More value is being allocated to identifiable intangible assets, including intellectual property, while goodwill is holding steady, according to the 2015 Purchase Price Allocation Study from Houlihan Lokey. The analysis examines 563 transactions in which the acquiring company was based in the United States and publicly held. The study uses “purchase consideration,” which is the sum of the purchase price paid and liabilities assumed in connection with a business combination.
Increasing share: The percentage of the purchase consideration allocated to intangible assets increased to 34% on average in 2015, up from 30% in 2014. The percentage of purchase consideration allocated to goodwill is 38% on average in 2015, the same percentage reported for 2014. Contingent consideration (earn-outs) represented 21% of purchase consideration (up from 20% in 2014).
The categories of intangible assets acquirers most commonly identified all show percentage increases in terms of frequency of identification: customer-related intangibles, cited in 69% of deals (up from 59% in 2014); trademarks and trade names, 50% (up from 45%); developed technology, 44% (up from 40%); and in-process research and development, 10% (up from 7%). Other intangible assets typically included were noncompete agreements, licenses, permits, and other contracts or agreements.
PPA case studies: In a new report, Case Studies in Purchase Price Allocations, experts Nathan DiNatale and Mark Zyla discuss the common approaches to valuing intangibles, considerations in modeling the calculations, and how to interpret the conclusions.