Assets of the target company may receive a fair value increase on their acquisition. When your balance sheet reflects this increase after you purchase the company, it could have wide-ranging consequences, including lower than anticipated profit or loss post acquisition.
As an example, consider inventory. When the fair value increases, it could affect the gross margins of your company and, in turn, key related milestones, such as earn-outs and KPIs set by the company.
Two other examples: capital equipment and intangible assets included on the target’s balance sheet. The fair value bump in these cases can create a higher expense in the post-acquisition results. These expenses are amortised, generating an expense that is recognised in profit or loss going forward.