On August 21, 2001, Keane, Inc. reported the procurement of Metro Information Services, Inc. This case breaks down the difficulties confronting firms and looks at exchanges whose real wellspring of worth creation depends on impalpable resources (e.g., individuals or information).
Calculation of Purchase Price
Calculation of Goodwill
a. What are the Key Success Factors in this industry? How are these factors reflected in in Keane’s and Metro Information Services financial statements?
b. Could you explain why the price paid by Keane from the acquisition of Metro is calculated as described inExhibit 4 of the case? What is Keane buying with the acquisition of Metro?
c. Assume that Keane only identifies the assets described in page 5 of the case. How much of the acquisition price would be allocated to goodwill? What does goodwill include? What other intangible assets acquired from Metro would investors like to know about? Why doesn’t Keane allocate part of the acquisition price to those assets? What recommendations would you give to Keane’s CFO with respect to communicating to statement users the different components of goodwill and their valuation?