{
  "id": 54419,
  "date": "2023-02-08T11:20:28",
  "date_gmt": "2023-02-08T16:20:28",
  "guid": { "rendered": "https:\/\/finance-able.com\/?p=54419" },
  "modified": "2025-12-21T16:50:03",
  "modified_gmt": "2025-12-21T21:50:03",
  "slug": "purchase-price-allocation",
  "status": "publish",
  "type": "post",
  "link": "https:\/\/finance-able.com\/purchase-price-allocation\/",
  "title": {
    "rendered": "Purchase Price Allocation in 4 Steps – The Ultimate Guide"
  },
  "content": {
    "rendered": "\n<p><strong>Purchase Price Allocation (PPA) concepts often cause quite a headache. <\/strong>We can make it easy. After reading this article, you will be able to <strong>master this concept <\/strong>for use both in <strong>interviews and on the job <\/strong>in <a href=\"https:\/\/finance-able.com\/investment-banking-career-path\/\"><strong>Investment Banking<\/strong><\/a>, <a href=\"https:\/\/finance-able.com\/private-equity-vs-venture-capital\/\"><strong>Private Equity<\/strong><\/a>, Corporate M&amp;A, and <a href=\"https:\/\/finance-able.com\/what-is-a-hedge-fund\/\"><strong>Investment Management<\/strong><\/a>.<\/p>\n\n\n\n<p>In this blog post, we\u2019ll discuss:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><p>Why <strong>Purchase Price Allocation (PPA)<\/strong> matters.<\/p><\/li>\n\n\n\n<li><p>What<strong> Goodwill<\/strong> is and how it relates to PPA?<\/p><\/li>\n\n\n\n<li><p>How <strong>Asset vs Stock Deals<\/strong> impact PPA.<\/p><\/li>\n\n\n\n<li><p>A <strong>real-life example of Purchase Price Allocation<\/strong> with the AMD\/Xilinx M&amp;A deal.<\/p><\/li>\n\n\n\n<li><p><strong>Where PPA shows up in interviews and on the job<\/strong> in Investment Banking and Private Equity.<\/p><\/li>\n<\/ul>\n\n\n\n<p class=\"yoast-reading-time__wrapper\"><span class=\"yoast-reading-time__icon\"><svg aria-hidden=\"true\" focusable=\"false\" data-icon=\"clock\" width=\"20\" height=\"20\" fill=\"none\" stroke=\"currentColor\" style=\"display:inline-block;vertical-align:-0.1em\" role=\"img\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 24 24\"><path stroke-linecap=\"round\" stroke-linejoin=\"round\" stroke-width=\"2\" d=\"M12 8v4l3 3m6-3a9 9 0 11-18 0 9 9 0 0118 0z\"><\/path><\/svg><\/span><span class=\"yoast-reading-time__spacer\" style=\"display:inline-block;width:1em\"><\/span><span class=\"yoast-reading-time__descriptive-text\">Estimated reading time: <\/span><span class=\"yoast-reading-time__reading-time\">11<\/span><span class=\"yoast-reading-time__time-unit\"> minutes<\/span><\/p>\n\n\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-tl-dr\">TL;DR<\/h2>\n\n\n\n<p><strong>Purchase Price Allocation<\/strong> is an important part of the M&amp;A process. PPA involves <strong>allocating the purchase price of an Acquisition Target among Assets and Liabilities on the Balance Sheet<\/strong>. We do this <strong>to account for disconnects<\/strong> between the<strong> Book Value <\/strong>and<strong> Market Value<\/strong> of the Acquired business.<\/p>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-purchase-price-allocation\">What Is Purchase Price Allocation?<\/h2>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/bb6c0a24-002c-4dda-a0c8-eb01040c4866.png\" alt=\"Stick figure confused about Purchase Price Allocation concepts\"\/><\/figure>\n\n\n\n<p><strong>Purchase Price Allocation (PPA) <\/strong>is a big part of any M&amp;A transaction or business combination.<strong> PPA involves allocating the purchase price among Assets and Liabilities in order to accurately account for them<\/strong>.<\/p>\n\n\n\n<p><a href=\"https:\/\/finance-able.com\/buyside-vs-sellside\/\"><strong>Buy-Side and Sell-Side<\/strong><\/a><strong> <\/strong>jobs are centered around M&amp;A transactions. Thus, <strong>PPA is a critical concept<\/strong> to master if you are aiming for or working in either field.<\/p>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-why-does-purchase-price-allocation-matter-in-m-amp-a\">Why Does Purchase Price Allocation Matter in M&amp;A?