Introduction
Synopsys agreed to buy Ansys in January 2024, and for the next eighteen months it paid to keep the financing ready. It arranged a bridge loan commitment from a group of banks, which it later scaled back as it sold a business, signed a $4.3 billion term loan and issued $10.0 billion of bonds. In fiscal 2024, before it had borrowed anything for the deal, its interest expense rose from $2.7 million to $36.8 million, mainly because of the amortization of bridge financing costs. When the deal closed in July 2025, its pro forma disclosures treated about $298 million of transaction costs as non-recurring: costs expensed as incurred rather than added to the price.
Every acquisition generates two kinds of costs: the costs of completing the deal, and the costs of financing it. The accounting treats them differently, and the difference affects operating income, interest expense, the balance sheet and the cash flow statement.
Costs of Completing the Deal
Under Accounting Standards Codification (ASC) 805, an acquirer in a business combination expenses its acquisition-related costs as they are incurred: fees for financial advisers, lawyers, accountants and valuers, and the internal costs of a deal team. The standard treats them as payments for services, not as part of the fair value exchange with the seller, so they are not added to the price and do not increase goodwill. They usually appear in operating expenses, sometimes on a separate line, and the cash paid is an operating outflow.
- Acquisition-related costs
Costs an acquirer incurs to carry out a business combination, such as advisory, legal, accounting, valuation and other professional or consulting fees, and general administrative costs, including those of an internal acquisitions department. Under ASC 805 they are expensed as incurred, except costs to issue debt or equity securities.
The rule differs outside business combinations. In an asset acquisition, direct transaction costs are capitalized into the cost of the assets acquired, as described in business combination or asset acquisition?. A seller usually deducts its deal costs from the gain on sale: when Synopsys sold its Software Integrity business in 2024, it reported a pre-tax gain of $868.8 million after $61.7 million of transaction costs, according to its 2025 annual report.
For tax, the treatment is less generous. Under Treasury Regulation section 1.263(a)-5, costs that facilitate an acquisition generally have to be capitalized rather than deducted: they are added to the tax basis of the shares or assets acquired, so a buyer of shares recovers them only when it sells the stock. Success-based fees, payable only if the deal closes, are presumed to be facilitative. A safe harbor in Revenue Procedure 2011-29 lets taxpayers deduct 70% of such fees and capitalize the rest, provided they elect it on their return, so a deal cost that is fully expensed in the books may be only partly deductible, or not deductible at all.
Costs of Financing the Deal
Fees to raise the money for a deal follow the financing, not the acquisition. Bond underwriting fees, term loan arrangement fees and original issue discount are deducted from the carrying amount of the debt and recognized as interest expense over its life using the effective interest method, as explained in debt issuance costs and OID. Costs to arrange a revolving credit facility are the exception: they are usually carried as an asset and spread evenly over the facility's term. Fees to issue shares reduce additional paid-in capital and never reach the income statement.
Bridge Commitments
Bridge commitments are a special case. A buyer that needs certainty of funds before signing pays banks to commit to a loan it hopes never to draw, intending to replace it with bonds or term loans before closing. The fees are deferred and amortized into interest expense over the commitment period, and amounts relating to commitments that are reduced or cancelled are expensed. Synopsys's figures show the pattern:
| Line item | Fiscal 2024 | Fiscal 2025 |
|---|---|---|
| Bridge financing and term loan costs paid | 72.3 | 0 |
| Amortization of bridge financing costs | 33.7 | 42.0 |
| Amortization of debt issuance costs | 0 | 13.8 |
| Total interest expense reported | 36.8 | 446.7 |
Source: Synopsys 2025 Form 10-K. The 10.0 billion of senior notes issued in March 2025 carried 70.2 million of issuance costs and 17.0 million of original issue discount, deducted from the debt. The remaining bridge commitment of about 690 million was terminated at closing.
The bridge was never drawn, yet its costs reached interest expense in both fiscal years, and in fiscal 2024, when the company had almost no debt, they made up more than 90% of the line. In fiscal 2025, interest on the bonds and the term loan dominated. The cash paid for financing costs is a financing outflow, separate from the operating outflow for transaction costs.
What Bankers Do With Them
In a merger or buyout model, both kinds of costs appear among the uses of funds at closing, alongside the purchase of the equity and any refinancing of debt, as shown in sources and uses of funds. Transaction costs reduce the combined company's cash and equity at closing; financing fees are capitalized against the debt and amortized in the pro forma interest line, a small but recurring drag on earnings per share. Most acquirers exclude acquisition-related costs from adjusted earnings, consistent with their treatment as one-time items, and bankers comparing deals look at fees as a share of the price: the roughly $298 million of transaction costs in Synopsys's pro forma figures came to under 1% of the $34.9 billion Ansys consideration.
