17. Surgery Partners: Pushdown Accounting

Normally, following a change-in-control event, the acquirer recognizes the acquired assets and liabilities of the target at fair value at the time of acquisition, while accounting for goodwill and non-controlling interests when appropriate. However, since 2014, US GAAP allows subsidiaries that issue separate financial statements, following a change-in-control event, to elect pushdown accounting. This accounting procedure allows the subsidiary to present its own assets and liabilities, including goodwill, at fair value (similar to the basis used in the parent company). In this case, we analyze the financial statements of Surgery Partners, a company in the healthcare services industry, who was acquired by a major private equity investor and elected pushdown accounting. Using the information in the case, we construct the balance sheet of Surgery Partners immediately before the election of pushdown accounting. This allows us to analyze the impact of pushdown accounting on the company’s financial statements, and the reason for electing this procedure.