<\/h2>\n\n\n\n<p>During an <strong>M&amp;A transaction<\/strong>, Acquisition Accounting rules require the <strong>Acquired Company<\/strong> to <strong>mark its Assets and Liabilities to Fair Value<\/strong>.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/PPA-adjust-to-fair-market-value-1024x576.png\" alt=\"\" class=\"wp-image-54541\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/PPA-adjust-to-fair-market-value-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/PPA-adjust-to-fair-market-value-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/PPA-adjust-to-fair-market-value-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/PPA-adjust-to-fair-market-value.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>In the US, the <strong>Financial Accounting Standards Board (FASB)<\/strong> creates Acquisition Accounting rules under <a href=\"https:\/\/www.investopedia.com\/terms\/g\/gaap.asp\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>US GAAP<\/strong><\/a>. The <a href=\"https:\/\/www.irs.gov\/\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>IRS<\/strong><\/a><strong> <\/strong>creates Acquisition Accounting rules for <strong>Tax Purposes<\/strong>.<\/p>\n\n\n\n<p>As we&#8217;ll see shortly, the amount by which you <strong>mark acquired Assets and Liabilities up or down <\/strong>can have a <strong>significant impact across the three financial statements<\/strong>.<\/p>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-how-do-you-calculate-fair-market-value\">How Do You Calculate Fair Market Value?<\/h2>\n\n\n\n<p>In real life, we <strong>estimate <\/strong>the <strong>Fair Market Value (FMV) <\/strong>of the Assets acquired and Liabilities assumed in an Acquisition<strong> <\/strong>prior to the close of the transaction.<\/p>\n\n\n\n<p><strong>Once the deal closes, the company will hire <\/strong><a href=\"https:\/\/www.dummies.com\/article\/business-careers-money\/business\/mergers-acquisitions\/the-role-of-a-business-appraiser-in-an-ma-deal-177741\/\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>M&amp;A Appraisers<\/strong><\/a><strong> <\/strong>(e.g. an independent business valuation specialist). Appraisers <strong>mark all Assets acquired and assumed Liabilities to fair value<\/strong>.<\/p>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>Since <strong>PPA<\/strong> is so important to the M&amp;A process, we can also estimate the <strong>Fair Market Value<\/strong> <strong>(FMV)<\/strong> using other past deals.  <\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-hack-estimate-fair-market-value-with-past-deals\">Hack: Estimate Fair Market Value With Past Deals<\/h3>\n\n\n<!-- This site is converting visitors into subscribers and customers with OptinMonster - https:\/\/optinmonster.com :: Campaign Title: Purchase Price Allocation - Obfuscation -->\n<div id=\"om-c5cqbwgdz7uskdd5ruco-holder\"><\/div>\n<script>(function(d,u,ac){var s=d.createElement('script');s.type='text\/javascript';s.src='https:\/\/a.omappapi.com\/app\/js\/api.min.js';s.async=true;s.dataset.user=u;s.dataset.campaign=ac;d.getElementsByTagName('head')[0].appendChild(s);})(document,130718,'c5cqbwgdz7uskdd5ruco');<\/script>\n<!-- \/ OptinMonster -->\n\n\n\n<p><strong>You can find the FMV estimates in the filings of public peers<\/strong> that have gone through an M&amp;A event or business combination.<\/p>\n\n\n\n<figure class=\"wp-block-image size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"390\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/precedent-deal-write-up-percentage-estimate-1-1024x390.png\" alt=\"\" class=\"wp-image-54547\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/precedent-deal-write-up-percentage-estimate-1-1024x390.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/precedent-deal-write-up-percentage-estimate-1-300x114.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/precedent-deal-write-up-percentage-estimate-1-768x293.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/precedent-deal-write-up-percentage-estimate-1.