Completing an acquisition is only half the job. Under HKFRS 3 Business Combinations, the acquirer must measure every identifiable asset and liability at acquisition-date fair value, recognise intangibles that were never on the target's balance sheet, and treat the residual as goodwill. Valtech Valuation provides independent purchase price allocation (PPA) in Hong Kong that stands up to audit review.
Why PPA Matters for Hong Kong Acquirers
The allocation changes your balance sheet and your future earnings. Finite-life intangibles are amortised, creating a recurring charge, while goodwill is not amortised but tested annually for impairment. Placing everything in goodwill is not a policy choice – it is a common audit finding.
Intangible Assets We Identify and Value
- Customer relationships and contracts – multi-period excess earnings method (MPEEM)
- Brands and trade names – relief-from-royalty
- Technology, software and patents – relief-from-royalty or excess earnings
- Non-compete agreements – with-and-without method
- Order backlog – excess earnings over the backlog period
- Licences, concessions and distribution rights – income approach matched to the term of the right
- Favourable or unfavourable contracts – differential cash flows against market terms
We also restate tangible assets to fair value, recalculate deferred tax, measure contingent consideration such as earn-outs, and measure non-controlling interests where less than 100% is acquired.
The WACC–IRR–WARA Reconciliation
A credible PPA shows that the weighted average return on assets (WARA) reconciles sensibly with the WACC of the business and the internal rate of return implied by the price paid. Material gaps signal an inconsistent forecast, allocation or price – and it is one of the first checks an experienced audit reviewer performs. We include this reconciliation in every report as standard.
Timing and the Measurement Period
HKFRS 3 allows up to twelve months from the acquisition date to finalise provisional amounts. In practice, most Hong Kong acquirers want the analysis substantially complete for the first reporting date after the deal. Starting while diligence materials, forecasts and management access are still available makes the work faster and more robust. The forecast and discount rate framework built for the PPA also gives a consistent starting point for future HKAS 36 impairment tests.
Frequently Asked Questions
The acquisition closed eight months ago. Is it too late?
No. The measurement period runs up to twelve months. The valuation is still performed as at the acquisition date using information available then.
Is assembled workforce recognised separately?
No – it forms part of goodwill under HKFRS 3, but it is still valued as a contributory asset charge in the excess earnings analysis.
How is customer relationship value calculated?
Usually with MPEEM: revenue from existing customers is projected with an attrition rate, costs and contributory asset charges are deducted, and the excess earnings are discounted, with a tax amortisation benefit where applicable.
Why Hong Kong Companies Choose Valtech
PPA reports are reviewed by auditors and, for listed acquirers, form part of public financial statements read by regulators and international investors. Cross-border deals add overseas auditors and parent companies to the review.
- A strong team with outstanding international credentials – CPA, CFA, FRM, MRICS, ABV (AICPA) and China Certified Public Valuer qualifications gained in Hong Kong, the United States, the United Kingdom and Mainland China. When your PPA is scrutinised by authorities, auditors and international stakeholders, these credentials give it immediate credibility.
- Senior members closely monitor every valuation – a director leads each PPA, answers your auditor directly and signs the report. Your concerns are addressed by an experienced professional who has handled the full range of intangibles.
- Deep intangible asset experience – customer relationships, trademarks, franchise agreements, mining rights, patents, distribution networks and concession rights.
- ISO 9001 certified quality management – defined review steps before release, with auditor queries handled within the engagement.
- Regional reach – offices in Hong Kong and Singapore, so targets with subsidiaries across the region can be covered in one engagement.
Request a PPA Quotation
Tell us about the acquisition, the completion date and your reporting deadline. A director-level valuer will reply with scope, fee and turnaround. Call +852 2388 9262 or email admin@valtech-valuation.com.
More detail: Purchase price allocation – Valtech Hong Kong
Valtech Valuation Advisory Ltd, Unit 2106, 21/F, Futura Plaza, 111-113 How Ming Street, Kwun Tong, Kowloon, Hong Kong. This article is general information, not valuation, accounting, tax or legal advice for any specific entity.