The Financial Reporting Blog

What are your customer relationships worth? One of the most common intangible assets identified in a business combination is customer relationships, which can include customer lists, order or production backlogs, and contractual or noncontractual customer relationships. Many factors can influence the value of these types of assets, including the type of underlying business, the typical “life” of the relationship between the customer and the firm, and the presence of other assets in the firm (tangible or intangible) that contribute to value.

The volatility of the commercial banking industry during the financial crisis resulted in a number of banks recognizing bargain purchase gains as they acquired distressed banks. Indeed, as industries undergo cyclical changes and consolidation trends, the likelihood of strategic buyers recognizing a bargain purchase gain increases. Reviewing the methodologies and assumptions used in the initial purchase price allocation to value intangible assets and contingent liabilities is a crucial step in determining whether or not a transaction meets the criteria to be categorized as a bargain purchase.