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n\n\n\n<p>Specifically, you can find this information in the <strong>Merger Proxy filing<\/strong>, specifically on the <strong>Pro Forma <\/strong><a href=\"https:\/\/youtu.be\/Sx2R6qS8ZJw\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>Balance Sheet<\/strong><\/a>, where <strong>we can see the amount the acquirer allocates as a fair value<\/strong>.<\/p>\n\n\n\n<p>It is important to note that <strong>every company is different<\/strong>, so the actual <strong>fair value<\/strong> might vary. But, this is still a helpful method for <strong>estimations<\/strong>.<\/p>\n\n\n\n<p>Now that we have covered <strong>Fair Market Value<\/strong>, let&#8217;s talk about the other core concept in <strong>PPA<\/strong>, <strong>Goodwill<\/strong>.<\/p>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-intangibles-goodwill-amp-other-intangible-assets-in-ppa\">Intangibles: Goodwill &amp; Other Intangible Assets in PPA<\/h2>\n\n\n\n<p><strong>Goodwill<\/strong> represents the <strong>Equity Purchase Price paid above Book Equity Value for a Target Company in a Merger or Acquisition<\/strong>.<\/p>\n\n\n\n<p>We <strong>record Goodwill to plug the gap<\/strong> to make the <strong>Balance Sheet<\/strong> balance. In doing so, we <strong>capture the extra value in the actual purchase price paid (Market Value &#8211; Book Value)<\/strong>.<\/p>\n\n\n\n<p><strong>It&#8217;s worth noting that Intangible Assets are <\/strong>often the biggest driver of write-ups during acquisitions. <\/p>\n\n\n\n<p>The <strong>Intangible write-up reflects <\/strong>the fact that the <strong>new owner can use assets <\/strong>from the acquired company, like <strong>Brand Names<\/strong> and <strong>Customer Relationships, to make money<\/strong>.<\/p>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-how-do-i-calculate-goodwill\">How Do I Calculate Goodwill?<\/h3>\n\n\n\n<p>Now that we understand <strong>Goodwill<\/strong>, we can move on to how to calculate it. <\/p>\n\n\n\n<p>The <strong>Goodwill Calculation is simple: Purchase Price of Equity &#8211; Book Value of Equity Acquired (aka Net Assets).<\/strong><\/p>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-large\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"576\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/stick-figure-goodwill-explanation-1024x576.png\" alt=\"a stick figure explaining to another stick figure how to calculate goodwill\" class=\"wp-image-54549\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/stick-figure-goodwill-explanation-1024x576.png 1024w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/stick-figure-goodwill-explanation-300x169.png 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/stick-figure-goodwill-explanation-768x432.png 768w, https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/stick-figure-goodwill-explanation.png 1280w\" sizes=\"auto, (max-width: 1024px) 100vw, 1024px\" \/><\/figure>\n<\/div>\n\n\n<h2 class=\"wp-block-heading\" id=\"h-purchase-price-allocation-example\">Purchase Price Allocation Example<\/h2>\n\n\n\n<p>For example, imagine you are buying a Business with <strong>Intangible Assets <\/strong>of <strong>$100 prior to the deal.<\/strong> Let us also imagine that the <strong>Intangible Assets<\/strong> <strong>have a Market Value of $25 more <\/strong>than their current Balance Sheet book value.<\/p>\n\n\n\n<p>In an M&amp;A scenario, the Acquired Entity would <strong>write up its assets to Fair Market Value<\/strong>.<\/p>\n\n\n\n<p>So, we <strong>write up to Fair Value by taking assets from $25 to $125. <\/strong><\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1920\" height=\"1080\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/PPA-adjust-intangibles-fair-market-value.gif\" alt=\"An animation showing intangible assets written up to fair market value\" class=\"wp-image-54552\"\/><\/figure>\n\n\n\n<p>Assuming a Liability value of $50 leaves us with a <strong>Book Value of Equity of $75, higher than without the write-up<\/strong>.