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

www.smarter-companies.com

Mary Adams

781-729-9650

adams@smarter-companies.com