The steps in a pre-deal or a regular purchase price allocation are identical for the most part. Potential hidden liabilities or reserves must be identified, disclosed, and measured at fair value for the consolidated balance sheet in accordance with IFRS 3 or DRS 23. Positions that were already reported on the balance sheet of the acquired company such as properties, machines, or inventories are recognized at market values.
Intangible assets have a disproportionately large impact on the balance sheet of the acquired company. Customer relationships, brands, and technology are subject to an accounting prohibition, but must be valued here and reported on the balance sheet. The standard rules are also expanded by IFRS 3 and DRS 23. If there is a lack of comparable transactions, recourse is taken to the discounted cash flow model recognized in valuation practice, i.e. the business plan. In particular, the valuation of intangible assets is examined critically against the backdrop of the significant discretionary leeway allowed by the German Financial Reporting Enforcement Panel (Deutschen Prüfstelle für Rechnungslegung, DPR).
Preparation of a Purchase Price Allocation by FAS AG
In a PPA project, we will support your company at each step. In meetings we will identify the intangible assets and the goodwill, and examine the necessary adjustments on the balance sheet. Our valuation methods are already known and established at all leading auditing firms. As soon as we have completed our valuation models for you, we will discuss the impact on your future corporate earnings and other key performance indicators and advise you regarding possible adjustments and future risks from impairment tests. In the process we will also take over coordination with the auditor for you. Finally, we will document our work in a concise report that contains all the major assumptions and valuation parameters.
Our accounting experts are also available with an independent opinion at any time for all other subjects related to the purchase price allocation, such as questions on the first consolidation, valuation of complex options and put/call structures in regard to company shares, the valuation of earn-outs, and differentiation between the purchase price and the manager remuneration.