<\/p>\n\n\n\n<p>Then, assuming the <strong>Purchase Equity Value <\/strong>(aka Market Capitalization) of the Target Company is $100, the <strong>Goodwill<\/strong> is $100 of the <strong>Equity Purchase Price<\/strong> less the $75 of adjusted <strong>Book Value<\/strong>. <\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1920\" height=\"1080\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/Ppa-goodwill-calculation.gif\" alt=\"An animation showing the calculation of Goodwill after PPA write-ups\" class=\"wp-image-54553\"\/><\/figure>\n\n\n\n<p>As a result, <strong>recorded Goodwill is $25, or smaller than it would have been without the mark-up to fair market value<\/strong>.<\/p>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-the-4-steps-of-purchase-price-allocation\">The 4 Steps of Purchase Price Allocation<\/h2>\n\n\n\n<p>To keep this simple, there are <strong>just a few Steps to PPA<\/strong>:<\/p>\n\n\n\n<figure class=\"wp-block-image size-full\"><img loading=\"lazy\" decoding=\"async\" width=\"1920\" height=\"1080\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/02\/4-steps-of-purchase-price-allocation-3.gif\" alt=\"an animation showing the four steps of purchase price allocation\" class=\"wp-image-54627\"\/><\/figure>\n\n\n\n<p>With that in mind, let\u2019s now look at our <strong>4-Step Framework<\/strong>. <\/p>\n\n\n\n<div class=\"schema-how-to wp-block-yoast-how-to-block\"><p class=\"schema-how-to-description\"><\/p> <ol class=\"schema-how-to-steps\"><li class=\"schema-how-to-step\" id=\"how-to-step-1675752680846\"><strong class=\"schema-how-to-step-name\">Calculate <strong>Fair Market Assets and Liabilities<\/strong><\/strong> <p class=\"schema-how-to-step-text\">Before the deal closes, Analysts typically use an estimate for write-up\/down values. After the deal closes, Appraisers perform a detailed analysis based on Fair Market Value for all Assets and Liabilities on the Balance Sheet. <\/p> <\/li><li class=\"schema-how-to-step\" id=\"how-to-step-1675752692897\"><strong class=\"schema-how-to-step-name\">Calculate <strong>Goodwill<\/strong><\/strong> <p class=\"schema-how-to-step-text\">We simply use the formula: Market Value of Equity &#8211; Book Value of Equity<\/p> <\/li><li class=\"schema-how-to-step\" id=\"how-to-step-1675752702885\"><strong class=\"schema-how-to-step-name\">Adjust the <strong>Balance Sheet<\/strong> to <strong>Fair Market Value<\/strong><\/strong> <p class=\"schema-how-to-step-text\">Mark all relevant Assets and Liabilities (typically Intangibles and PP&amp;E) to Fair Value.<\/p> <\/li><li class=\"schema-how-to-step\" id=\"how-to-step-1675752716371\"><strong class=\"schema-how-to-step-name\">Wipe out Existing Book Equity and Plug the <strong>Balance Sheet<\/strong> with <strong>Goodwill<\/strong><\/strong> <p class=\"schema-how-to-step-text\">Remove the existing Book Equity in the Equity section of the Balance Sheet. On the Asset side of the Balance Sheet, add Goodwill to reflect the difference between the Purchase Price of Equity and the Book Value of Equity.<\/p> <\/li><\/ol><\/div>\n\n\n\n<p><\/p>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-asset-acquisition-vs-stock-acquisition-implications\">Asset Acquisition vs Stock Acquisition Implications<\/h2>\n\n\n\n<p><strong>PPA<\/strong> is also important when it comes to distinguishing between <strong>Asset Acquisitions vs Stock Acquisitions (a.k.a Asset Deals vs Stock Deals)<\/strong>. Now, let us take a look at each of these deal types. <\/p>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-what-is-an-asset-deal-vs-stock-deal\">What Is an Asset Deal vs Stock Deal?<\/h3>\n\n\n\n<p>In short, there are <strong>two major Acquisition structures<\/strong>: <strong>Asset Deals and Stock Deals<\/strong>, each of which has different tax implications.<\/p>\n\n\n\n<p>In a <strong>Stock Deal<\/strong>, the Acquirer <strong>buys the shares of the Target Company<\/strong>.<\/p>\n\n\n\n<p>In an <strong>Asset Deal<\/strong>, the Acquirer <strong>buys specific assets of the Target Company<\/strong>.