After a multinational’s acquisition of a fast-growing tech company, a business valuation firm attributed the purchase price between tangible assets, identifiable intangible assets and goodwill. The exercise excluded an intangibles discovery process and allocated the bulk of the purchase price to goodwill; with only modest values attributes to technology and brand. A few years later, the parent entity intended moving the acquired IP assets to another jurisdiction. 

For tax compliance, much intangibles had to be identified with much greater specificity than had been applied for financial reporting. In this context - and applying a commercial lens - the company was concerned that the low value placed on IP assets on acquisition would result in high capital gains tax. At this stage, a specialist intangible asset valuer was engaged to re-value the intangible assets as at the date of acquisition. Interviews were held with management responsible for software development, data management, marketing and operations; and customised templates helped map the value contribution of intangibles.

The result: It was determined that the market value of the acquired company’s data asset was high, despite it not being recognised separately from goodwill in the initial valuation. Additionally, more comprehensive analysis of the economic contribution of the technology platform supported a higher valuation. The client’s tax bill was significantly reduced through the use of a specialist intangible asset valuer.

Our recommendation: Purchase price allocations should include tax and commercial perspectives as well as financial reporting. The cost of an intangible value mapping exercise typically yields attractive commercial benefits.