Intangible Assets

Often collectively described as the Goodwill of a Business, these include Brand Names, Customer Relationships, Information Technology and a whole range of Contractual Assets.

The valuation of Intangible Assets can be a tricky, subjective exercise. With our vast experience, we can assist you in this regard.

The accounting world of Balance Sheets, Income Statements and Cash Flow Statements does an excellent job of recording Assets & Liabilities that we can see, touch and measure. Buildings, Vehicles, Inventories, Cash, Creditors, Bank Loans… the list goes on and on.

In a classic case of “1 + 1 = 3”, however, the sum of all these Assets & Liabilities very rarely equals the Equity Value (Market Cap) of the Business. There must therefore be something else in the Business that is not measurable and perhaps not even explainable. Going back several decades, this mysterious presence was described as “Goodwill” and people only really cared about it when businesses were brought or sold.

In recent years, greater effort has been made in unpacking “Goodwill” into various classes of Intangible Assets. Brand names, Customer Relationships, Information Technology, and a whole range of Contracts now appear on the balance sheets of businesses. Not everything can be measured or quantified perfectly, however, and so “Goodwill” does remain, although somewhat diminished.

From an Accounting point of view, however, this wonderful range of Intangible Assets can only come into existence as a result of M&A activity. It still remains very difficult for Businesses to capitalise Internally Generated Intangible Assets without jumping through a number of fiery hoops.

If you have identified an Intangible Asset and now what to value it, these are some of the questions you should be asking:

  1. Can your Intangible Asset be sold separately in an active market? Are there very similar intangible assets (to yours) that are sold separately in such markets?
  2. What cash flows is your Intangible Asset expected to generate over the foreseeable future? What are the risks associated with this?
  3. If you were forced to recreate your Intangible Asset, how much cost and effort would it entail?

“Relief from Royalties”, “Multi-Period Excess Earnings Methods”, and “Replacement Cost New” are specific applications of the above, and are some of the more common valuation methodologies used.

It’s a very good idea to also do a Business Valuation, to make sure that our Intangible Asset values make sense.

Please Contact us for more information on how we can assist you with any Intangible Assets queries that you may have.