Purchase price allocation
After the acquisition of a company, the acquisition price paid needs to be broken down, from an accounting point of view, into the identifiable assets and liabilities within the scope of the consolidated balance sheet. This results in a positive (goodwill) or negative delta on the acquisition date. Purchase price allocation (PPA) must be carried out independently of the applicable accounting standard; however, the requirements differ in terms of details. In particular, the value of the newly identified intangible assets and – in the case of HGB – goodwill has an immediate impact on the earnings a company shows due to the depreciation potential. The implementation of a PPA therefore requires great experience, professional expertise and, not least, significant resources. BDO supports you in the efficient implementation of the PPA. In the pre-PPA, in advance of your acquisition, we can show you how your financial figures will change and where there are opportunities for optimisation. Our approach also helps to substantially reduce the risk of future depreciation of intangible assets (impairment). In the scope of analysing a transaction, the first step is to determine the purchase price and date of acquisition relevant for the PPA. We analyse the transaction in detail (including earn-out clauses as well as buying and selling rights) and determine the transaction price, taking into account the relevant provisions.
In a second step, the previously off-balance sheet intangible assets and liabilities are identified by the criteria set by the applicable accounting standards, as they will be shown in the future consolidated balance sheet. Then, the fair value is determined for all assets and liabilities, whether on or off the balance sheet. The pertinent evaluation standards (e.g. IDW S 5 for intangible assets) need to be taken into account here, as must the impact on the group’s tax planning (deferred taxes). We support you here with an experienced team of specialists and tax experts in the evaluation of brands, technologies and customer relationships. BDO also has strong technical expertise, bundled in the form of our subsidiary BDO TUC.
Finally, the delta between the purchase price and the fair value of the net assets is determined. If it is a positive amount, it is treated as goodwill, which then needs be distributed across the cash-flow-generating units (CGUs) of the group. If a negative difference is determined, it may be necessary to post this against earnings to increase profits.
We provide a detailed and easily comprehensible report on the valuations and the effect on intangible assets and goodwill resulting from them. We handle the required coordination with your auditors in good time to allow for a trouble-free audit process. On request, we also support you in providing the information that you need to meet the extensive disclosure requirements related to a PPA. We are familiar with both the minimum requirements and best practices.