Purchase Price Allocation Agreement (PPA)

Client Industry:  Diamond Industry

Background :

A sole proprietor firm was engaged in the business of trading specialised products. These traded products were procured from a Japanese company. The sole proprietor was in the process of transferring its business to the Indian associate of Japanese Company. The business was being transferred at a pre- determined price and accordingly, the firm wanted to prepare a purchase price allocation agreement to allocate the price amongst the assets transferred (both tangible and intangible assets) from the firm to the Indian associate. The main objective was to allocate a value to the goodwill for the purpose of accounting as per Accounting standard. The client approached IBA to value the assets and provide a certified PPA which could be shared with various authorities as and when required for the said transaction.

Our Approach :

• Our valuation team worked jointly with the management and Merger and Acquisition team of the client to understand the terms of business transfer and basis of arriving at the purchase price
• We all reviewed the list of assets transferred both tangible and intangible
• We carried out the process of identifying the intangible assets transferred and based on the appropriate methodology a value was allocated to each identified intangible assets and provided a certified PPA

Outcome/Impact :  

We successfully concluded the drafting of Purchase Price Allocation Agreement and determined value to be allocated to the Goodwill. This, in turn, helped the client in appropriately recording the goodwill in the books of accounts as per the Accounting standard