Download - Intangible Capital and M&A Value
Mergers and
acquisitions
are a risky
proposition
INTANGIBLE CAPITAL
IN M&A
Most deals
fail to deliver
on initial
expectations
Quality and value can be hard to see
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%
What are these intangibles?
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
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…
How to see the IC � Value links?
First take an inventory of key intangibles
Then the measure the strength of each
element…
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
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
