Protecting deal value post completion

When a merger or acquisition is completed, finance teams must ensure their company complies with relevant financial reporting requirements and manage its audit risk. That’s where valuations come in. 

Those in the field often say valuations are an art rather than a science, particularly so when it comes to intangible assets. While extensive technical and financial know-how is involved, no single point estimate is definitive and valuers seek to arrive at a reasonable concluded fair value for the acquired intangible asset.

Valuation is not just a compliance exercise. It supports accurate reporting, strengthens audit readiness, and enables better business decisions.  Trusted valuers can ensure your financial statements reflect fair value with clarity, rigour, and confidence.

What is a PPA and why do we need one?

To ensure full transparency and post-deal compliance with standards such as IFRS 3, FRS 102, ASC 805 or local GAAP, and to reduce audit risk, it is important to carry out a purchase price allocation (PPA). This involves having specialist valuers allocate at fair value the purchase consideration in the deal to the assets the company has acquired and the liabilities it has assumed.

Fair value is the standard of value that needs to be applied for financial reporting purposes. That’s not necessarily the same as the market value of an asset.

What are intangible assets?

While it is more straightforward to assess the value of working capital and tangible assets (already recognised on the balance sheet of the company being acquired), there’s considerably more work involved in valuing intangible assets. These are often key drivers of business value, but it can be technically demanding and time-consuming to pin down their value. 

Intangible assets, while often key drivers of business value, will often have gone unrecorded before a deal. They can include: 

• Brands and trademarks
• Customer relationships
• Customer contracts and order backlog
• Proprietary know-how and trade secrets
• Technology and software (including proprietary platforms)
• Non-compete agreements
• Data rights and databases
• Assembled workforce (valued but not recognised under IFRS/US GAAP)

These assets must be separable, meaning they could be legally sold separately. The acquiring company must identify and value them so that it can bring them onto its balance sheet as part of financial reporting on a consolidated basis. As these assets are not straightforward to value, specialists need to apply their expertise to disentangle and calibrate information – it’s often like solving a complex puzzle. 

How are valuations determined?

In determining these valuations, valuers consider data from the company being acquired, including from departments across the business, such as sales or operations. 

For example, to help the valuers understand the value of customer relationships, the sales team could share information about attrition and retention trends over time, and the events that affect them. Those could include the introduction of a new brand, the loss of a contract or the pattern of exchange with recurring customers. 

The valuers use methodologies such as:

• relief from royalty – this looks at the potential royalty that could be earned from a brand based on its underlying potential 
• multi-period excess earnings – this involves assessing the earnings of an asset, then subtracting the cost of using other assets to support it, such as equipment or property and other intangible assets.
• cost to recreate – valuers use this method to work out how much it would cost to recreate an intangible asset from scratch. 

Other relevant valuation methodologies include: the greenfield and with or without approaches.

When are PPAs prepared during the M&A process?

Most often, the valuation of intangible assets is done after a transaction has been completed as the reporting obligation doesn’t kick in until the assets have been acquired.  

Some acquiring organisations commission a pre-PPA, which involves doing as much PPA groundwork as possible before the commercial terms of the deal are finalised, while they are performing due diligence on the target company. This is particularly common in intangible-heavy industries such as technology and pharmaceuticals.  As the deal hasn’t happened yet, they often must prepare the pre-PPA with assumptions, which they can then update with actual target company data post completion.

What else is needed to complete a PPA?

Typically, those preparing the valuations need five years’ financial projections for the acquired business. This should comprise the three primary statements being income statements, balance sheets and cash flows.

Furthermore, the valuers need access to the whole suite of transaction-related documents. That encompasses financial, tax and legal due diligence, along with transaction documentation – a share purchase agreement or an asset purchase agreement.  

They also gather and analyse relevant data points from subscription-based databases and, in Grant Thornton’s case, from our proprietary in-house database. It draws on PPAs our member firms have carried out across our global network in 149+ countries. 

What is at risk without a reliable PPA?

When it comes to valuing intangible assets, the stakes are high. Even a simple error in intangible asset valuation can give rise to a big impairment charge down the line. Other risks include: 

• Audit challenges or adjustments: Incomplete or poorly supported valuations may lead to audit delays, post-year-end adjustments, or qualified opinions.
• Misstatements or overstatements: Overvalued goodwill or untested impairments can distort reported results and mislead stakeholders.
• Missed deadlines or reporting delays: Inaccurate or late valuations can disrupt financial close processes, particularly after the deal or in complex, multi-entity structures.

How can Grant Thornton help

At Grant Thornton, we work closely with clients to help achieve the most strategic allocation of the purchase price, maximising tax efficiency, aligning with the deal rationale and ensuring the values reflect the economic substance of the transaction.

We support you throughout the audit process, helping to respond to auditor queries, defending key assumptions and ensuring the valuation holds up under external scrutiny.

We also work closely with our transaction service team and due diligence team to prepare the PPA as efficiently and quickly as we can.  We harness their work to reduce the burden on the client management team, who will have had to contend with significant due diligence work over the course of the deal. 

While this series focuses on M&A, we also assist clients with valuation work in other contexts such as tax, litigation, fairness opinions and portfolio reporting for private equity.

Grant Thornton Ireland ranked #1 Deal Advisor for 2024 by Experian and PitchBook league tables. To find out more about how Grant Thornton can support your business, talk to our Deal Advisory team.

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