The Multi-Period Excess Earnings Method (MPEEM) is the primary Income Approach technique for valuing the most important intangible asset of a business. That is often customer relationships, core technology or a licence. It isolates the cash flows attributable to that one asset by deducting a fair return on all the other assets that help generate them.
When to Use the MPEEM
- Purchase price allocation (PPA) under IFRS 3 / HKFRS 3, to value the primary acquired intangible
- Impairment testing of significant intangibles
- Licensing, transfer pricing and tax restructurings involving key intangible assets
- When the subject asset is the main driver of the business's earnings
How the MPEEM Works
- Forecast revenue attributable to the asset: for customer relationships, apply a customer attrition (churn) rate to existing customers only.
- Estimate operating profit on that revenue, excluding costs of acquiring new customers or developing new technology.
- Deduct contributory asset charges (CACs): required returns on working capital, fixed assets, the assembled workforce and other intangibles such as the trade name.
- Calculate excess earnings: after-tax profit less CACs equals the cash flows attributable to the subject asset.
- Discount at an asset-specific rate, usually at or above the WACC.
- Add the tax amortisation benefit (TAB) where appropriate, and reconcile the WACC, the internal rate of return and the weighted average return on assets (WARA).
Strengths and Limitations
Strengths: the method is widely accepted by auditors and regulators and links the asset's value directly to its earning power. Limitations: it is sensitive to attrition rates and CAC assumptions, and it should generally be applied to only one intangible per business, to avoid double counting.
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Valtech Valuation is an independent valuation and transaction advisory firm with offices in Hong Kong and Singapore. Public companies, private businesses and multinational corporations rely on our valuations for financial reporting, transactions, fundraising and disputes. Our clients range from Fortune 500 companies, listed groups and US-listed firms to private equity funds, family offices and high-growth startups, across Hong Kong, Mainland China, Singapore, Southeast Asia, the Middle East and the United States.
Why Appoint Valtech Valuation for Reliable International Valuation Services
- Independent and defensible conclusions: objective, well-documented reports prepared to withstand audit, regulatory and investor scrutiny.
- ISO 9001 certified quality management: a certified quality process for consistent, reliable results.
- Proven with listed and multinational clients: experience with PPA and impairment work for listed groups, US-listed firms and Fortune 500 companies.
- International reach, local expertise: offices in Hong Kong and Singapore serving clients across Asia, the Middle East and the United States.
- Intangible asset specialists: consistent CAC frameworks and WACC–IRR–WARA reconciliations.
- Multi-disciplinary qualified team: accounting, finance, risk management, surveying and business valuation professionals on every engagement.
Professional Credentials of Valtech's Team
- PhD holders
- Certified Public Accountants – CPA (HKICPA)
- Chartered Financial Analysts – CFA
- Financial Risk Managers – FRM (GARP)
- Chartered Valuation Surveyors – MRICS (Royal Institution of Chartered Surveyors)
- Accredited in Business Valuation – ABV (AICPA)
- Certified Valuation Analysts – CVA (Singapore)
- Certified Public Valuers – CPV (China Appraisal Society)
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