Strategy Done Well: When the Story Meets the Math
The real work of a deal starts when the excitement fades and the math begins.
Most operators celebrate closing day.
Then the auditors show up asking what they actually bought.
That reaction isn’t unusual. Most executives assume the Purchase Price Allocation (PPA) is a quiet accounting chore that happens after the lawyers go home.
It isn’t.
The PPA is the moment the story you sold your board finally meets the math.
Step 1: What You Really Bought (NAV)
Before you can talk about premiums or goodwill, you need to know what you actually bought.
That’s Net Asset Value (NAV):
Assets include cash, inventory, property, and identifiable intangibles like customer lists, technology, and brand.
Liabilities are everything you agreed to carry—debt, leases, pensions, deferred revenue.
Get the liabilities wrong and you distort the whole deal.
Every deal begins here, and this is where most go sideways.
Step 2: The Buckets — Where Value Lands
When you pay one big number for a business, the PPA forces you to unpack it into three buckets:
| What You Bought | What It Represents | Example / Comment |
|---|---|---|
| Tangible Assets | Stuff you can touch | Equipment, inventory, real estate |
| Identifiable Intangibles | Measurable assets separable from the company | Customer lists, proprietary tech, brand — where the deal’s real strategic value should land |
| Goodwill | Everything left over — premium for expectations or future potential you couldn’t quantify | Residual value of belief: the gap between what you could prove and what you were willing to pay |
This is the point where the story meets the math.
If you told the board you were buying a technology platform but 80 percent of the value ends up as goodwill, you didn’t buy tech—you bought hope.
Goodwill — Too Much, Too Little, or Just Right
Goodwill isn’t inherently bad, but too much of it means you paid for dreams.
If more than 20–30 percent of the purchase price lands here, you probably overpaid or couldn’t prove the economics behind the price.
Goodwill doesn’t amortize; it just sits there waiting for an impairment test.
Miss your plan and you take a write-down—a public confession your thesis failed.
Private companies use a simpler one-step test: is the reporting unit’s fair value less than its carrying value?
When you say, “We really bought the team,” accountants hear, “We bought intangibles we can’t measure.”
“Assembled workforce” can’t be separated; it’s baked into goodwill.
The Flip Side — The Bargain Purchase
Sometimes the math goes the other way—you pay less than the fair value of what you bought.
That’s a bargain-purchase gain: it looks like genius until auditors ask why the seller gave you a deal.
Distress, asymmetry, or mis-measurement—only one makes you look smart.
Step 3: Proving the Intangibles
Under ASC 805, the acquirer has to prove which assets actually create future revenue.
| Category | What It Represents | How Value Is Built |
|---|---|---|
| Customer Relationships | Repeat revenue from existing base | Multi-Period Excess Earnings (MPEEM) |
| Developed Technology | Proprietary code or IP | Relief-from-Royalty or Replacement Cost |
| Brand / Trademarks | Ability to charge a premium for the name | Relief-from-Royalty |
Notice what’s missing? Non-competes and assembled workforce.
Both gone—one because regulators killed it, the other because accountants did.
Less to allocate means more value flows into goodwill.
In theory, valuators can test how all the asset returns align with overall deal economics, but that level of precision requires detailed forecasts most private sellers never share.
In practice, you work with what you can verify and make sure the allocation logic holds up under audit.
Step 4: Living with It After Close
Once booked, those numbers define your financial reality:
Finite-lived assets (customer lists, technology) are amortized over 3–10 years. It’s a non-cash expense that reduces reported earnings, even though it doesn’t affect EBITDA. The optics matter — it’s how deal performance gets read on the scoreboard.
Goodwill and indefinite-lived assets (most brands) aren’t amortized → they face annual impairment testing. Miss your plan and you take a non-cash hit that still stings.
Most teams treat the PPA as paperwork.
The ones who don’t get the real advantage — they see exactly what they bought.
The PPA isn’t a one-and-done task; it’s a scoreboard you keep updating.
Every impairment test is the market asking, “So … did your strategic thesis actually hold up?”
Step 5: What the PPA Really Does
The PPA forces discipline.
It turns optimism into accounting entries and exposes what your deal was truly about:
If most value sits in customer relationships, retention is now your job #1.
If goodwill dominates, you’re betting on execution, not assets.
If the bargain looks too good, make sure it’s not because you missed something.
The PPA is the truth serum of M&A—the X-ray that shows what you believed, what you bought, and what you’d better make real.
The PPA isn’t the boring part after the deal.
It’s where belief meets evidence—and where the best operators prove they actually bought what they said they did.
I write to show what strategy looks like in practice - the choices that hold up when theory meets reality.