intangible capital and m&a value
DESCRIPTION
Most of the value in mergers and acquisitions is ascribed to intangible (not tangible) capital. Ignoring these intangibles can be dangerous. This presentation covers how to identify and measure intangibles in traditional Accounting deals--and presents a more modern alternative: ICounting.TRANSCRIPT
![Page 1: Intangible Capital and M&A Value](https://reader034.vdocuments.site/reader034/viewer/2022051816/54530694af795904308b5189/html5/thumbnails/1.jpg)
Mergers and
acquisitions
are a risky
proposition
![Page 2: Intangible Capital and M&A Value](https://reader034.vdocuments.site/reader034/viewer/2022051816/54530694af795904308b5189/html5/thumbnails/2.jpg)
INTANGIBLE CAPITAL
IN M&A
![Page 3: Intangible Capital and M&A Value](https://reader034.vdocuments.site/reader034/viewer/2022051816/54530694af795904308b5189/html5/thumbnails/3.jpg)
Most deals
fail to deliver
on initial
expectations
![Page 4: Intangible Capital and M&A Value](https://reader034.vdocuments.site/reader034/viewer/2022051816/54530694af795904308b5189/html5/thumbnails/4.jpg)
Quality and value can be hard to see
![Page 5: Intangible Capital and M&A Value](https://reader034.vdocuments.site/reader034/viewer/2022051816/54530694af795904308b5189/html5/thumbnails/5.jpg)
70+% of merger value is intangible
Source: Houlihan Lokey, Purchase Price Allocation 2012 Study average of 2010-12
Accounting for M&A
Specific intangibles
31%
Goodwill 40%
Tangibles 29%
![Page 6: Intangible Capital and M&A Value](https://reader034.vdocuments.site/reader034/viewer/2022051816/54530694af795904308b5189/html5/thumbnails/6.jpg)
What are these intangibles?
![Page 7: Intangible Capital and M&A Value](https://reader034.vdocuments.site/reader034/viewer/2022051816/54530694af795904308b5189/html5/thumbnails/7.jpg)
Accounting view of intangibles
•Goodwill
•Customer-related assets
• Trademarks
•Developed technologies
• In-process research and development
…but this accounting data is
only part of the picture
![Page 8: Intangible Capital and M&A Value](https://reader034.vdocuments.site/reader034/viewer/2022051816/54530694af795904308b5189/html5/thumbnails/8.jpg)
Employees collaborating together
and with external partners
to create re-usable knowledge,
designs and processes
that meet market needs via
a viable business model
Strategic
Capital
Human
Capital
Relationship
Capital
Structural
Capital
ICounting view of intangibles
Intangible capital includes all
the intangibles driving
revenues and profits…
![Page 9: Intangible Capital and M&A Value](https://reader034.vdocuments.site/reader034/viewer/2022051816/54530694af795904308b5189/html5/thumbnails/9.jpg)
How to see the IC � Value links?
![Page 10: Intangible Capital and M&A Value](https://reader034.vdocuments.site/reader034/viewer/2022051816/54530694af795904308b5189/html5/thumbnails/10.jpg)
First take an inventory of key intangibles
![Page 11: Intangible Capital and M&A Value](https://reader034.vdocuments.site/reader034/viewer/2022051816/54530694af795904308b5189/html5/thumbnails/11.jpg)
Then the measure the strength of each
element…
![Page 12: Intangible Capital and M&A Value](https://reader034.vdocuments.site/reader034/viewer/2022051816/54530694af795904308b5189/html5/thumbnails/12.jpg)
To show the drivers behind valuation
Human Capital Structural
Capital
Relationship
Capital
Strategic
Capital
12
Best: 14 x
Likely: 8
x*
Worst: 3 x
• This company’s intangibles are stronger than average compared
with their peers and will likely yield a higher valuation range
(expressed as a multiple of corporate cash flow/EBITDA)
Company Average
Peer Average
![Page 13: Intangible Capital and M&A Value](https://reader034.vdocuments.site/reader034/viewer/2022051816/54530694af795904308b5189/html5/thumbnails/13.jpg)
Summary
• Most of the value of companies is intangible—mergers are no exception
• Accounting only measures some of the intangibles
• ICounting measures the full IC portfolio
• Better understanding of IC helps you buy/sell smarter