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In this EY India Insights episode, Parag Mehta discusses how PPA under Ind AS 103 is emerging as a strategic lever in M&A, shaping earnings, tax and returns.
In this episode of EY India Insightspodcast, Parag Mehta, Partner, Strategy and Transactions, EY India shares insights on how purchase price allocation (PPA) is becoming a strategic consideration in M&A, beyond being just a compliance requirement. The conversation examines PPA under Ind AS 103 and highlights how allocation decisions influence future earnings, balance‑sheet, tax outcomes and investor decisions.
Key takeaways
Purchase price allocation has evolved as a strategic decision, shaping future earnings, balance sheet outcomes and long‑term value for Indian companies.
PPA outcomes influence investor returns, impairment risk and potential tax benefits, directly impacting deal pricing and exit considerations.
Robust, defensible PPAs should align with acquisition strategy, industry drivers and seek timely inputs from experienced valuers.
More than an accounting requirement, purchase price allocation can influence earnings, balance sheet outcomes and deliver meaningful tax benefits.
Parag Mehta
Partner, Strategy and Transactions, EY India
Speaker
Parag Mehta
Partner, Strategy and Transactions, EY India
For your convenience, a full text transcript of this podcast is available on the link below:
Hello and welcome to EY India Insights podcast. I am Pallavi, your host for today and we are joined by Parag Mehta, Partner at EY India in Strategy and Transactions. Parag advises senior leadership teams on valuation and purchase price allocation (PPA) in complex M&A transactions, with a strong focus on financial reporting, regulatory considerations, and long‑term value creation.
In this episode, we will discuss how Indian firms approach purchase price allocation and why it has become a strategic consideration for finance leaders involved in M&A.
Parag, thank you for joining us today. It is a pleasure to have you here.
Parag
Thank you, Pallavi. It is great to be here.
Pallavi
Purchase price allocation sounds quite technical. Could you briefly explain what purchase price allocation means and is it just an accounting requirement or does it go beyond that?
Parag
Purchase price allocation or PPA comes from Ind AS 103 on business combinations, which requires the acquirer to recognize the assets and liabilities of the acquired business at their fair values. While it is often looked at as an accounting exercise, it has much wider implications. It can influence future earnings, how the balance sheet looks, and in some cases, even lead to meaningful tax benefits. So, it is more than just a compliance requirement.
Pallavi
Could you also help us understand a bit more on how purchase price allocation decisions play out in future from a valuation or a tax perspective?
Parag
When finite‑life intangible assets are recognized as part of PPA, those assets need to be amortized over a fixed period, and that directly impacts future earnings per share. On the other hand, indefinite‑life intangibles and goodwill do not impact earnings through amortization, but they do carry impairment risk and can affect return ratios over time. This becomes especially relevant for investors who may be looking at an exit in the next few years.
From a tax perspective, depending on how the acquisition is structured, companies may be able to claim tax benefits on recognized intangibles like brands or intellectual property. These benefits translate into real cash‑flow savings and can even influence how a bidder prices a deal.
Pallavi
EY analysis also shows clear differences in how values get allocated across industries. Why do sectors like consumer, pharma and IT typically see higher allocations to intangible assets, while more capital-intensive sectors do not?
Parag
It depends on what drives value in a particular business. In sectors like consumer, pharma and IT, the key value drivers tend to be brands, intellectual properties, technology and distribution networks. Naturally, that leads to a higher allocation to intangible assets. In contrast, in asset-heavy industries such as real estate, capital goods or mining, the physical assets play a much more dominant role.
Pallavi
Given how critical the outcome of a purchase price allocation exercise can be, what should Indian firms acquire focus on to ensure their PPA’s are robust and defensible?
Parag
That is an important question, but a robust and defensible PPA is crucial, especially given the significant accounting impact and the level of scrutiny it can face from regulators and tax authorities.
Beyond using the right valuation methodologies and assumptions, it is equally important that the PPA outcome aligns with the nature of the business and the strategic rationale behind the acquisition. This is where experience really matters, and where early involvement of a valuation expert can make a big difference.
Pallavi
Thank you. And that brings us to the end of this episode. Thank you so much for joining us and sharing such clear and strategic perspectives on purchase price allocation.
Parag
Thank you, Pallavi. It was a pleasure discussing this.
Pallavi
Thank you to all our listeners for joining us on EY India insights. We look forward to bringing you more leadership focused conversations soon. Until next time, this is Pallavi, signing off.
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