Highlight Your Company’s Intangible Assets When Selling
Intangible assets represent most of the value in almost all of the companies we sell, so it only makes sense that showcasing the intangible assets that make your company unique and successful can significantly impact your final transaction value. Here are some practical tips to help you leverage your intangible assets in a sale process.
Intangible assets are non-physical assets such as trademarks, copyrights, patents, contracts, customer lists, proprietary software, databases, designs, recipes, proprietary business processes, well protected trade secrets, works of authorship, key employees, strategic relationships, audit reports, credentials, licenses, and brand recognition. These assets generally produce value for a company, but don’t appear on its balance sheet.
First conduct an internal audit of your business operations and documents to identify all intangible assets owned by or used in the business. Then prepare a comprehensive list of these assets, with detailed descriptions and references to appropriate supporting documentation. Describe the nature and history of the asset, how it is used, its original cost, past and future economic benefits, who owns it, any legal restrictions, useful life, potential risks, etc. Save and organize the supporting documents in a virtual data room.
Engaging the services of legal, financial, and valuation experts can help bring to light intangible assets that may not be immediately obvious. An attorney can verify ownership rights and ensure that your assets are properly protected and legally transferable.
When taking a business to market, M&A advisors prepare a marketing document known as a Confidential Information Memorandum or CIM. The CIM will highlight your company’s intangible assets and suggest how buyers can utilize them to grow, increase profits, or mitigate potential risks. Of course, buyers will do their own due diligence on your assets, and lots more, before closing the deal, so all assertions in the CIM must be reasonable. Overhyping a company can be a quick turnoff for buyers.
The M&A advisor or investment banker also uses your intangible asset list to identify potential acquirers that stand the most to gain from obtaining access to those assets.
Intangible assets can exist and not have value to their current owner. When a target business is profitable and growing, it usually isn’t necessary to place values on individual intangible assets for sale purposes. If a business is a pre-revenue startup or marginally profitable, or if certain intangible assets aren’t being used productively in the business, it may be helpful to have an expert determine the economic value of individual assets.
Even owners with long expected hold periods can benefit from identifying and monitoring their company’s intangible assets by using this information in strategic planning and investment decision making. The asset list and supporting documents should be reviewed and updated by the executive team periodically as part of its planning process.
In conclusion, having a full understanding of a company’s intangible assets is an advantage when marketing and negotiating the sale of a business. Take the time to identify and document your intangible assets to ensure that you receive the best possible reward for your life’s work.
For further information on the role of intangible assets in M&A or to discuss a potential business sale, merger or acquisition need, confidentially, contact Al Statz at 707-781-8580 or email@example.com.