Trends in Purchase Price Allocations

In the world of mergers and acquisitions, it is useful to study past transactions to provide benchmarks and to understand trends in an industry. One source that can be used for this purpose is the Houlihan Lokey 2016 Purchase Price Allocation Study, which was published in September 2017. 

The study provides trends in purchase price allocations by examining public filings from approximately 1,300 transactions in 2016 and limiting transactions to those that meet the study’s screening criteria—a total of 455 transactions. A majority of the transactions (roughly 62%) reported purchase consideration below $250 million. Purchase consideration is defined as the total of the purchase price paid and the liabilities assumed. Highlights of the study include:

  • In 2016, the median enterprise value to EBITDA multiple was 12.2x—down slightly from the median multiple of 12.5x in the prior year’s study. 
     
  • The study indicates that, consistent with trends in recent years, a large percentage of purchase consideration was allocated to intangible assets and goodwill. In 2016, an average of 35% and 36% of the purchase consideration was allocated to intangible assets and goodwill, respectively. 
     
  • The most commonly identified intangible assets were developed technology, trademarks and trade names, IPR&D and customer-related assets (including backlog, customer contracts and customer relationships). 
     
  • Transactions in the healthcare industry reported the highest median percentage of intangible assets to purchase consideration of 50%.
     
  • Transactions in the technology industry reported the highest median percentage of goodwill to purchase consideration of 50%. 
     
  • Indefinite-lived intangible assets accounted for roughly 13% of the total intangible asset value. The most common indefinite-lived intangible assets were trademarks and trade names.
     
  • In the current year report, developed technology and IPR&D increased in frequency of identification, but decreased in the amount of purchase consideration allocated to each of these asset types.
     
  • Approximately 97% of transactions allocated purchase consideration to goodwill. (Transactions with negative goodwill are eliminated from the study based on the search criteria, which in this case excluded 14 transactions with bargain purchases.)

These trends provide some insight into a “typical” transaction. However, each transaction will certainly have its own set of particular facts and circumstances. Schneider Downs has significant experience in performing purchase price allocations in order to comply with ASC 805. If you would like more information about Schneider Downs’ purchase price allocation services or other business advisory services, please contact Joel Rosenthal at 412.697.5387 or [email protected] or Jennifer Doering at 412.697.5275 or [email protected].

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2021 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
M&A Activity on the Rise in 2021
Earnouts in Today’s Environment
SBA Raises Disaster Loan Limits
What is the Shuttered Venue Operators (SVO) SBA Grant Program? UPDATED
Goodwill Impairment Trends and the Impact of COVID-19
Related-Party Transaction Adjustments
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us
Map of Pittsburgh Office
Pittsburgh

One PPG Place, Suite 1700
Pittsburgh, PA 15222

[email protected]
p:412.261.3644     f:412.261.4876

Map of Columbus Office
Columbus

65 East State Street, Suite 2000
Columbus, OH 43215

[email protected]
p:614.621.4060     f:614.621.4062

Map of Washington Office
Washington, D.C.

1660 International Drive, Suite 600
McLean, VA 22102

[email protected]
p:571.380.9003

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.

×