<\/p>\n\n\n\n<p>We discuss both deal types in more detail in both of these courses:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><p><a href=\"https:\/\/courses.finance-able.com\/courses\/m-a-fundamentals\"><strong>M&amp;A Fundamentals<\/strong><\/a><\/p><\/li>\n\n\n\n<li><p><a href=\"https:\/\/courses.finance-able.com\/courses\/m-a-modeling\"><strong>M&amp;A Modeling<\/strong><\/a><\/p><\/li>\n<\/ul>\n\n\n\n<p>As we explain in the courses, <strong>PPA<\/strong> can have a significant impact on <strong>profit metrics such as EBITDA and Earnings Per Share (EPS)<\/strong>. <\/p>\n\n\n\n<p>Especially when building Merger Models, incremental <strong>Depreciation and Amortization can largely impact <\/strong><a href=\"https:\/\/finance-able.com\/accretion-dilution\/\"><strong>Accretion Dilution<\/strong><\/a><strong> calculations<\/strong>. <\/p>\n\n\n\n<p>Before we jump ahead, we need to make a quick note on Deferred Taxes. <\/p>\n\n\n\n<div style=\"height:5px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-quick-note-stock-acquisition-dtls\">Quick Note: Stock Acquisition DTLs?<\/h3>\n\n\n\n<p>Because of discrepancies in <strong>GAAP Accounting Principles vs the IRS Tax Code<\/strong> for <strong>Stock Deals<\/strong>, we need to create a <strong>Deferred Tax Liability<\/strong>. <\/p>\n\n\n\n<p>It is important to understand that in a <strong>Stock Deal<\/strong> where we have to perform <strong>PPA<\/strong>, we <strong>adjust the balance sheet for this Deferred Tax Liability<\/strong>.<\/p>\n\n\n\n<p>Now let&#8217;s take a look at a real-life example of PPA.<\/p>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-real-life-ppa-example-amd-xilinx-transaction\">Real-Life PPA Example: AMD &#8211; Xilinx Transaction<\/h2>\n\n\n\n<p><a href=\"https:\/\/www.forbes.com\/sites\/davealtavilla\/2022\/02\/14\/amd-completes-xilinx-acquisition-and-the-obvious-synergies-spell-great-potential\/?sh=1af5eb7c527e\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>AMD\u2019s recent<\/strong> <strong>acquisition of Xilinx<\/strong><\/a> is a real-life example of <strong>PPA<\/strong>.<\/p>\n\n\n\n<p>AMD paid $35 billion in cash and stock for Xilinx. The image below shows that the estimated <strong>fair value of Xilinx&#8217;s Intangibles was $14 billion higher than its Book Value<\/strong> on the pre-deal Balance Sheet. <\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/622d8691-9eda-43f9-a8ba-855aa421a36e.png\" alt=\"Excerpt from AMD \/ Xilinx merger proxy showing write-up of intangible assets to fair value\"\/><\/figure>\n\n\n\n<p>From the Merger Proxy, we can see on the <strong>Pro Forma Balance Sheet<\/strong> that <strong>Intangible Assets have been marked up by $14 billion<\/strong>. <\/p>\n\n\n\n<p>Without this write-up amount, equity would have been $14 billion lower, and <strong>Goodwill would have been $14 billion higher<\/strong>.<\/p>\n\n\n\n<p>With our real-life example covered, let&#8217;s now take a look at how PPA shows up in Interviews. <\/p>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-purchase-price-allocation-in-ib-pe-interviews\">Purchase Price Allocation in IB\/PE Interviews?<\/h2>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/4b5b3f1a-ee84-4920-b136-12868fe2f0cc.png\" alt=\"A stick figure in an investment banking interview answering questions about purchase price allocation\"\/><\/figure>\n\n\n\n<p><strong>PPA<\/strong> is a common topic in M&amp;A interviews because it\u2019s an important part of the overall process.<\/p>\n\n\n\n<p>You can expect to be asked about <strong>PPA, Goodwill, Asset vs Stock Deals, and other related topics<\/strong> when interviewing for Investment Banking or Private Equity roles.<\/p>\n\n\n\n<p>Be sure to do your research and <strong>practice PPA questions<\/strong> before interviews so you can ace them! Some examples of interview questions here:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><p><em>How is Goodwill created in an Acquisition?