Third Party Valuations

It is common for companies to bring in a third-party valuation expert to value the intangible assets acquired in a business combination for financial reporting purposes. It is important to note that even when a third-party valuation analyst is involved, a considerable amount of time will need to be devoted by management in order to complete the valuation analysis.

The valuation of intangible assets is not a “hands-off” process for a company’s management. Actually, purchase price allocation valuation engagements often require the most involvement of company management of any type of valuation. Why? The valuation of intangible assets requires the development of a number of assumptions and estimates about the company’s future operating activity. The valuation analyst cannot make these items up as he or she goes along – instead, it requires a significant commitment by management to assist the valuation expert with developing appropriate estimates that will pass auditor scrutiny.

If such a high level of management involvement is required for intangible asset valuations, you may ask, “Why should I hire a third-party valuation analyst at all?” The benefits of using a valuation analyst to assist with the purchase price allocation are that he or she can do the following:

Remember, if you are in need of a purchase price allocation/valuation of intangible assets, bringing in a third-party expert to perform the valuation does not mean that you are “off the hook” at that point. The valuation process often turns into a collaborative matter in which both the analyst and management work together to create a supportable analysis.