It’s peanuts compared to total assets ($90.12 billion), but 3.4 percent of all intangible assets. It’s 26.5 percent of operating income for the year, which was $1.387 billion. It’s 3.6 percent of the total deal price. Whether that $368 million mark-down in intangible assets is material depends on your point of view. So the powers that be reallocated the value to goodwill. Once Walgreens marked down those assets, it needed to re-assign that value somewhere else to preserve the $10.05 billion total purchase price. Estimated useful lives are 15, 13 and 5 years, respectively. Intangibles acquired include primary care provider network, trade names and developed technology, with a fair value of $1.2 billion, $295 million and $76 million. The company said this about those intangible assets in its Q4 disclosures: What happened? We’re not quite sure, although it seems that as 2022 progressed, Walgreens got a better sense of the intangible assets it had acquired in the deal. Meanwhile, goodwill was marked upward by $341 million. Specifically, it cut the value of intangible assets from $1.982 billion (reported in Q1) to $1.621 billion (reported in Q4). Over the next nine months, Walgrees marked down the identifiable assets by $368 million. The details were different back then! Yes, the total purchase price was still $10.05 - but in the first quarter of this year goodwill was only $7.67 billion of the total, rather than the $8.04 billion reported last week. Figure 1, below, shows the purchase price allocation as reported in the 10-K, filed on Oct. In its disclosures about business combinations, Walgreens reported the purchase price allocation for its acquisition of VillageMD, a chain of primary care medical practices often set up right next door to a Walgreens. We noticed this with Walgreens’ latest annual report, filed on Thursday. Now Walgreens Boots Alliance ($WBA) has given us another point to ponder about purchase price allocation: that those allocation numbers can change over time. That’s exactly what happened with the Slack deal, where eight months after the deal was announced, Salesforce disclosed that $21.1 billion of that $27 billion number was allocated to goodwill. It’s not at all unusual to see a huge deal announced in the headlines - say, Salesforce ($CRM) acquiring Slack for $27.7 billion, which happened in 2020 - only to find out many months later that much of that headline price was allocated to goodwill. At the very least, Slack can gain inroads in enterprise markets it may have not previously served.Loyal readers of this blog know that Calcbench loves to talk about purchase price allocation, which is how a company discloses all the details when it spends piles of money to acquire a business. How this benefits Slack: Slack can inherit entire businesses and new users from Salesforce. Google’s rebranded Workspace has entered the collaboration software fray it claims to have over 2.6 billion active users from enterprise, nonprofit, and education sectors.Microsoft Teams was used by over 500,000 organizations worldwide in 2020. Microsoft Teams has 145 million people using its collaboration services, up 26% YoY.Slack currently has 156,000 total paying customers, up 42% YoY, and had up to 12 million daily active users and 156,000 organizations in 2020.Competition is expected to intensify as businesses define their new remote or hybrid work strategies. They helped provide an ad-hoc foundation for the new remote work reality. Virtual collaboration software like Slack and Microsoft Teams saw unprecedented adoption during the pandemic. Why it’s worth watching: Business collaboration has become a hugely competitive market, not just for the tools themselves, but for the companies and platforms they are associated with.
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