Stage 1 (2023) “The Good(will), the Bad and the PPA”

This case looks at some of the challenges that a financial analyst could deal with during a PPA (Purchase Price Allocation) assignment. PPA itself is a tricky part of acquisition accounting done after the completion of a merger where the Acquirer allocates the purchase price into the assets and liabilities of the Target.

While the main goal of the PPA is to understand what the Goodwill of the Transaction is, there are quite many steps that should be done beforehand to come to the right conclusion. You need to determine the fair value of the trademark and customer base, which are newly identified intangible assets. This involves using the Relief from Royalty Method for trademark valuation and the Multi-period Excess Earning Method for valuing the customer base. You also need to consider churn rates and contributory asset charges in the valuation process. Finally, the case requires calculating the implied IRR using the Income approach (DCF model) and considering factors such as EBITDA, capital expenditures (CAPEX), and tax rates.

This is an actual case study that was presented to the participants of the Financial Modeling World Cup 2023, Stage 1 (January 27-30).

The downloadable file consists of the following:
–Task: PDF file with Case Materials; PDF file with Questions; Excel file with a financial model
–Solution: Excel file with full Solution Model; PDF file with correct Answers in Bold