The purchase price allocation (PPA) process is often treated as an afterthought in mergers and acquisitions (M&A). Getting an early start on PPAs can add value. Incorporating the PPA process into M&A diligence can serve as a ‘sanity check’, forcing a rigorous exploration of what besides tangible assets is being purchased.” The PPA process is often treated as an afterthought in M&A. The PPA can help guide a deal to a more predictable conclusion. In the most rewarding deals, a prompt PPA process helps acquirers analyze, from a financial reporting point of view, the primary drivers or intangible values associated with the transactions. A well-considered and well-executed PPA process can also prevent the so-called “Day-Two” earnings surprises due to unanticipated dilutive (or accretive) effects from larger (or smaller) than-anticipated accretion, depreciation, and amortization expenses of the acquired assets and liabilities.
There are clear benefits to taking a proactive, rigorous approach to the PPA process. Armed with the right expertise and a vigorous method, an acquiring company can manage the M&A process to include the PPA considerations sooner and avoid any post-deal earnings or other surprises.