<\/em><\/p><\/li>\n\n\n\n<li><p><em>Under what circumstances would Goodwill increase?<\/em><\/p><\/li>\n\n\n\n<li><p><em>The 2 basic ways you can buy a company are through a Stock purchase and an Asset purchase. What\u2019s the difference, and what would a buyer prefer? What about the seller?<\/em><\/p><\/li>\n<\/ul>\n\n\n\n<p>If you want to dig into more interview questions, check out our Investment Banking Interview Question Guide:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><p><a href=\"https:\/\/finance-able.com\/investment-banking-interview-questions\/\"><strong>Top 130+ Investment Banking Interview Questions<\/strong><\/a><\/p><\/li>\n<\/ul>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-wrap-up-purchase-price-allocation\">Wrap-Up: Purchase Price Allocation<\/h2>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2023\/01\/c98384e0-947c-4774-99fc-218a4a93e302.png\" alt=\"A stick figure at a desk understanding PPA concepts\"\/><\/figure>\n\n\n\n<p>In conclusion, <strong>PPA is an important process in M&amp;A transactions as it involves allocating the purchase price among Assets and Liabilities assumed in order to accurately account for them<\/strong>.<\/p>\n\n\n\n<p>It is <strong>important to master PPA principles<\/strong> when applying for Investment Banking or Private Equity jobs since it\u2019s likely to come up during interviews. <\/p>\n\n\n\n<p>We hope this post was helpful in understanding PPA and its importance! <br><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-about-the-author\">About the Author<\/h2>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"alignleft size-full is-resized\"><img loading=\"lazy\" decoding=\"async\" width=\"500\" height=\"500\" src=\"https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo.jpg\" alt=\"Picture of Mike Kimpel, Founder of Finance|able\" class=\"wp-image-26350\" style=\"width:266px;height:266px\" srcset=\"https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo.jpg 500w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-300x300.jpg 300w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-100x100.jpg 100w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-150x150.jpg 150w, https:\/\/finance-able.com\/wp-content\/uploads\/2020\/12\/MK-Photo-50x50.jpg 50w\" sizes=\"auto, (max-width: 500px) 100vw, 500px\" \/><\/figure>\n<\/div>\n\n\n<p><a href=\"https:\/\/finance-able.com\/about-us\/\"><strong>Mike Kimpel<\/strong><\/a> is the <strong>Founder and CEO<\/strong> of <a href=\"https:\/\/finance-able.com\/\"><strong>Finance|able<\/strong><\/a>, a next-generation Finance Career Training platform. Mike has worked in Investment Banking, Private Equity, Hedge Fund, and Mutual Fund roles during his career.<\/p>\n\n\n\n<p class=\"has-text-align-start has-text-align-start\">He is an <strong>Adjunct Professor<\/strong> in <strong>Columbia Business School\u2019s <\/strong><a href=\"https:\/\/business.columbia.edu\/heilbrunn\" target=\"_blank\" rel=\"noreferrer noopener\"><strong>Value Investing Program<\/strong><\/a> and leads the Finance track at <a href=\"https:\/\/www.accessdistributed.org\/\" target=\"_blank\" rel=\"noopener noreferrer\"><strong>Access Distributed<\/strong><\/a>, a non-profit that creates access to top-tier Finance jobs for students at non-target schools from underrepresented backgrounds.<\/p>\n\n\n\n<div class=\"wp-block-kadence-icon kt-svg-icons kt-svg-icons_c38dad-bd alignnone\" style=\"text-align:left\"><div class=\"kt-svg-style-default kt-svg-icon-wrap kt-svg-item-0\"><a href=\"https:\/\/www.linkedin.com\/in\/mikekimpel\/\" class=\"kt-svg-icon-link\" target=\"_blank\" rel=\"noopener noreferrer\"><div style=\"display:inline-flex;justify-content:center;align-items:center;color:#444444\" class=\"kt-svg-icon kt-svg-icon-fa_linkedin\"><svg style=\"display:inline-block;vertical-align:middle\" viewBox=\"0 0 448 512\" height=\"29\" width=\"29\" fill=\"currentColor\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" preserveAspectRatio=\"xMinYMin meet\"><title>Mike Kimpel LinkedIn<\/title><path d=\"M416 