Unlimited textbook solutions
24/7 expert homework help