Purchase Price Allocation

Let’s shift gears and perform the purchase price allocation. Recall that we calculated the equity purchase price in a previous step. We will first make some assumptions about how we will allocate this purchase price, and then calculate goodwill using these asusmptions and the method we described in detail in our section on purchase price allocation. You may need to scroll the spreadsheet to the right to see our calculations in the transaction summary/assumptions block of our model.

Note that we have included a line for transaction fees in the purchase price allocation, but manually entered $0. Under recent accounting changes introduced by FAS 141r, we no longer include transaction fees and expenses as part of the purchase price. We have left this line in the model to make clear that we are using the FAS 141r accounting rules.

No IRC Section 338 election is available in a stock purchase when the acquirer is not a C corporation. In LBOs, the acquirer is usually organized as a LLC, so we make no provision here for a Section 338 election as we did in our merger model.