Making the Deal

A large communication company wanted to divest five business units. None of the units had any significant hard assets—rather, their future depended on intellectual capital, including human, structural and relationship capital. They went to market and didn’t get a single bid. The buyers couldn’t “see” the value and were afraid of the unknown.

The company withdrew the companies from the market and performed an IC Rating™ on each of them. The findings were generally good, helping to demonstrate their value. The findings also highlighted weaknesses in the units. But that didn’t hurt. All five were sold at a 20% premium to the earnings multiples of comparable sales.

The buyers attributed the premium to the information contained in the ratings. Transparency is very important in M&A. Realistic business people know that there are both strengths and weaknesses in every company. But there is value in knowing what they are. In this case, being able to provide concrete information about intangibles saved the deal and made the company a lot of money.

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