Purchase Price Allocation: One of the Largest Airport Services Deal

This case study examines the key challenges and solutions while conducting a PPA for a notable acquisition within the aviation industry. Valued at approximately $1 billion, the acquisition aimed to expand the acquirer's presence in the aviation sector and enhance its comprehensive logistics solutions. 

This case study examines the acquisition of a leading ground handling and cargo services provider in the aviation industry by a global logistics company. Valued at approximately $1 billion, the acquisition aimed to expand the acquirer's presence in the aviation sector and enhance its comprehensive logistics solutions. To facilitate the purchase price allocation exercise, the acquirer enlisted the expertise of Aranca, a professional services firm specializing in valuation and research. The case study focuses on the challenges faced during the valuation process and explores the solutions provided by Aranca.

Challenges

• Valuing the workforce: Accurately valuing the vast workforce of over 20,000 employees across multiple countries posed a significant challenge.
• Valuing customers: With over 5,000 customers, accurately estimating attrition rates and value customer relationships proved difficult.
• Brand valuation: determining the value of the target company's brand presented challenges due to the limited number of royalty transactions and a scarcity of comparable industry benchmarks.
• Lack of projections: The absence of financial projections necessitated the development of future financial forecasts.

Aranca's solutions

• Workforce valuation: Aranca addressed the challenge of valuing the extensive workforce by gathering data and categorizing employees based on geography and role. Key assumptions, such as recruitment load, benefit load, training costs, and efficiency-related details, were used to estimate the cost of replacing the workforce.
• Customer relationship valuation: Aranca employed the multi-period expected excess earnings method to value customer relationships. The major revenue-contributing customers were identified and ranked based on the duration of their relationships. Aranca determined the remaining life of customer relationships by assigning churn rates based on the rankings.
• Brand valuation: To overcome limitations in available data, Aranca broadened its search for comparable transactions worldwide. Additionally, the scope of services was expanded to include facility management companies, courier services, and freight services. This approach enabled a more comprehensive assessment, leading to the determination of an appropriate royalty rate.
• Financial projections: Despite the lack of available projections, Aranca relied on historical financial performance, analyst reports, management discussions, industry trends, and economic considerations to construct reliable financial projections for the target company.

Conclusion

Through its expertise in valuation and research, Aranca successfully assisted the acquirer in the purchase price allocation exercise, following the acquisition of the prominent ground handling and cargo services provider in the aviation industry. Aranca's solutions addressed the challenges of valuing the extensive workforce, customer relationships, brand, and developing financial projections. Using a comprehensive approach, Aranca was able to provide the acquirer with valuable insights for determining the purchase price allocation, aiding in strategic decision-making and maximizing the value of the acquisition.