Purchase Price Allocation and Intangible Asset Valuations

Purchase Price Allocations

After a deal has completed, it is typically necessary (for example under IFRS 3 Business Combinations and FRS 102) for the acquiring company to perform what is called a ‘Purchase Price Allocation’ exercise, or PPA. The purpose of a PPA is to assess the fair value of acquired tangible and intangible assets, along with the acquired liabilities, which are then presented in the combined post-acquisition balance sheet. 

The PPA Process

There are a number of steps necessary to perform a PPA as outlined below. The Buzzacott team are experienced in performing valuations across each stage of the process and working with our clients to manage the process overall.

• Firstly, an assessment of the fair value of the purchase consideration must be made. This will tend to be straightforward in a simple cash deal, however this becomes more complex where components of the consideration are settled by way of deferred consideration, share-for-share exchanges, and so on.
  
  
• It is then necessary to identify what cash generating units (CGUs) exist in the acquired entity and then determine an appropriate allocation of the purchase price to each CGU.
  
  
• Once it has been determined whether the carrying value of any tangible assets acquired may differ materially from fair value, and any appropriate adjustments made, the fair value of liabilities also needs to be assessed as at the acquisition date.
  
  
• The difference between the fair value of the purchase consideration, and the fair value of the acquired balance sheet with reference to their tangible asset values, must then be allocated to the acquired identifiable intangible assets (IIAs) – the identity of which must first be established.

We work closely with our clients’ audit firms – of all sizes – to ensure that the PPA process runs as smoothly as possible for our clients and achieves the optimal outcome for all key stakeholders in the combined entity. 

A PPA exercise may also be performed ahead of deal completion in order to highlight the potential accounting impact of any deal, and may form part of a wider due diligence process.

Intangible Asset Valuations

The Buzzacott Valuations team have extensive experience in the performance of intangible asset valuations, both within the context of a PPA and for other reasons such as tax. Assets which members of the team have performed valuations of previously include the following:

• Brands and trademarks
• Patents
• Software
• Customer contracts and customer relationships
• Copyrights
• Non-compete agreements
• Recipes and formulations

As a team we are proficient in the use of a full suite of valuation approaches specific to intangible assets and intellectual property.