Purchase Price Allocation (PPA)
Purchase Price Allocation (PPA) is the accounting and financial exercise by which the price paid to acquire a company is allocated across all identifiable assets and liabilities of the target, at their fair value as of the acquisition date, in accordance with IFRS 3 and Swiss GAAP FER 30.
A rigorous PPA transforms a global transaction price into a precise accounting architecture — determining the value of identifiable intangible assets, residual goodwill, and the future amortization charges that will directly affect the acquirer's consolidated results for years to come.
What is a Purchase Price Allocation (PPA)?
The Purchase Price Allocation is the post-transaction accounting exercise by which the total consideration of an acquisition is allocated across the identifiable assets acquired and liabilities assumed, at their fair value as of the acquisition date. The unallocated balance constitutes goodwill — or a bargain purchase gain in case of badwill.
Required by IFRS 3 (Business Combinations) within 12 months of the acquisition date, and by Swiss GAAP FER 30, the PPA is far more than a compliance exercise. It determines the amortization base of identified intangible assets — directly impacting the acquirer's future earnings — and underpins the validity of subsequent impairment tests (IAS 36).
The most frequently recognized identifiable intangible assets in a PPA include: customer relationships (valued via the MPEEM method), brands and trade names (relief-from-royalty method), proprietary technology and software, favorable contracts, patents and licenses, and non-compete agreements. Each asset must meet either the separability criterion or the contractual-legal criterion of IFRS 3.
Step 1
Engagement rationale and scope
Define the scope of the PPA, identify the entities involved and document the terms of the transaction (consideration, acquisition date, legal structure).
Step 2
Data and documentation gathering
Analyze the target's financial and non-financial, commercial and operational data to feed the valuation models for each identified intangible asset.
Step 3
Identification of intangible assets
List all identifiable intangible assets according to IFRS 3 criteria — customer relationships, brands, technology, patents, favorable contracts, non-compete agreements.
Step 4
Valuation of intangible assets
Apply recognized methods (cost approach, relief-from-royalty, MPEEM, with-and-without) to determine the fair value of each asset and validate consistency through the WARA.
Step 5
Calculation of residual goodwill
Determine goodwill (or badwill) as the difference between the total consideration and the fair value of net identifiable assets — with modeling of the future P&L impact.
Step 6
Report delivery and audit support
Deliver a documented PPA report, defensible against auditors and tax authorities, including assumptions, market sources, calculations and sensitivity analyses.
When and why perform a PPA?
A PPA is required whenever an entity acquires control of another entity within the meaning of IFRS 10 — whether the transaction takes the form of a share purchase, an asset acquisition or a merger. The trigger is always the date of obtaining control, not the legal signing or closing date.
Acquisition of a company
Value the target's intangible assets, allocate the purchase price between identifiable assets and goodwill, and produce a PPA compliant with IFRS 3 within the 12-month regulatory measurement period.
Audit and year-end close
Meet the auditor's requirements during post-acquisition consolidation, document the fair values retained and secure the accounting treatment of goodwill and intangible assets.
LBO structuring
Allocate the purchase price within a leveraged buyout structure, optimize the P&L impact of intangible asset amortization and secure reporting to investors and lenders.
Intragroup intangible asset transfer
Document the fair value of brands, technology or customer bases transferred within a French-Swiss group, in compliance with OECD, SFTA and DGFIP transfer pricing rules.
Restructuring
Identify and value intangible assets in a merger, partial asset contribution or carve-out, and establish the new accounting basis for the entity resulting from the reorganization.
Tax audit or litigation
Produce an independent and defensible valuation of intangible assets in the context of a tax audit, a shareholder dispute or arbitration proceedings.
Our PPA methodology
A structured six-step approach, compliant with IFRS 3, FER 30 and IVS standards, producing documentation defensible against your auditors and tax authorities.
