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Finding Purchase Price Allocation

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Finding Purchase Price Allocation
Sunday, October 28, 2018

Calcbench offers a wealth of data and analytical tools to our subscribers. Today we’re going to focus on one of our lesser known but quite nifty features: purchase price allocation.

All mergers and acquisitions have a total price that you read about in the headlines. The details are usually reported much later, where the company discloses how it allocated that total price across various components: how much for inventory, how much for accounts receivable, how much for goodwill, how much for other intangible assets, and so forth.

That’s purchase price allocation — commonly abbreviated as “PPA” and yes, we track that stuff. Here’s how you can find it.

Start at our Segments, Rollforwards, and Breakouts page. You’ll see a blank page when you first arrive, so you’ll need to select a company or group of companies to research. For our purposes here, we’ll work with one of our defaults, the Dow Jones Industrial Average.

Once you select your group, a menu option will appear on the left side of the page. Open it and a list of about 25 choices will appear. Toward the bottom are three choices related to business combinations. In the middle you’ll find “Business Combinations — Purchase Price Allocation.” (See Figure 1, below; PPA is highlighted in blue.)

Once you select that choice, you get a list of records on your screen — and be warned, this can be a long list. We return one record for every PPA item disclosed by every company, in every period you select. So you might see something that looks like Figure 2, below.

In the above image, we focused on a few PPA items disclosed by Caterpillar and DowPuPont (because that’s all we could fit on one sample screen), for calendar year 2017. We couldn’t even include all PPA items for either company in Figure 2.

So if someone wants to search all PPA disclosures in the whole S&P 500 for several years, you can see that suddenly we’re talking about lots of data. Calcbench has it all; just understand what you’re getting into.

What the Data Means

Once you get those records, you can then use the handy Calcbench Trace Feature to investigate whatever number catches your eye. That will whisk you back to the exact disclosure the company made, where usually you can see all the details of how the company allocated the purchase across all line items.

Let’s use the very first record in Figure 2 as an example. Caterpillar reported $26 million in receivables for a freight rail acquisition it did in 2017. Move your cursor to that $26 million and the Trace option appears. Click on that, and you get a disclosure as seen in Figure 3, below. (We’ve magnified that image a few times for clarity.)

As you can see, that $26 million relates to Caterpillar acquiring the Downer Freight Rail business for $99 million, in a deal that closed on Jan. 2 of 2018. That acquisition included $92 million of tangible assets — including $26 million of accounts receivables.

If you wanted, you could scroll to the top of that sidebar and find the “Open in Disclosure Viewer” option. Click on that, and Calcbench whisks you to our Interactive Disclosure Viewer where you’d find the exact same disclosure, presented as Caterpillar presents in the footnotes. It would still be presented in writing, and rather dense to read at that.

Not every PPA disclosure will be dense narrative like that. Lots of them will be presented in tabular format.

For example, we scrolled further down and the first entry for Intel was $10.3 billion of goodwill acquired during an acquisition. We traced that number and the disclosure is shown in Figure 4, below. That $10.3 billion relates to Intel’s acquisition of Mobileye in August 2017 for $14.5 billion.

You can see the exact $10.3 billion number in a blue square, and several paragraphs above is a line-by-line accounting of the whole price: $4.4 billion in intangible assets, a few other items for $500 million or less — but the vast majority of the purchase price was allocated to goodwill. Was it worth it? That’s not for Calcbench to say. That’s for analysts to ask about. We just show you how to find the exact numbers as reported, so you can ask quickly and precisely.

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