Purchase Price Allocation
Purchase Price Allocation Challenges
The central challenge of a PPA lies in the objective identification and valuation of intangible assets such as customer bases, brands or patents, for which there are often no active markets. Cash flows must be consistently broken down to individual assets and discounted with an appropriate WACC.
The measured net assets form the basis for measuring future performance, as capitalized values will weigh on EBIT in the future. The remaining goodwill is calculated as a residual quantity and assigned to the benefiting cash-generating units.
Assessment Requirements
Every asset and liability requires a reliable, comprehensible valuation model, including clearly defined and objectified assumptions.
Plausibility Check
All procedures and assumptions must provide a consistent overall picture. The WACCs used must match the forecast return on capital and the balance of assets and liabilities must be consistent.
Documentation
The entire purchase price allocation must be documented in a complete and clearly structured manner, comprehensible to auditors, investors and internal stakeholders.
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Our Support
We carry out the purchase price allocation with specialist expertise and many years of experience.
Yield curves for your needs
Yield curves are highly relevant for companies seeking to make sound financial decisions.
Valuation of bonds
Yield curves are used to discount bonds' future cash flows in order to assess their market value. Adjusting the yield curve to reflect creditworthiness, rating-related factors, and country-specific risk components is essential for accurate valuation.
Discount rates in IFRS accounting
In IFRS accounting, items are frequently depicted by the present value of their future cash flows. The prerequisite for this is the proper calculation of an appropriate discount rate. Typical areas of application include fair value valuations, the valuation of provisions as well as accounting for pension obligations.
Calculation of borrowing costs
Based on current market data, we derive risk-appropriate interest rates — using methods such as the analysis of comparable corporate bonds, or model-based approaches like Merton's structural models.
Risk Management and Hedging
Yield curves are a core component of risk management, particularly in the context of derivatives and interest rate hedging. Banks, insurance companies, and corporates rely on them to develop and assess strategies for mitigating interest rate volatility.
This is how we assist you with a Purchase Price Allocation
Data Collection and Identification
We analyse your transaction documents and business plans and conduct expert interviews on site to identify all intangible assets such as customer bases, technologies or trademark rights.
Modelling of Current Values
Using recognized valuation methods, we calculate the fair values of the identified positions and derive the associated useful lives.
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Evaluation Report
We document the entire process in an audit-proof report, which makes the derivation of goodwill and the discovery of hidden reserves completely comprehensible to your auditor.
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FAQ
What is a Purchase Price Allocation?
Which reasons require purchase price allocations under IFRS?
This process is primarily used in the context of business combinations in order to properly distribute acquisition costs in the consolidated financial statements. Even when creating joint ventures or acquiring associated companies, the pro rata fair values of the identifiable net assets must be determined.
What are the challenges with purchase price allocations?
Since these parameters often involve considerable discretionary powers, a well-founded deduction vis-à-vis the auditors is crucial.
How are purchase price allocations actually carried out?
The difference between capitalized net assets and the consideration is finally recognized as goodwill in the balance sheet.