32H31.9C14.3 32 0 46.5 0 64.3v383.4C0 465.5 14.3 480 31.9 480H416c17.6 0 32-14.5 32-32.3V64.3c0-17.8-14.4-32.3-32-32.3zM135.4 416H69V202.2h66.5V416zm-33.2-243c-21.3 0-38.5-17.3-38.5-38.5S80.9 96 102.2 96c21.2 0 38.5 17.3 38.5 38.5 0 21.3-17.2 38.5-38.5 38.5zm282.1 243h-66.4V312c0-24.8-.5-56.7-34.5-56.7-34.6 0-39.9 27-39.9 54.9V416h-66.4V202.2h63.7v29.2h.9c8.9-16.8 30.6-34.5 62.9-34.5 67.2 0 79.7 44.3 79.7 101.9V416z\"><\/path><\/svg><\/div><\/a><\/div><\/div>\n\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-frequently-asked-questions\">Frequently Asked Questions<\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1675751267242\"><strong class=\"schema-faq-question\"><em>What is Purchase Price Allocation in M&amp;A?<\/em><\/strong> <p class=\"schema-faq-answer\"><br\/><strong>Purchase Price Allocation<\/strong> is the process through which we <strong>write up the value of Assets and Liabilities<\/strong> on a company&#8217;s <strong>Balance Sheet<\/strong> in an M&amp;A transaction to ensure the <strong>Book Value<\/strong> and <strong>Market Value<\/strong> of the business connect.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1675751487824\"><strong class=\"schema-faq-question\"><em>What is PPA adjustment?<\/em><\/strong> <p class=\"schema-faq-answer\"><br\/>A <strong>Purchase Price Allocation (&#8216;PPA&#8217;) adjustment<\/strong> is when we <strong>write up<\/strong> items on an <strong>Acquired Company&#8217;s Balance Sheet<\/strong> to more accurately assess their <strong>Fair Value<\/strong>.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1675751552629\"><strong class=\"schema-faq-question\"><em>How do you allocate Purchase Price?<\/em><\/strong> <p class=\"schema-faq-answer\"><br\/>The <strong>4 Step process<\/strong> to <strong>Allocating a Purchase Price <\/strong>are: <br\/>1. Calculate <strong>fair market, assets, and liabilities<\/strong><br\/>2. Calculate <strong>Goodwill: Market Value of Equity &#8211; Book Value of Equity<\/strong><br\/>3. Adjust the <strong>Balance Sheet<\/strong> to <strong>Fair Market Value<\/strong><br\/>4. Back out Book Equity and plug the <strong>Balance Sheet<\/strong> with <strong>Goodwill<\/strong><\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1675751646787\"><strong class=\"schema-faq-question\"><em>Is a Purchase Price Allocation required?<\/em><\/strong> <p class=\"schema-faq-answer\"><br\/>Yes, <strong>Purchase Price Allocation is required<\/strong> during an M&amp;A transaction because of <strong>Acquisition Accounting rules<\/strong> created by <strong>FASB and the Internal Revenue Code<\/strong>. These rules require that an<strong> Acquired Entity write up its Assets and Liabilities to Fair Value<\/strong>.<\/p> <\/div> <\/div>\n\n\n\n<p><\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-related-links\">Related Links<\/h2>\n\n\n\n<ul class=\"wp-block-yoast-seo-related-links yoast-seo-related-links\">\n<li><a href=\"https:\/\/finance-able.com\/investment-banking-career-path\/\"><\/a><p><a href=\"https:\/\/finance-able.com\/investment-banking-career-path\/\"><\/a><a href=\"https:\/\/finance-able.com\/investment-banking-career-path\/\"><strong>Investment Banking Career Path<\/strong><\/a><\/p><\/li>\n\n\n\n<li><p><a href=\"https:\/\/finance-able.com\/walk-me-through-an-lbo\/\"><strong>Walk Me Through an LBO<\/strong><\/a><\/p><\/li>\n\n\n\n<li><p><a href=\"https:\/\/finance-able.com\/buyside-vs-sellside\/\"><strong>Buy Side vs Sell Side<\/strong><\/a><\/p><\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li><\/li>\n<\/ul>\n\n\n<div class=\"yoast-breadcrumbs\"><span><span><a href=\"https:\/\/finance-able.com\/\">Home<\/a><\/span> \u00bb <span class=\"breadcrumb_last\" aria-current=\"page\">Purchase Price Allocation in 4 Steps &#8211; The Ultimate Guide<\/span><\/span><\/div><style class=\"advgb-styles-renderer\">.kb-table-of-content-nav.kb-table-of-content-id_fabc14-6f .kb-table-of-content-wrap{margin-top:42px;margin-right:42px;margin-bottom:42px;margin-left:42px;padding-top:10px;padding-right:10px;padding-bottom:10px;padding-left:10px;background-color:#f4f4f4;border-top:3px