Purchase Price Allocation
Hi All,
I have a modeling question pertaining to purchase price allocation. I am building an lbo model and cannot figure out what to do with existing goodwill, as the numbers are not making sense.
So, I have the aggregate cost of the acquisition of $2.2 billion, less book value of the asset of $1.9 billion, gets me to approx 300 million of allocable purchase premium. The, I assumed 15% and 10% get allocated to intangibles and asset-write ups. My question is, the target currently has approx $1.6 billion in goodwill, and according to Macabacus's LBO model, I should write-off the existing goodwill, which will increase the amount of the new goodwill being created, as it gets treated the same way that the DTL does. With the DTL coming out to $~23 million (using a 30% tax rate), the goodwill created in the transaction arises to $1.9 billion.
Does this make any sense? Can someone help if I am thinking / modeling this out correctly?
Thanks a lot,
Cris
You write off existing good will from the BS. The way you walked through it seems to look good.
It should be set up roughly like this:
Goodwill Calculation:
Equity Purchase Price - Seller Book Value + Write off of existing goodwill = total allocable purchase premium
Total allocable purchase premium - write up of PP&E and intangibles - write down of deferred tax liability (or write up of deferred tax asset) + new deferred tax liability = total goodwill created
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