The business of assessing a company’s value for merger or acquisition purposes has changed significantly. In 1978 market value was 95% correlated with book value. By 2005 that correlation had dropped to only 28%*. The tangible assets that used to accurately represent the true value of a company no longer do so. Intangible assets have taken on a whole new meaning in the M&A world.
According to a recent KPMG study, 80% of mergers and acquisitions fail to create value, while half of that actually destroy value. Given the shift in reliance on intangible assets in accurately understanding a businesses’ true valuation, the ability to quantify intangible assets like management’s decision-making ability, culture, human capital, etc. is vital to making accurate M&A decisions. These assets are also equally as vital in ensuring the successful implementation of M&A deals.
The success or failure of an M&A deal lies first in being able to quantify and make more visible the intangible assets of the parties involved, so better quality decisions can be made up front. Then the accurate management of these same assets is vital to achieve a successful implementation on the back end.
Grow Your Co is a full service consulting firm for small to medium sized businesses that specialises in helping companies identify, understand and maximize all of their tangible and intangible assets to drive greater performance and create more wealth for the company.