In any acquisition, an accurate and well-documented Purchase Price Allocation (PPA) is essential for transparent and compliant financial reporting. Supreme Valuation and M&A B.V. provides pragmatic, cost-effective support in performing PPAs, ensuring a smooth audit process and accurate reflection of the acquistions in the financial statements. Our approach combines technical expertise, clear reporting and hands-on involvement, without unnecessary complexity.
The outcome of a PPA leads to a structured breakdown of the purchase price, as illustrated above.
What is a Purchase Price Allocation (PPA) and why is it of importance?
Definition and importance of a PPA
Purchase Price Allocation is the process of allocating the acquisition price of a business to the identified assets and liabilities. This allocation is required under IFRS 3 or other relevant accounting standards such as Dutch GAAP. A well-executed PPA enhances transparency for stakeholders and ensures accurate representation in the balance sheet and financial statements.
When is a PPA required?
A PPA is mandatory in case of a business combination, such as a merger or acquisition. Within a limited timeframe after the acquisition date, the purchase price must be allocated to the identifiable assets and liabilities at fair value. This is essential for both compliance and clarity, towards shareholders, investors and, auditors.
Valuation methods for PPA purposes
At Supreme, we apply the International Valuation Standards (IVS) when conducting valuations. Depending on the nature of the asset, liability or business, one or more of the following methods are used:
Market Approach
This method estimates value by comparing the asset or company to similar objects for which market data is available. Based on the principle that a rational buyer won’t pay more than for a comparable object with similar economic benefits.
Examples of application:
- Minority interests using trading or transaction multiples (e.g., P/E ratios)
- Trademarks via the relief-from-royalty method (a hybrid approach with the income approach)
The market approach provides an outcome based on objective data from comparable transactions.
Income Approach
This approach is based on discounting future cash flows to their present value. It reflects the economic benefits that the asset or business is expected to generate.
Examples of application:
- Discounted Cash Flow (DCF) for valuing majority interests or allocation of the purchase price to cash generating units;
- Relief-from-Royalty method for IP, brands, or software;
- Multi-Period Excess Earnings Method for customer contracts, order backlog or client relationships;
- With-and-Without Method for non-compete clauses.
This is the most used method for assets that generate cash flows.
Cost Approach
his approach provides an indication of value using the economic principle that a buyer will pay no more for an asset or company than the cost to obtain an asset of equal utility.
This approach is useful when the replacement, reproduction or summation cost can be estimated reliably.
Examples of application:
- Internally developed software
- Assembled workforce
The approach is used when the asset does not directly generate cash flows and no active market exists. This approach considers the replacement or reproduction cost.
Key components in a PPA analysis
A well-executed purchase price allocation analysis does not determine the goodwill by substracting the book value of the shareholders equity by the purchase price. It is a careful process that consists of the following steps:
- Identification of the acquirer
- Elaboration of the business combination
- Determination of the acquisition date
- Defining the cash-generating units (CGUs)
- Performing a business enterprise value test
- Identification of assets and liabilities
- Valuation of assets and liabilities
- Calculation of deferred tax liabilities
- Calculation goodwill
- Determine useful life and amortisation period of acquired assets
- Perform the test
Critical considerations when performing a PPA
Identification of intangible assets
Intangible assets such as customer relationships, software or brand names are often complex to identify and value. Supreme has the right expertise and tools to execute these valuations.
Tax implications
Revaluation of assets and liabilities often leads to deferred tax positions. Supreme ensures proper handling of these implications and helps you comply with local and international tax standards.
Compliance with accounting standards
Whether under IFRS 3, Dutch GAAP or other local standards, we ensure your PPA accounting is fully compliant, audit-ready, and documented with clarity.
Why choose Supreme for your PPA?
Focus
Supreme exclusively provides two types of services. This allows for the presence of dedicated and deep knowledge, leading to high-quality services.
Result
Supreme is proactive and works closely with its customers to reach milestones and to meet the highest standards of quality.
Responsibility
Trade with honesty, integrity and thoughtfulness. Supreme delivers on its promises to all those involved.
Trust
Supreme is independent and conforms to professional guidelines. Nothing is more important than trusted relationships with all stakeholders.
Practical examples of Purchase Price Allocation (PPA)
Below are several examples where Supreme successfully conducted a purchase price allocation. Each PPA report was tailored to the specific business combination, ensuring full compliance, clear documentation, and audit-ready results.
Purchase Price Allocation
For a company active in the secondment of technical and construction professionals, a PPA was prepared following the acquisition.
Purchase Price Allocation
For a Dutch company supporting industrial clients in improving and optimising production processes, a PPA was performed following an acquisition by a private equity party.
Purchase Price Allocation
For a company in the transport & logistics sector, a PPA was performed following an acquisition by a private equity party.
Get in contact
Looking for a trusted partner to guide your purchase price allocation from A to Z? Whether you need a one-off ppa report or recurring support, Supreme delivers precision, clarity and results. Start your PPA journey with Supreme.
Frequently asked questions about PPA
What does purchase price allocation mean?
How to perform a purchase price allocation?
What’s the difference between a PPA and goodwill?
Which valuation method is used in a PPA?
When is a PPA required?
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