Originally Published MX November/December
2001

FINANCE

New accounting
rules could have a significant effect on reported earnings and company valuations
for medical device manufacturers.

E.W. (Sandy)
Purcell

The
1990s witnessed quite a sharp rise in mergers-and-acquisitions (M&A) activity
in the healthcare equipment and supplies market. Moreover, the pace of deal-making
has remained robust over the past year. In the 12 months ending July 31, 2001,
deal-makers in healthcare announced 120 transactions, a 58% increase over prior-year
activity and a new high in deal volume (see Figure 1). As a result, many medical
device manufacturers today carry large legacies of goodwill on their balance
sheets.

The Financial Accounting
Standards Board (FASB; Norwalk, CT) recently enacted a sweeping reform of the
treatment of goodwill and other intangible assets. FASB’s new rules apply
to all companies reporting on a generally accepted accounting principles basis.
These changes will directly affect the reported bottom line for many companies,
especially in the medical device industry.