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.

1. Mergers and
acquisitions
are a risky
proposition

2. INTANGIBLE CAPITAL
IN M&A

3. Most deals
fail to deliver
on initial
expectations

4. Quality and value can be hard to see

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. What are these intangibles?

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

9. How to see the IC
Value links?

10. First take an inventory of key intangibles

11. Then the measure the strength of each
element…

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

14. www.smarter-companies.com
Mary Adams
781-729-9650
adams@smarter-companies.com