United States

Noncontrolling interests in business combinations

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A noncontrolling interest (NCI) arises in a business combination when the buyer acquires more than a 50 percent interest in the target (i.e., a controlling interest), but less than 100 percent of the target. For example, if Company A acquires 70 percent of Company B, and Company A did not previously own any interest in Company B, there would be a 30 percent NCI in Company B that would be recognized in the accounting for the business combination and measured at its fair value. 

When there is an active market price for each unit (e.g., share) of the NCI, its fair value is that active market price multiplied by the number of units (e.g., shares) held by the NCI holders. No adjustments should be made to this amount. When there is no active market price for the shares held by the NCI holders, the fair value of the NCI is estimated using one or more valuation techniques. Our white paper, Noncontrolling interests in business combinations, discusses many of the complex considerations involved in estimating the fair value of the NCI in these circumstances, including the multiple factors and considerations that should be evaluated in assessing whether a discount for lack of control and (or) a discount for lack of marketability should be reflected in the valuation.

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