Purchase Price Allocation (PPA)
Valuation of Purchase Price Allocation for the Acquisition of the Services Business of Target Company by, a Client
- Services Business
- Multi-Asset Valuation
Introduction
Client, through its wholly-owned step-down subsidiary in USA, completed the acquisition of the Services Business of Target Company, pursuant to an Asset Purchase Agreement (APA). In connection with this transaction, Client engaged our services to perform a Purchase Price Allocation (PPA) to allocate the total purchase consideration to the acquired tangible assets, identifiable intangible assets, and assumed liabilities in accordance with the applicable financial reporting framework.
This valuation report has been prepared exclusively for the purpose of supporting the Management of Client in the recognition of intangible assets and goodwill in its financial statements as of the acquisition date and should not be used or relied upon for any other purpose.
Objective of Engagement
The objective of this engagement is to allocate the total purchase consideration towards:
Tangible Assets
Intangible Assets
Residual Goodwill
Scope of Work
The scope of our work includes the following activities:
- Review of the Asset Purchase Agreement (APA) executed between Client and Target Co.
- Analysis of the assets and liabilities acquired as part of the Services Business of the Target Company.
- Discussions with the management of Client and Target Co., to understand the business operations, historical performance, and future outlook.
- Review and analysis of the financial projections of the acquired Services Business.
- Selection and application of appropriate valuation methodologies for the different asset classes acquired.
Valuation Methodology
The following valuation methodologies were adopted for the allocation of the purchase price:
- Tangible Assets and Liabilities
The Historical Cost Approach was employed to value the acquired tangible assets and assumed liabilities. Under this method, the value of assets was determined based on the replacement cost of acquiring similar assets adjusted for physical depreciation and functional obsolescence, where applicable.
- Customer Relationships
The Multi-Period Excess Earnings Method (MPEEM), a form of the Income Approach, was used to determine the fair value of Customer Relationships. This method involves estimating the future cash flows attributable to the customer base, deducting contributory asset charges, and discounting the net cash flows to their present value using an appropriate discount rate.
- Brand
The Relief from Royalty Method, also a form of the Income Approach, was applied to value the Brand. This approach estimates the value by calculating the present value of the hypothetical royalty payments that would be saved by owning the brand rather than licensing it from a third party.
- Goodwill
The Residual Method was used to determine the value of Goodwill. This method involves subtracting the fair value of all identifiable tangible and intangible assets and liabilities from the total purchase consideration. The remaining balance, if any, is recognized as Goodwill.
Sources of Information
The valuation was conducted based on the following sources of information:
- Asset Purchase Agreement (APA)
- Financial projections
- Market and industry data from publicly available databases
- Management representations and inputs provided during discussions
- Details of acquired assets and liabilities pertaining to the Services Business
Conclusion
The total purchase consideration for the acquisition of the Services Business of Target Co, has been allocated across the specified tangible assets, identified intangible assets (Customer Relationships and Brand), assumed liabilities, and residual goodwill based on the methodologies outlined above.