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].

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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.

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