Transfer Pricing Associates

The Importance of Valuation

post Wednesday February 13, 2013


The importance of accurate valuations for intangible properties has proven to be even more critical over the past three months. Amidst the unknown future of tax regulations and potential reform in the United States, countless transactions took place between companies. During these mergers and acquisitions that occurred, the known difficult task of valuing intangible assets came rushing to the forefront. When an acquisition takes place, the intangible assets that are on the books for the company that was acquired must be examined and transferred at fair market value to the acquirer’s balance sheet. This process is established in Generally Accepted Accounting Principles (GAAP). Assigning a value to an intangible is a complicated and often times very difficult process.

Because of the complex nature of valuing an intangible, it is important for companies to know what to be prepared for and have expert assistance. Some of the most common items that must be valued are the customer lists and relationship. This component of a business is critical to the ongoing concern that a company has. Without a solid base for sales and service, it is nearly impossible for a company to continue to be profitable. For a sales based company, the customer’s trust is one of the most important aspects of the business.

Trademarks, brands and trade names are also extremely important for companies. A large portion of a company’s value can be derived from the intangible property associated with a well-developed and protected brand. When examining most consumer related industries, the brand and trademark associated with a company is extremely important to the revenue stream. Another important intangible that must be properly valued is the technology associated with the company. This could include a wide range of intangibles, including trade secrets, patents or special equipment that has been developed by the company that is acquired.

One of the most important things for a company to do during an acquisition is to involve qualified personnel. Companies often do not have adequate experience valuing intangibles and should seek advice from third party individuals. Resources like IPR Plaza provide useful tools to accurately determine the value of an intangible.

Source:Crain's Cleveland Business

Image source: Free Digital Photos

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