Purchase Price Allocation – PPA

Purchase Price Allocation – PPA
When one company acquires another, the acquirer must allocate the purchase price to balance sheet items. This can require the company to recognize asset and liabilities that previously did not exist. It effectively results in a revaluation of the target balance sheet.

IFRS accounting standards, US GAAP and various local GAAPs require allocation of purchase price to acquired net assets after an acquisition. In short, the acquirer recognizes new assets and liabilities on the target’s balance sheet that did not previously exist, measures these new assets and liabilities at fair value, re-measures pre-existing assets and liabilities at fair value, and calculates the remainder as goodwill.

The auditors of the acquirer, target and (sometimes) the acquirer’s shareholders are often restricted from performing a purchase price allocation because of independence conflicts. It can be helpful to work with an independent valuation advisor. Pike + Zijlmans has the required experience in a wide range of industries and is fully independent.