Question

In September 2017, the company acquired Blue River Technology (Blue River), which is based in Sunnyvale, California. Blue River has designed and integrated computer vision and machine learning technology to optimize the use of farm inputs. Machine learning technologies could eventually be applied to a wide range of the company's products. The fair values assigned to the assets and liabilities related to the acquired entity were approximately $1 million of trade receivables, $2 million of property and equipment, $193 million of goodwill, $125 million of identifiable intangible assets, $1 million of accounts payable and accrued expenses, and $36 million of deferred tax liabilities. The identifiable intangibles were primarily related to in-process research and development, which will not be amortized until the research and development efforts are complete or end. The goodwill is not expected to be deducted for tax purposes.

(a) Assuming that Blue River has never acquired another company, what were the assets on its balance sheet before acquisition by John Deere?

(b) The exhibits tell us that the fair value of Blue River’s net identifiable assets is $91 million. What is the amount of cash paid for Blue River?

Answer 1

The fair values of Assets & Liabilities are given as follows:

Trade receivables - $ 1 million

Property, plan & equipment - $ 2 million

Goodwill - $ 193 milion

Intangible Assets (Identifiable) - $ 125 million

Accounts Payable & accrued expenses - $ 1 million

Deferred Tax liabilities - $ 36 million

(A) Since, the question explicitly mentions that Blue River has not acquired any company before, we can assume that the Goodwill in the fair value of assets is generated from Blue River's business and hence it would not have been accounted in Blue River's books of accounts (Self generated Goodwill is not accounted). Therefore, the assets as on balance sheet date amounts to $ 128 million (trade receivables, property, plant & equipment and Intangible assets).

(B) We can safely assume that the amount of cash paid for Blue River is equal to the fair value of the net aseets (i.e) $ 91 million as we dont have any more information on the payout. The fair value measure is an ideal measure of valuing a business and we also assume that intangible assets form a part of the consideration as the company had invested significantly in research & development and this will bring future economic benefits to the company.