Purchase price allocations shift away from goodwill

Governing authorities will be happy to hear that, as planned, more value is being allocated to identifiable intangible assets and less to goodwill, according to a report from Houlihan Lokey on purchase price allocations.

The analysis examined 511 transactions (not involving financial institutions) in which the acquiring company was based in the United States and publicly held. The study used “purchase consideration,” which is the sum of the purchase price paid and liabilities assumed in connection with a business combination.

Changing mix: The percentage of the purchase consideration allocated to intangible assets increased to 32% on average in 2012, up from 26% in 2011. The percentage of purchase consideration allocated to goodwill, on the other hand, dropped to 31% on average in 2012, compared with 38% in 2011.

Categories of intangible assets acquirers most frequently identified were customer-related intangibles (cited in 53% of deals), trademarks and trade names (41%), developed technology (39%), and in-process research and development (9%). Other intangible assets typically included were noncompete agreements, licenses, permits, and other contracts or agreements.

Valuators wishing a glimpse at how others assign remaining useful lives to these intangibles should review Benchmarking Identifiable Intangibles and Their Useful Lives in Business Combinations, available here from BVR.