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Excess purchase price = Offer value of equity less book equity
x 10%
Divide by 5...
EDIT: If there's existing goodwill, then excess purchase price = offer value of equity + existing goodwill - book equity...
MAC_DADDY I could agree with you but then we both would be wrong
Write up When you acquire a company you let the accountant value all assest and liabilities at market value first (asset write up). You then subtract liabilities from assets to get to net asset value (NAV). Enterprise value (so not equity value) minus NAV = goodwill.
New identified intangible assets However in this case there seem to be intangible assets that can be recognised (client relationships, brands, IP). They are 10% of the difference between net asset value of existing assets and EV.
Goodwill of previous transactions is completely irrelevant. If the target had acquired other firms in the past that resulted into goodwill, that goodwill is taken out of the books and the process starts with the steps as explained above to get to a new comprehensive amount of goodwill.
Rover-S I used to be the Big 4 accountant doing the PPA's, so I'm well aware that they value the assets... As you noted, the accountant's don't complete the PPA until after the transaction is complete. As such, from from a modeling perspective you need to make assumptions about the excess purchase price (hence the OP's comment about 10% mark-up).
Since there seems to be some disagreement, let's refer to Macabacus...
http://macabacus.com/accounting/purchase-price-allocation2
Per their advanced PPA, you take the EQUITY purchase price less BVNA (i.e., book value of equity) and then ADD BACK (i.e., write off) the existing goodwill to arrive at the excess purchase price...
You then can take the excess purchase price and allocate the write-up (write-down) of fixed assets, finite-lived intangibles/indefinite intangibles (customer relationships, TN's/TM's, IPR&D, developed/patented technology, non-competes, etc.).
Next, assuming a stock transaction, you sum the intangibles/write-up and mulitiply at assumed tax rate to get your assumed DTL. Finally, add the DTL to the excess purchase price to arrive at new goodwill.
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