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Intangible Capital and M&A Value

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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.

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Intangible Capital and M&A Value

  1. 1. Mergers and acquisitions are a risky proposition
  3. 3. Most deals fail to deliver on initial expectations
  4. 4. Quality and value can be hard to see
  5. 5. 70+% of merger value is intangible Accounting for M&A Specific intangibles 31% Goodwill 40% Tangibles 29% Source: Houlihan Lokey, Purchase Price Allocation 2012 Study average of 2010-12
  6. 6. What are these intangibles?
  7. 7. 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
  8. 8. ICounting view of intangibles Intangible capital includes all the intangibles driving revenues and profits… Human Capital Employees collaborating together and with external partners Strategic Capital to create re-usable knowledge, designs and processes that meet market needs via a viable business model Structural Capital Relationship Capital
  9. 9. How to see the IC Value links?
  10. 10. First take an inventory of key intangibles
  11. 11. Then the measure the strength of each element…
  12. 12. To show the drivers behind valuation Best: 14 x Company Average Peer Average Likely: 8 x* Worst: 3 x Human Capital Structural Capital Relationship Capital Strategic Capital • 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) 12
  13. 13. 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
  14. 14. www.smarter-companies.com Mary Adams 781-729-9650 adams@smarter-companies.com