The valuation of tangible assets (Equipment, Rolling Stock, Inventory, Real Estate, etc.) in a mergers & acquisitions transaction is a fairly straight forward activity. In most cases, direct market comparables provide readily available reference points for establishing value. Websites like Commercial Truck Trader (https://www.commercialtrucktrader.com/) allow brokers, buyers, sellers, and appraisers to assess values for equipment based on year, make, model, and other variations in a timely manner from similar data sets. Inventory is commonly valued at the lower of cost or present, acquisition, market value. Sold and on the market comparables of similar types of real estate in terms of location, use, and size of building & land allow most real estate values to be established within a defined range.
The situation is entirely different with intangible assets where there are no readily available direct market comparables. It requires knowledge, experience, business acumen, and vision to assess and properly value intangible assets. The value of intangible assets is often forward thinking from a revenue and profitability perspective. When purchasing intangible assets in 2023, it is not about their value this year, but their value in 2024, 2025, and 2030 that will motivate the acquisition. A real world illustration of this fact can be found in the recent press with the story of the sale of the Hostess Brand for $4.6 billion to J.M. Smucker (https://www.wsj.com/business/retail/twinkie-hostess-brands-smucker-deal-4cc72302), a brand that was bought for $410 million in 2013 with limited competition in a liquidation auction of the assets of the company by private equity firms Apollo Global Management and Metropoulous & Co. Hindsight is always 20/20. An over ten-fold or $4.2 billion gain on the equity value of the company is something worthy of recognition in the business and private equity halls of fame. How many companies over analyzed the acquisition opportunity a decade ago and elected to not execute, one can only guess.
As a nearly 30-year mergers & acquisitions professional, I have witnessed 1000’s of companies, both privately held and publicly traded, private equity firms, and individuals who have gotten “paralysis by analysis, and failed to execute on potential acquisitions. The reasons range from a lack of confidence in executive ability to inability to secure the necessary capital and from brokers who could not effectively articulate the “why & how” for the acquisition to over negotiation resulting in a lost deal to competition. Do you think in hindsight Apollo Global Management and Metropoulous & Co. worry today that they paid 10% too much for the Hostess brand and the rights to assets like Twinkies, Ding Dongs, and CupCakes?
During the in-house valuation of companies as potential representation projects, IBA, the largest business brokerage firm in the Pacific Northwest, utilizes nearly fifty years of company experience & knowledge gained from the successful facilitation of over 4300 transactions to assess the potential market value of a range of intangible assets. The following are the top six intangible assets evaluated by IBA M&A intermediaries when establishing the estimated market value of a privately held company or family business.
- Brand – What is the market perception of the brand? Is it beloved in the marketplace? Is it recognized for quality? Is it recognized for value? Does it have an international, national, regional, or local customer base?
- Market Share – What is the competitive position in the marketplace? Is the company a market leader or disruptor? Does it have broad based appeal or is it sought by a loyal customer base with limited price sensitivity?
- Intellectual Property – Does the company have patents, trademarks, processes, technology, knowledge or experience that gives it a competitive advantage in the marketplace?
- Location – Harold Samuel of Land Securities famously coined a phrase known by generations of property owners/investors when asked what is the most significant element in determining real estate values, when he responded “Location, Location, Location”. The answer can also be applied as an important component to business success. 50-yard line locations for retail, hospitality, and service companies are commonly more attractive in the marketplace than ones on the 20 or 30 yard lines. Locations can be both street addresses and virtual. Want to buy a house or refinance your mortgage? Go to mortgage.com, you will find Citigroup. Domain names can have significant value.
- People – Sufficient facility, equipment, and people infrastructure is a requirement for growth. Market demand for products and services without the ability to deliver them is every entrepreneur’s worst nightmare. Acquisitions often are motivated by the ability to acquire trained, skilled staff. This is presently true in the technology sector which presently has a 1.8% unemployment rate. https://www.dice.com/career-advice/tech-sector-unemployment-dips-to-1.8-percent#:~:text=Tech%20unemployment%20dipped%20to%201.8,lowest%20rate%20since%20January%202023.
- Skill – Eleven quarterbacks have led their teams to Super Bowl victories over the last twenty years with five of them doing it at least twice. Over that same period of time, over 1000 quarterbacks have started games in the NFL regular season making the success rate for quarterbacks achieving their ultimate objective less than 1%. Team talent and corporate culture are fundamental for success in business. Acquire the right talented individuals and entrepreneurial success becomes much easier.
The assessment of the value of these assets in the marketplace as a component of a business sale offering is just the start. The next step is the ability to articulate the value to potential buyers in the justification of the price. Anyone can take a business to market at a price. The question is can the intermediary deliver a sale at a value that both the seller and buyer find satisfactory. IBA has done that more times than any other firm in the Pacific Northwest.
If you are interested in selling a privately held company or family business and desire to get a strong market value for your intangible assets, the intermediaries at IBA would welcome the opportunity to interview for the position of your professional representative. All conversations with IBA are held in strict confidence. IBA does not seek a penny of compensation from our clients until successful completion of a project.
The following are some of the well-known, Pacific Northwest brands IBA has sold that received good values for their intangible assets in recent transactions:
Fisherman’s Marine Supply (https://fishermans-marine.com/)
Ellensburg Pasta Company (https://ellensburgpasta.com/)
Three Keys Property Management (http://threekeyspm.com/)
Tom Bihn (https://www.tombihn.com/)
D.R. Strong (https://drstrong.com/)
Pinchiff Mechanical (https://www.pinchiffmechanical.com/)
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, legal, and accounting communities on subjects relevant to the purchase & sale of privately held companies and family-owned businesses. IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.