solid currentColor;border-right:3px solid currentColor;border-bottom:3px solid currentColor;border-left:3px solid currentColor;border-top-left-radius:20px;border-top-right-radius:20px;border-bottom-right-radius:20px;border-bottom-left-radius:20px;}.kb-table-of-content-nav.kb-table-of-content-id_fabc14-6f .kb-table-of-contents-title-wrap{padding-top:0px;padding-right:0px;padding-bottom:0px;padding-left:0px;}.kb-table-of-content-nav.kb-table-of-content-id_fabc14-6f .kb-table-of-contents-title{font-size:25px;line-height:46px;letter-spacing:0.6px;font-family:'Nunito Sans';font-weight:700;font-style:normal;}.kb-table-of-content-nav.kb-table-of-content-id_fabc14-6f .kb-table-of-content-wrap .kb-table-of-content-list{color:#0693e3;font-size:20.5px;line-height:35px;letter-spacing:0px;font-family:'Nunito Sans';font-weight:600;font-style:normal;text-transform:capitalize;margin-top:20px;margin-right:0px;margin-bottom:0px;margin-left:0px;}.kb-table-of-content-nav.kb-table-of-content-id_fabc14-6f .kb-table-of-content-list li{margin-bottom:11px;}.kb-table-of-content-nav.kb-table-of-content-id_fabc14-6f .kb-table-of-content-list li .kb-table-of-contents-list-sub{margin-top:11px;}.kb-table-of-content-nav.kb-table-of-content-id_fabc14-6f .kb-toggle-icon-style-basiccircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_fabc14-6f .kb-toggle-icon-style-basiccircle .kb-table-of-contents-icon-trigger:before, .kb-table-of-content-nav.kb-table-of-content-id_fabc14-6f .kb-toggle-icon-style-arrowcircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_fabc14-6f .kb-toggle-icon-style-arrowcircle .kb-table-of-contents-icon-trigger:before, .kb-table-of-content-nav.kb-table-of-content-id_fabc14-6f .kb-toggle-icon-style-xclosecircle .kb-table-of-contents-icon-trigger:after, .kb-table-of-content-nav.kb-table-of-content-id_fabc14-6f .kb-toggle-icon-style-xclosecircle .kb-table-of-contents-icon-trigger:before{background-color:#f4f4f4;}@media all and (max-width: 1024px){.kb-table-of-content-nav.kb-table-of-content-id_fabc14-6f .kb-table-of-content-wrap{border-top:3px solid currentColor;border-right:3px solid currentColor;border-bottom:3px solid currentColor;border-left:3px solid currentColor;}}@media all and (max-width: 767px){.kb-table-of-content-nav.kb-table-of-content-id_fabc14-6f .kb-table-of-content-wrap{border-top:3px solid currentColor;border-right:3px solid currentColor;border-bottom:3px solid currentColor;border-left:3px solid currentColor;}}.kt-svg-icons_c38dad-bd .kt-svg-item-0 .kb-svg-icon-wrap{color:#444444;font-size:29px;}.wp-block-kadence-icon.kt-svg-icons_c38dad-bd{justify-content:flex-start;}<\/style>",
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    "rendered": "<p>Purchase Price Allocation (PPA) concepts often cause quite a headache. We can make it easy. After reading this article, you will be able to master this concept for use both in interviews and on the job in Investment Banking, Private Equity, Corporate M&amp;A, and Investment Management. In this blog post, we\u2019ll discuss: TL;DR Purchase Price&#8230;<\/p>\n",
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            "text": "<br\/>The <strong>4 Step process<\/strong> to <strong>Allocating a Purchase Price <\/strong>are: <br\/>1. Calculate <strong>fair market, assets, and liabilities<\/strong><br\/>2. Calculate <strong>Goodwill: Market Value of Equity - Book Value of Equity<\/strong><br\/>3. Adjust the <strong>Balance Sheet<\/strong> to <strong>Fair Market Value<\/strong><br\/>4. Back out Book Equity and plug the <strong>Balance Sheet<\/strong> with <strong>Goodwill<\/strong>",
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                  "text": "Before the deal closes, Analysts typically use an estimate for write-up\/down values. After the deal closes, Appraisers perform a detailed analysis based on Fair Market Value for all Assets and Liabilities on the Balance Sheet."
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