Recent analyses examine extent of intangibles in PPAs

Analysts at Houlihan Lokey recently released the 2014 Purchase Price Allocation Study, which examines key data points of purchase price allocations recorded by U.S. public registrants. The study analyzes 536 transactions completed in 2014, comparing the data to certain transactions in prior years. Overall, intangible assets average 30% of the purchase consideration (PC) and goodwill averages 38% of the PC, the study says. PC is defined as the sum of the purchase price paid and the liabilities assumed in connection with a business combination.

Deeper dive: Based on an analysis of over 6,000 purchase price allocations, the ratio of intangible assets to total assets is 72%. This is according to the second edition of Benchmarking Identifiable Intangibles and Their Useful Lives in Business Combinations. Data analyzed for this study are contained in the Public Stats and Pratt’s Stats databases, and they are particularly focused on useful lives of intangible assets. They also include a review of intangible asset categories complete with detailed descriptions of valuation approaches and checklists of factors to consider. The statistics are presented by type of intangible and are also categorized by industry. For example, patents show an average useful life of 8.3 years, ranging from 4.6 years in the software industry to 10.7 years in the pharmaceutical industry.