We prepare purchase price allocations for acquirers reporting under IFRS or FRS 102, identifying the intangibles that meet the recognition criteria and valuing them in a form that supports the audit.
When is this valuation required?
- A company has acquired a business and must account for the business combination.
- A group is preparing its first consolidated accounts following an acquisition.
- Auditors have questioned the allocation of an acquisition price.
- A buyer wants to understand the effect of a proposed deal on future reported profits.
Who instructs us?
- Acquiring companies and their finance teams
- Private equity sponsors and portfolio companies
- Accountants preparing group accounts
What exactly is valued?
The identifiable intangible assets acquired, such as customer relationships, order books, brands, technology and licences, along with any other assets requiring fair value measurement. Goodwill is the residual once identifiable assets and liabilities have been measured.
How is value assessed?
We review the transaction documents and the target's business to identify which intangible assets exist and meet the recognition criteria of the applicable framework. Each is then valued, typically using relief-from-royalty for brands and technology, the multi-period excess earnings method for customer relationships, and cost or income approaches for other assets. Useful lives are estimated for amortisation.
The total of the values is reconciled with the purchase price, and the implied returns on each asset are compared with the overall return on the transaction to check that the allocation is internally consistent.
How the approaches are usually weighed
Typical
- IncomeRelief-from-royalty and multi-period excess earningsUsual starting point
- CheckAsset values reconciled to the price paidCross-check
- CostCost approach for other assetsWhere relevant
What factors influence the result?
- Applicable framework
- IFRS 3 and FRS 102 have different recognition requirements.
- Customer attrition
- How quickly acquired customer relationships are expected to decline.
- Royalty rates
- Evidence supporting rates used for brands and technology.
- Contributory asset charges
- Returns attributed to supporting assets in excess earnings models.
- Consideration
- The treatment of deferred and contingent consideration in the purchase price.
What information is required?
- The sale and purchase agreement and completion accounts
- The target's historic results and the forecasts used to price the deal
- Customer data including revenue history and retention
- Information on brands, technology and contracts acquired
- The acquirer's accounting framework and policies
We send a tailored information request once the scope is agreed.
What report will you receive?
We provide a purchase price allocation report showing each identified intangible, its value, method, key assumptions and estimated useful life, together with the resulting goodwill and a reconciliation suitable for audit review.
See types of business valuation reports for how the scope of each type differs.
Timing and cost
How long will it take?
PPAs are usually needed for the first set of accounts after the acquisition. Starting soon after completion gives time to gather data and allow for audit review.
How much does it cost?
Fees depend on the size of the deal, the number of intangible assets and the quality of the available data. We agree the scope and fee in writing.
How our fees are set →Frequently asked questions
What is purchase price allocation?
The process of allocating the price paid for a business to the identifiable assets and liabilities acquired, including intangible assets, with any remainder recognised as goodwill.
Why does a PPA matter?
It determines the intangibles and goodwill recognised in the acquirer's accounts, and therefore future amortisation and potential impairment, which affect reported profits.
Which intangibles are usually identified?
Commonly customer relationships, order backlogs, brands, technology and licences, depending on the business and the recognition rules of the framework.
Is the PPA the same as the deal valuation?
No. The deal valuation supports the price. The PPA allocates that price for accounting purposes, using definitions set by the standard.
Can a PPA be prepared after the accounts deadline approaches?
It is possible but leaves little time for audit review. We recommend starting soon after completion.
