Purchase Price Allocations (PPA)

As the dust settles on an M&A deal, one of the key reporting steps for the new corporate parent is to identify and recognise the various assets and liabilities of the newly acquired business within the group’s consolidated financial statements.

A Purchase Price Allocation or “PPA” does just that: allocating the purchase price against the fair value of the incoming assets and liabilities. PPAs are needed for good financial reporting and compliance with accounting standards such as FRS102 or IFRS3. They are also important for properly understanding the asset base and assessing profits, helping with decision making within the business, and may also identify the tax implications of the acquired assets within the group.

Under a PPA, the purchase price will be allocated across the fair value of all the assets and liabilities of the newly acquired business. Any difference between the purchase price and the total fair value will be recognised as “goodwill”.

Many of the assets and liabilities will be straightforward to identify and assess for fair value. But there may be some – in particular intangible assets such as brand, trade marks, software and customer relationships – which will be more difficult to identify and assess for fair value.

Our valuation specialists can assist you in properly identifying and valuing all the assets and liabilities, so that you can have confidence in the PPA for reporting, tax and decision making going forward.

Every business is different, but for any purchase price allocation you can expect us to:

• understand the acquisition and the newly acquired business
• work closely with management to fully identify all the tangible assets, intangible assets and liabilities that should be included in the purchase price allocation
• apply appropriate valuation techniques to assess the fair value of the assets and liabilities

We are well versed in working with a range of companies and deals. We regularly work with small, early stage and high growth companies, where for example there may be limited historical data for the business, or a limited track record for intellectual property assets.

Once we have undertaken our work, we will provide you with a report setting out the purchase price allocation and how we have valued the various assets and liabilities. Our report will set out the group financial reporting, and we will take the time with management and your finance team to explain our approach, assumptions and findings. Our report will also be suitable for sharing with the group’s auditors, and we work closely with our own audit group to ensure audit needs are met. We will be on hand to answer any questions, so that you can have the confidence the financial reporting aspects of the deal are done and dusted.

If you are contemplating a deal or have recently completed an acquisition, please get in touch to find out how we can assist with the PPA and associated valuation issues.

Contact us today to arrange an initial conversation.