As 2013 has opened, the merger business has, as theNY Times reported, “roared back to life” with more activity than has been seen since 2007, the year before the Great Recession began.
Corporations have $1 trillion in cash on their balance sheets and buyout firms have literally billions of dollars of money to put to work. Cash, a stronger stock market, a rebounding lending market and enough confidence in the future all will help fuel a new boom of takeovers.
But will this M&A activity be more successful than in the past? Because the track record of mergers in general is not very strong. For those of us in the intangible capital community, this is no surprise. Why? Well, it’s because there is little structured diligence around intangibles even though 70% of the average deal ends up being booked to intangibles.
Intangible capital includes people, processes, knowledge, relationships, culture and strategies—all the things that everyone knows to be important but never get the attention they should. One of the biggest reasons is that intangible capital exists largely outside the current accounting model. (There are good reasons for this but it doesn’t mean that intangibles are not financial assets. To the contrary, billions are spent developing and buying intangibles every year)
Can a deal that works on paper and in the projections really work if the intangibles are wrong? No way.
I lived through my first financial cycle as a young business student in the 1980’s. I’ve seen a lot of them. And it makes me sad that a lot (but not all) businesspeople are going to go through this one without a good ICounting toolset.
Don’t be left out. Don’t screw up your mergers. Use an ICountant to plan it out.