Company valuation
What is a Purchase Price Allocation (PPA)?
After an acquisition, the purchase price of the acquired company must be allocated to the various acquired assets and liabilities. In technical terms, this is also referred to as a “Purchase Price Allocation” or “PPA”. Companies that are subject to audit must perform this process under the Richtlijnen voor Jaarverslaggeving (RJ) and under the international guidelines (IFRS) after each acquisition. The valuation of tangible assets can often be substantiated fairly well, but the valuation of intangible fixed assets in particular is a real specialism. Our valuation specialists are happy to support you in conducting a PPA. Our valuation specialists use various models and methods for the valuation of, for example, customer relationships, brand names and patents. All these methods have specific characteristics and principles.
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Purchase Price Allocation example
When a Purchase Price Allocation?
Companies subject to audit are required under both the Dutch Accounting Standards (Richtlijnen voor Jaarverslaggeving (RJ)) and international guidelines (International Financial Reporting Standard (IFRS)) to allocate the purchase price of the acquired company to the acquired assets and liabilities after each acquisition. This is done by performing a PPA.
When a Purchase Price Allocation?
When is a company liable to audit?
A company is auditable if two of the following three criteria are met in two consecutive years:
- There is a balance sheet total of at least €6.0 million
- There is a net turnover of at least €12.0 million
- The company has at least 50 employees
Advice on a PPA
A Purchase Price Allocation in 6 steps
Allocating the transaction price to assets, liabilities and goodwill
What elements does a Purchase Price Allocation consist of?
Allocating the transaction price (of the acquisition) to the assets, liabilities and goodwill is also known in technical jargon as ‘Purchase Price Allocation’ or ‘PPA’. Freely translated into Dutch, it can be referred to as ‘purchase price allocation’. Here, all identifiable assets acquired and liabilities assumed must be valued at fair value (on the acquisition date). The difference between the fair value of assets and liabilities and the purchase price of the shares is the goodwill (residual).
Tangible assets
For tangible assets (i.e. land, buildings, stock, etc.), this will usually be relatively easy to resolve. This is possible by valuing buildings, for example. But non-tangible assets in a purchase price should also be estimated at fair value. Among these intangible (non-tangible) fixed assets, you should think, for example, of the value of customer relationships, brand names, internally developed software, technologies and patents. These intangible assets are usually not on the balance sheet of the acquired company and will therefore have to be valued separately.
Non-tangible assets
Valuing these intangible assets requires specialism within the valuation profession. For example, the valuation of customer relationships will be based on the Multi Period Excess Earnings Method (MEEM). Patents and or brand names are usually valued using the Relief from Royalty (RFR) method. And the cost approach as a basis for valuation is also regularly applied. All these methods have specific characteristics and assumptions.
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Purchase Price Allocation: our specialism
Match Plan conducts PPA’s on behalf of various (listed) companies. We also support accountancy firms in the performance or assessment of PPA’s. Match Plan has the necessary in-house expertise for conducting a Purchase Price Allocation because of drs. Richard Peeters RV. Richard made the switch to Match Plan in early 2019, after being Senior Manager at EY. As a Registered Valuator, he has a broad experience in complex valuation cases and is also a specialist in valuations for financial reporting purposes. We are characterized by working quickly and by being flexible, we are completely independent and have attractive rates.
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