Earnback Period

The duration for which an investor retains an investment before exit, typically measured from the date of initial acquisition to the date of sale or IPO. In private equity and venture capital, holding periods typically range from three to seven years and influence the internal rate of return calculation.

The period following a business combination during which the acquirer may adjust the provisional amounts recognised at the acquisition date as new information is obtained about facts and circumstances that existed at that date. Under IFRS 3 and ASC 805, the measurement period cannot exceed 12 months from the acquisition date.

The average remaining period over which a group of intangible assets is expected to contribute to cash flows, weighted by their individual fair values. WARUL is used in purchase price allocation to determine amortisation periods for acquired intangible assets and is required disclosure under several accounting standards.

The rate used to convert future expected cash flows into their present value, reflecting the time value of money and the risk associated with those cash flows. Selecting the appropriate discount rate is one of the most critical and sensitive decisions in intangible asset valuation, as small changes can materially alter the estimated fair value.

An adjustment applied to the standard WACC to reflect the additional risk associated with specific intangible assets or early-stage businesses. Intangible-heavy investments typically warrant a higher discount rate than the firm-level WACC because their cash flows are less certain and more sensitive to competitive and technological disruption.

A valuation and risk assessment technique that evaluates potential outcomes by modelling different sets of assumptions about key variables such as growth rates, margins, and discount rates. Scenario analysis is essential for intangible asset valuation because the future cash flows attributable to intangible assets are inherently uncertain.

The period over which an intangible asset is expected to contribute to future cash flows, determining the duration of amortisation. Useful life may be finite (e.g., a patent term) or indefinite (e.g., a perpetually renewed trademark), and its estimation requires careful analysis of technological, legal, and competitive factors.

The portion of the total addressable market that a company can realistically serve given its current product, business model, and geographic reach. SAM is a more practical measure of near-term opportunity than TAM.

How do you account for contingent consideration in a business combination?

Contingent consideration is recognised at fair value on the acquisition date as part of the purchase price, then remeasured at each reporting date with changes recognised in profit or loss under IFRS 3.

What are the key steps in performing a purchase price allocation?

PPA involves identifying all tangible and intangible assets acquired, valuing each at fair value using appropriate methods, allocating the purchase price across them, and recording the residual as goodwill.

What are the common mistakes in purchase price allocation?

Common PPA mistakes include failing to identify all intangible assets, using inappropriate discount rates, neglecting the WARA reconciliation, and missing the tax amortisation benefit.