Purchase price allocation (PPA)

Definition

You acquired a Benelux SME for €18m. That €18m doesn't sit on your balance sheet as one line: it must be allocated across the underlying assets and liabilities at fair value, with any residual booked as goodwill. This is purchase price allocation (PPA), and it shapes the buyer's post-closing P&L for years to come.

The 2026 Benelux PPA framework. Under IFRS 3 (and the Belgian/Dutch GAAP equivalents adopting IFRS-aligned principles for material transactions), the buyer must complete PPA within 12 months of acquisition. The standard allocation steps: (1) identify all acquired assets and liabilities at their fair values on closing date; (2) identify and value separately recognisable intangibles not on the seller's balance sheet (customer relationships, brand, technology, contracts, workforce: workforce is explicitly not separately recognisable under IFRS 3); (3) calculate net identifiable assets at fair value; (4) the difference between purchase price and net identifiable assets equals goodwill; (5) record deferred tax liabilities on the step-ups; (6) post-closing, amortise definite-lived intangibles over their useful lives; goodwill is not amortised under IFRS but is impairment-tested annually.

The customer-relationships valuation is the most-disputed PPA line. For a B2B Benelux SME with recurring customer revenue, customer relationships often represent 20-40% of total purchase price. Valuation methodologies: (1) multi-period excess earnings (MPEE): most common, projects customer cash flows over expected retention period minus capital charge for other assets; (2) cost approach: what would it cost to acquire equivalent customer base; (3) market approach: comparable customer-acquisition cost multiples. Each method produces different results, sometimes by 30-50%. The choice between methods materially shifts the amortisation expense on the buyer's P&L for 5-15 years post-closing.

The deferred tax mechanic that surprises first-time buyers. When fair-value step-ups create temporary differences between book value (post-PPA) and tax basis (typically unchanged in a Benelux share deal), deferred tax liabilities arise. For example: customer relationships valued at €4m with book value €4m post-PPA but tax basis €0 (share deals don't step up tax basis), with 25% Belgian/Dutch corporate tax rate, creates €1m of deferred tax liability. This reduces net identifiable assets by €1m and increases goodwill by €1m. The deferred tax unwinds as the intangible amortises: but the initial impact is real: more goodwill, less depreciation tax shield.

The asset-deal vs share-deal divergence. In an asset deal (see [[asset-deal-vs-share-deal]]), the tax basis of acquired assets steps up to fair value, allowing tax-deductible amortisation of customer relationships, brand value, and other intangibles. This creates significant post-closing tax savings: often 25-30% of intangible value over the amortisation period. In a share deal, the tax basis remains at the seller's historical book value, so the buyer gets the accounting amortisation but not the tax deduction. The PPA structural difference is one of the largest economic drivers of asset-deal vs share-deal choice in Benelux 2026 mid-market.

A worked Benelux example. A buyer acquires an Antwerp B2B services firm for €18m share deal in October 2026. Net book value at closing: €4m. PPA work over 9 months identifies: customer relationships fair value €5m (12-year useful life), brand value €1.5m (indefinite useful life), technology IP €0.8m (5-year useful life), other identifiable intangibles €0.4m. Tangible assets at fair value: +€0.6m above book. Net identifiable assets at fair value: €12.3m. Deferred tax liability on step-ups: €2.0m (25% on €8.0m fair-value step-ups). Net identifiable assets after DTL: €10.3m. Goodwill: €18m - €10.3m = €7.7m. Post-closing amortisation schedule: customer relationships €417k/year, technology €160k/year, other intangibles ~€80k/year, total €657k/year for year 1-5; declining thereafter. Goodwill not amortised but impairment-tested annually.

Worked example

Purchase price: €18m (share deal). Net book value at closing: €4m. Fair-value step-ups: customer relationships €5m, brand €1.5m, technology €0.8m, other €0.4m, tangibles +€0.6m. Net identifiable assets at FV: €12.3m. Deferred tax liability: €2.0m. Net post-DTL: €10.3m. Goodwill: €7.7m. Annual amortisation years 1-5: ~€657k.

When it matters

For every Benelux mid-market buyer above €5m purchase price: PPA is mandatory and shapes P&L for 5-15 years post-closing. Three key decisions affect economic outcome: (1) intangible valuation methodology (MPEE vs cost vs market); (2) useful-life assumptions; (3) goodwill allocation across business units (matters for future impairment testing). Sellers should understand: PPA is buyer's concern but the PPA framework you provide in DD shapes how aggressive the buyer's allocation becomes.

Frequently asked

How long does a typical PPA take to complete?

In 2026 Benelux mid-market: 6-12 months from closing. Standard sequence: opening balance sheet (week 1-4), identification of intangibles (week 4-8), independent valuation work for major intangibles (week 8-20), deferred tax mechanics (week 12-16), final allocation review with auditors (week 20-30), board approval (week 28-40). IFRS 3 allows up to 12 months of "measurement period" during which prior amounts can be retrospectively adjusted.

Can sellers influence the PPA outcome?

Indirectly. Sellers who provide thorough vendor-DD data: customer cohort analysis, brand-value indicators, technology documentation: give the buyer's PPA team better inputs to defend higher intangible allocations. This benefits the seller because it signals deal sophistication and supports the seller's valuation narrative. The PPA itself is buyer's exercise post-closing, but pre-closing IM quality shapes how the buyer thinks about the asset base.

Does PPA affect EBITDA going forward?

No on EBITDA directly: PPA creates amortisation expense which sits below EBITDA in the P&L. But it does affect post-amortisation profitability (EBIT and net income), which matters for: (1) banking covenants tied to net income or EBIT; (2) earn-out structures with EBIT-linked triggers; (3) management performance metrics. Buyers structuring deals should anticipate the PPA P&L impact when negotiating covenant and earn-out levels.