- Identification and mapping of intangible assets
We carry out an exhaustive inventory of the target's identifiable intangible assets according to IFRS 3 criteria — the separability criterion and the contractual-legal criterion. This step covers customer relationships, brands, technology, patents, databases, distribution agreements and favorable contracts. - Determination of the fair value of each asset
We apply the valuation methods recognized by the IVSC for each asset category: the relief-from-royalty method for brands and technology, the multi-period excess earnings method (MPEEM) for customer relationships, and the with-and-without method for non-compete agreements and favorable contracts. - WARA calculation and consistency check
We compute the Weighted Average Return on Assets (WARA) and reconcile it with the transaction's cost of capital (WACC). Consistency between WARA and WACC is a methodological robustness requirement imposed by Big Four auditors. - Determination of residual goodwill
After valuing all identifiable assets and assumed liabilities at fair value, we calculate residual goodwill — the difference between the consideration transferred and the fair value of net identifiable assets. Any excess of fair value over price constitutes a bargain purchase gain (badwill), recognized immediately in profit or loss. - Useful-life estimation and P&L impact
We estimate the remaining useful life of each identified intangible asset — drawing on contractual data, customer attrition rates, technology cycles and industry practice — and model the impact on the acquirer's future income statement (annual amortization charge). - Delivery of an audit-grade PPA report
We deliver a comprehensive report documenting all assumptions, market data sources, calculations and sensitivities — structured to withstand scrutiny by statutory auditors, IFRS auditors and tax authorities in Switzerland (SFTA) and France (DGFIP).
Diverse range of clients advised
SMES
Executives/Management
Family shareholders
Family businesses
Family Offices
Private equity funds
operations analyzed
years of expertise
clients advised
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The transactions presented were carried out by, with the contribution of, or with the participation of members of the Hectelion team in the context of functions performed currently or previously.
Frequently Asked Questions
Purchase Price Allocation (PPA) is the accounting exercise required by IFRS 3 and Swiss GAAP FER 30 by which the total consideration paid in an acquisition is allocated across the identifiable assets acquired, liabilities assumed and residual goodwill — at their fair value as of the date of obtaining control.
A PPA is required whenever an entity acquires control of another entity within the meaning of IFRS 10, whether the transaction takes the form of a share purchase, an asset acquisition or a merger. It must be finalized within 12 months of the acquisition date (the IFRS 3 measurement period).
Identifiable intangible assets are non-physical assets that meet either the separability criterion or the contractual-legal criterion of IFRS 3 — brands, customer relationships, technology, patents. They are valued individually and amortized over their useful life. Goodwill is the unallocated residual; it is not amortized under IFRS but is subject to an annual impairment test (IAS 36).
Three main methods are applied depending on the nature of the asset: the relief-from-royalty method for brands and technology, the multi-period excess earnings method (MPEEM) for customer relationships, and the with-and-without method for non-compete agreements and favorable contracts. Overall consistency is validated through the WARA (Weighted Average Return on Assets).
Each intangible asset identified in the PPA generates an annual amortization charge over its useful life — typically 3 to 15 years depending on the asset category. This amortization reduces the acquirer's adjusted EBITDA and must be anticipated during pre-acquisition financial modeling to avoid any post-closing surprise.
The PPA is performed by an independent valuation expert engaged by the acquirer. The consolidated accounts auditor subsequently reviews the fair values retained but does not produce them, for independence reasons. A PPA report produced by a specialist firm such as Hectelion is designed to withstand scrutiny from both the auditor and tax authorities.
Yes. Swiss GAAP FER 30 requires a purchase price allocation similar to IFRS 3, with two alternative treatments for goodwill: either capitalization and amortization over its useful life (maximum 20 years, or 5 years if useful life cannot be estimated reliably), or direct offset against equity. The method chosen has a significant impact on future financial statements.
A standard PPA engagement at Hectelion takes between 4 and 8 weeks depending on the complexity of the target, the number of intangible assets to value and the quality of available data. The deliverable is a comprehensive report including documented valuation models, market data sources and sensitivity analyses.
Yes, in a French-Swiss context. In France, the fiscal step-up on intangible assets can enable tax-deductible amortization in certain buyout structures (LBO with asset push-down). In Switzerland, the SFTA requires arm's-length valuations for intragroup intangible asset transfers, and a properly documented PPA secures the transfer pricing treatment during restructurings.
A business valuation determines the overall value of an entity (enterprise value or equity value). A PPA takes place after the transaction to allocate the price paid across its components — tangible assets, identifiable intangible assets and goodwill. Both exercises rely on similar valuation methods, but a PPA is more granular, mandated by accounting standards, and directly affects consolidated financial statements.