Knowing Your Intangible Assets: What Buyers are After eBusinessAppraisals.com reviews some of the more valuable intangible assets that business owners should take into account in preparing their company for sale.
Introduction There is an old saying in middle-market investment banking: “Strategic buyers rarely buy what the sellers think they are selling…” This means that unless you understand what buyers will find attractive about your company beyond EBITDA, you may not understand the full value of your company to specific buyers. Because of this, if you have decided to sell your company on your own, it is vital that you clearly understand and document your intangible assets. These items are your “off-balance” sheet assets that are ultimately critical to your success and can be very valuable to specific buyers. Knowing what makes you unique and explaining why to buyers will be vital to the successful sale of your company. The following slides provide a sample list of just a few intangibles that your company may have that could be attractive to specific buyer types.
1. Patents, trademarks or copyrights Depending on the industry you are in, these items can have tremendous value to certain synergistic buyers. The key is finding the right buyer who will pay a premium for the patents or trademarks that set your company apart.
2. Key customers, especially those you have long term contracts with. Often you see the value in your customers when you finally get paid for an invoice. However, the true value to specific buyers could go well beyond what you generate Image by: renjithkrishnan every month from these key customers. Often a buyer will pay a significant premium over a company’s economic value simply to gain access to a solid, stable customer base.
3. Employees can be extremely valuable. Let’s face it, in many service-based industries your employees are the face of your company. If you have employees with long tenure, recognized experience, and solid credentials, some buyers will be willing to pay a premium for your organization in order to gain access to this talent. Image by: renjithkrishnan
4. Processes and procedures that you have developed. If you have been successfully manufacturing a product or providing a service for several years, chances are good that you have developed specific time-saving and cost-saving procedures and/or processes. These can be extremely valuable to key buyers. Image by: jscreationzs
5. Your product or service may be unique. Again, you are so close to your business because you are running it daily, you may overlook how unique your service or product is. In the hands of a larger player, with capital to advertise and market this fact, Image by: nuttakit your company could grow dramatically. Key buyers who recognize this will pay a premium for this off-balance sheet asset.
6. Location, location, location. This old saying isn’t applicable only to retailers. You may be located in a part of the country that another industry player may want to enter. In a case like this, having an established organization where you are, will be very attractive to many buyers located far from your business. Image by: luigidiamanti
7. Your equipment may have intangible value to certain buyers. Chances are good that if you are in a capital intensive industry, the value of your equipment has been fully depreciated. However, if you are like most middle-market manufacturing entities, you have probably “customized” your equipment to make it function better and/or produce more. If so, to certain buyers, having access to this customized equipment could be very valuable. Image by: Idea go
8. Proprietary Lists. Proprietary lists can include customer or client lists, patent lists or even mailing lists, whether they are made up of customers or prospects. Lists can be especially valuable to a business if the relationships they represent are ongoing. Consider, for example, a magazine’s list of advertisers. The magazine may get 75% of its advertising revenue from the companies on that list. Therefore, the list is critical to the magazine’s future profitability. Image by: jscreationzs
9. Beneficial Contracts Long-term contracts can add value to a company. For instance, a company may have a contract that allows it to sell its product or service for a higher-than-normal markup. Or it may have a contract that allows it to purchase or lease items at a below-market rate. Image by: luigidiamanti
10. Trademarks and Brand Names If a brand name or trademark lets a company sell its products for a higher price or in greater quantity than its competition, it has value. Image from publicphoto.org
11. Software Many companies have developed proprietary software specific to their businesses. If this software provides efficiencies and benefits that the business wouldn’t have without the software, it is a separate asset. Image by: Salvatore Vuono
There are literally dozens of other potential intangible assets that your company may have, some of which you may be completely unaware of. We highly recommend that you set aside some time and brainstorm on this vital topic before approaching the market. Once you know your economic value (the value a willing and informed investor will pay for your firm based on historic and projected revenue and EBITDA), you can then develop a list of intangibles that will potentially generate a higher value. To help you assess the intangible assets of your business, have your company undergo a professional business valuation. It reviews all aspects of the business to come up with the true financial worth of the company, and determines the key value drivers which can guide the continued success and growth of the business; and identify factors that can negatively impact the company’s value, and then come up with recommendations to mitigate them.
eBusinessAppraisals.com is a professional, third-party business valuation company focused on value-enhancement techniques designed to maximize the value of businesses, and meet the exit strategy objectives of its owners. We have more than two decades of advising and deal-making experience with middle-market businesses. Give your succession planning a complementary boost with a business valuation, and do your company a favor.
AteBusinessAppraisals.com, we provide affordable,custom solutions to help every business owner charta course to higher value. Now for a limited time, we are offering afreeassessment of your business. Contact ustoday to learn how to take advantage of this great offer! ---------------------------------------------------------------------------------------- Learn more about why Value Matters. Follow us on Twitter: @ebizappraisals Join our Linkedin group: eBusinessAppraisals.com Check out Facebook page: eBusinessAppraisals.com