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.
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
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. 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
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. 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