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Three quarters of the purchase price in M&A deals is represented by goodwill and intangible assets according to the 2017 Purchase Price Allocation Study from PPAnalyser. The report highlights the importance of identifying and measuring the value of intangible assets to support the rationale of an acquisition.
Unsurprisingly, transactions in the services sector have the highest proportion of intangible assets and goodwill at 84% of the deal value. However, somewhat unexpectedly manufacturing has the highest proportion of intangible assets at 41% which, together with goodwill of 35%, means that 76% of the purchase prices in this sector are represented by non-tangible assets. The mining, wholesale trade, and retail sectors have the lowest proportions of intangible assets.
Customer-related intangibles, such as customer relationships and order book, are the most frequently identified intangible consistently across all industries. Marketing-related intangibles, such as brands and tradenames, are the next most cited intangible, particularly in the retail sector. Technology-related assets, such as patents and software, are also amongst the most commonly identified intangibles.
While considerable focus is given to the overall deal price and due diligence on tangible assets and liabilities, there is often relatively little attention to identifying, understanding, and valuing the intangible assets which, in reality, drive most of the business value. Valuing intangibles pre-transaction has three main benefits:
We have extensive experience in the valuation of intangible assets for M&A and financial reporting purposes. For further information about this subject please contact:
Head of Valuations
T: 01926 468705