Purchase Price Allocation — Interview Example with Math
2025-08-21
Technical
M&A
• 1 min readPPA walk‑through with intangible allocation, deferred taxes, and amortization.
PPA walk‑through
In an acquisition, the purchase price is pushed onto the acquired net assets at fair value with the remainder to goodwill. You'll identify intangibles, create deferred tax liabilities where book/tax bases diverge, and set amortization lives that reflect economic reality.
Steps
- Calculate purchase price and equity value; adjust for NCI if relevant
- Mark PP&E and intangibles to fair value; record identifiable intangibles (customer lists, trademarks, technology)
- Create DTLs for basis step‑ups where tax basis does not step up
- Goodwill = Consideration transferred + NCI + FV of previously held – FV of net identifiable assets
Example
$500m EV, $50m cash, $150m debt → $400m equity. FV step‑ups: +$40m PP&E, +$60m intangibles; tax basis unchanged → DTL ~ $26m at 26%. Goodwill plugs to balance the purchase method after new liabilities/equity adjustments.
What interviewers probe
- Why DTLs arise on step‑ups, and when DTAs might appear
- How amortization flows through the statements and valuation
Quick reference: PPA components
| Item | FV Step‑Up | Tax Step‑Up | DTL @ 26% | Amortization |
|---|---|---|---|---|
| PP&E | $40m | $0 | $10.4m | Depreciation over 7–10 yrs |
| Intangibles | $60m | $0 | $15.6m | Amortization 5–10 yrs |
| Goodwill | Plug | $0 | $0 | Not amortized (impair only) |
Downloads
Download a PPA worksheet with a worked example here.
Get the interview one‑pager for valuation impacts here.