Transfer Pricing Associates

The Total Value of Intangibles in the US

post Wednesday November 21, 2012


The underlying reason for this year’s TPA Global Event topic "Intangibles: The Battle Continues" was the increasing importance of  intangible assets in today’s business world. A recent study by Kevin Hasett and Robert Shapiro has revealed the growth in value of intangible assets over the period from 2005 to 2011. Hassett is director of Economic Policy at the American Enterprise Institute (AEI) and Shapiro is the chairman of Soneco, LLC. The estimated total value of intellectual capital on the US markets has increased from a range between $5.0 trillion and $5.5 trillion to a range from $8.1 trillion to $9.2 trillion. The estimate of total value of intangible assets, which includes intellectual capital but also company specific knowledge, in 2011 reached $14.5 trillion. The study also presents an intangible ­assets-­to-­market ­value ratio of 79.2%. This ratio is comparable to the findings of the BVR study, which reached the conclusion based on the results of 400 firms that 72% of the total assets reported are intangible in nature. Other studies have revealed that in general the intangible assets of US firms comprise 80% of their total assets. These findings support the importance of the understanding of intangible asset valuation and the need for firm national and international standards.  

Source: IP value wire - Issue 18 - 1 by Business Valuation Resources LLC

Image source: Free Digital Photos

Looking for more great content? Subscribe to our RSS feed to get articles as soon as they are posted.

Leave your comment


Comments on 'The Total Value of Intangibles in the US' (2)

Attorney & Business Counselor

I'm not surprised by the estimated value of IP. As a business lawyer who routinely works with companies to address issues at the intersection of employment law and IP, however, I am surprised at how often IP is not meaningfully protected or undervalued by its owners.

Geplaatst door Jason Shinn, op Friday 23 November 2012

CBA for BizEquity

These results are not surprising to me based on my 17 years of brokering and appraising privately-held businesses across the country. Around 3 years ago, the SBA implemented a "goodwill cap" on the amount of financing which would be covered by their guarantee and I immediately began compiling statistics to document the importance of intangible assets. The reality is that the more financially successful a company becomes, the greater its intangible asset value. In short, many of the MOST successful (profitable) companies today feature the highest proportion of intangible asset value.

Thankfully, the SBA listened to the many voices of reason and eliminated the goodwill cap. It may surprise many, but my experience has been that the SBA truly does want to "get things right" and they have proven this in recent years through a variety of policy changes which reflect the "SBA community consensus".

The following summary highlights the relative importance of intangible assets in the service and construction industries with even manufacturing firms possessing more than half their value in "intangibles". Although the data is a few years old, it is indicative of general tendencies in today's marketplace as well.

In the Bizcomps database, the average transaction price equals 2.22 times tangible assets and approximately 55% of the total purchase price is devoted to intangible assets (the remainder goes towards inventory and fixed assets), but each type and size of business will be unique and differ from the “norm”. For example:

Intangible Assets** as
Industry Segment Price to Tangible Assets % of Total Assets
Personal Service Industry* 5.35 times 81.3%
Distribution Industry 2.12 times 52.9%
Manufacturing Industry 2.38 times 58.0%
Retail Industry 1.76 times 43.1%

Construction Industry 2.51 times 60.2%
Dry Cleaning Industry 1.82 times 45.1%
Grocery/C-Store Industry 1.78 times 43.7%
Restaurant Industry 1.77 times 43.4%

*Based on the summation of accounting/bookkeeping, advertising agencies and travel agencies.
**Intangible assets collectively may be referred to as “goodwill”

Geplaatst door Scott Gabehart op Thursday 22 November 2012