When acquiring a business through a share transaction, the focus often sits squarely on the purchase price. It’s the headline number, the dealmaker, the figure everyone negotiates around.
But that number on its own tells you very little about what has actually been acquired.
Purchase Price Allocation (PPA) is the process that breaks this number down into its underlying components — assigning value to the assets and liabilities that make up the business. This includes both tangible assets such as property, plant, and equipment, and intangible assets like brand value, customer relationships, and intellectual property.
Without this allocation, the purchase price remains a single, undifferentiated figure. With it, the economic reality of the transaction becomes clear.
A well-executed PPA is critical for several reasons:
- It ensures accurate financial reporting
• It determines future depreciation and amortisation
• It impacts tax treatment
• It highlights potential impairment risks
• It supports appropriate insurance coverage
When allocation is done incorrectly, the consequences are not always immediate — but they are inevitable. Overstated or understated asset values can distort financial performance, mislead stakeholders, and create gaps in insurance coverage.
In transactions involving industrial and commercial assets, the complexity increases further. Replacement costs, asset condition, and site-specific risks all play a role in determining true value.
This is where independent valuation of the tangible assets becomes essential.
A robust PPA is not simply an accounting exercise. It is a valuation exercise grounded in real-world asset behaviour, market conditions, and risk exposure.
At TPP, #WeValueYourAssets.