Intangible assets vary by industry, but their actual value boils down to “what is their contribution to revenues, and can I maintain that after an acquisition?” For some industries, customer loyalty and the brand name are worth their weight in gold. For these companies, our job is to determine if and how that loyalty can be given over or attributed to the purchaser after a sale. However, if the loyalty lies with the owner, rather than the brand, this significantly devalues them because it is harder to pass on to a buyer. For other industries, companies hold patents, trade secrets or unique technical capabilities that are easily transferred to new ownership, and thus maintain their value post-sale. I specialize in the Architecture and Engineering industries (AEC). We tend to look at the capabilities of the staff, client relationships, or even their reputation and awards. Clear and open communication is important here. For example, in client relationships, who manages those? Are these key people staying with the company after the sale? Will the client disprove of working with the new company? These are all easily answerable questions that allow a selling company to demonstrate that 1. they bring value to the table, and 2. that it can be transferred to a buyer.
A thorough due diligence process helps me to determine the value of intangible assets during the valuation of an M&A deal. Initially, I review the major quantitative assessment factors, employing special models developed for specific industries in place. Then, I compare the company’s intangible assets with transactions involving similar companies to identify the financial value of intangibles like reputations, patents and customer contracts. I often add a ‘strategic’ layer to the valuation by evaluating how the intangible assets support the acquirer’s long-term goals. In my practice, I conduct a financial valuation of the ‘avoided costs’ associated with a set of intangible assets, such as a software company’s proprietary technology base. When you look at the value of that technology base not just for its synergies with the acquirer’s product ecosystem, but for the downstream financial flows it supports, the analysis becomes more nuanced and strategic.
We don't invest in intangible assets for the reason that valuation is very unclear. An asset might be "valued" at $200,000 and six weeks later the company is bankrupt and it is valued at $0. We insist on publicly priced and traded securities as a way of safeguarding client's money. https://www.marottaonmoney.com/safeguard-3-insist-on-publicly-priced-and-traded-investments/