In Re S-Tek 1, LLC, 2022 Bankr. LEXIS 1649 (June 13, 2022)
While some cases are percolating around the issue of allocation of the purchase price, they have dealt with the efficacy of the allocation. In In Re S-Tek 1, LLC, the Bankruptcy Court utilized the purchase price allocation (PPA) as a reference to determine some of the values of specific assets as of the date of the purchase transaction, which was not the date of value for this case but rather the confirmation date. In a PPA, the purchase price under the transaction was used to determine the total value to be allocated to the asset values of the selling business. In this case, the court used the PPA values of specific tangible assets to help it determine the values of those assets.
However, the opinion did note that the intangible assets, which include the goodwill and the database, were valued at substantially all of $1.495 million in the PPA. That the court arrived at a value for the database of $50,000 and zero for the goodwill was eyebrow-raising. The Bankruptcy Court also noted that the earnings dropped significantly after the purchase of the business by the debtor.
This was a case where the PPA had significant mention as a part of the evidence to determine the value of the totality of the assets. While courts must take care not to equate the total PPA value (noted as the transaction purchase price) with fair value or fair market value, the use of the PPA can be of assistance in valuing a business in certain instances.