Purchase price allocation - what am I doing wrong?
Hi,
I am trying to create a simplified example but it doesn't balance for some reason. Can anybody please tell me why?
Sources & uses
TEV 100
Existing Debt 20
Equity value 80
Leverage 30
Sponsor Equity 50
Original target balance sheet:
Asset: no goodwill. Just current asset of 40
Equity of 20 and existing debt of 20.
PF balance sheet:
Goodwill of 60 + existing asset of 40 = 100 PF
L&E
Liabilities = new debt of 30
Equity = wipe off old equity of 20 and add new sponsor equity of 50
Then i get $80 for L&E?
Can somebody please help...
What're you doing to existing debt? Sources and uses don't match
Debt gets prepaid in case of acquisition.
Uses: Repayment of existing debt (20), Acquisition (80) | Sources: Leverage (30), Sponsor Equity (70)
PF BS: Goodwill (60) + Existing Assets (40) | Leverage (30) + Equity (70)
Yep this is correct. B/S doesn’t balance because S&U doesn’t balance.
Either debt gets repaid in full or can get rolled if docs allow for it and creditor wishes to stay. Regardless has to be accounted for as a use in S&U and plugged accordingly as a source using equity or rolled debt.
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