Wealth

Intangible assets: how to put a price on creativity

Mike Thornton Mike Thornton

With deal volumes on the rise, we surveyed 143 UK media companies to look at how intangible assets – from talent to intellectual property – are assessed and deal structures put together to maximise deal value.

It's been four years since we published our fourth survey into accounting policies in the media sector – a piece of research which saw business combinations and the treatment of intangible assets as a key element. In updating the findings for business combinations this year in Priceless thinking – Valuing intangible media assets for confidence [ 1339 kb ] (summary PDF). 

Intangible assets definition

IFRS 3 defines an intangible asset as “an identifiable non-monetary asset without physical substance” and therefore covers assets such as brands, intellectual property and technology. A significant part of the value of a business may reside though in goodwill, being the difference between the consideration transferred for the business and the value of its net identifiable (including intangible) assets.

Media industry and intangible assets

The media industry is more likely than most to have intangible assets as a large proportion of purchase consideration, due to its reliance on people and intellectual property (IP) – from films and programmes to magazine titles and brands. But assessing their value isn’t straightforward and can be subjective as estimates are often based on a company's assessment of the future cash flows they’ll derive from exploiting such assets. Specialist help in valuation is usually required.

One of the most valuable intangible assets – the people in the business – will not be identified and valued separately, but will be absorbed within goodwill which, in most cases, is a key element of a media company's value and will represent well over half of the acquisition price.

Bridging the value gap in media deals

Often, there is a difference between what a buyer thinks a business is worth and what the seller is willing to pay – and usually this gap exists because of expected future growth. In our research, we found that deferred or contingent payments (also known as earn-outs) were key to bridging the value gap and delivering the deal.

We surveyed 143 UK media companies, both listed and privately held, who report under IFRS (International Financial Reporting Standards). Our analysis of 171 deals carried out within this sample shows that 75% of those deals were structured to have a deferred component that formed a significant part of the overall purchase price.

Earn-outs can be key to the success of a deal but both sides should consider carefully before signing on the dotted line. Setting realistic expectations and keeping it simple are key to making an earn-out work for both the acquirer and the seller. (Further guidance on this can be found in our full report.)

Top five intangible assets in media deals

Apart from the value of your people, which is not identified separately but forms part of goodwill, the following five types of intangible assets are most likely to be identified in media deals:

  • Marketing-related intangible assets – covering brands, trademarks, trade names, service marks, newspaper/magazine mastheads, internet domain names, non-competition agreements for key employees.
  • Customer-related intangible assets – client relationships, for example.
  • Artistic-related intangible assets – such as literary assets, music libraries or film catalogues.
  • Contract-based intangible assets – licensing, royalty and standstill agreements, operating and broadcast rights.
  • Technology-based intangible assets – patented or unpatented technology, computer software and databases.

In our research, we found that customer relationships are the biggest identified intangible asset, followed by brands.

Find out more

The value of intangible assets (including goodwill) of the deals in our sample was £3.08 billion – a significant sum that underlines the importance of having robust measurement procedures in place to deal with intangible asset valuations.

If you are looking to properly understand the value of intangibles, we recommend seeking advice from a specialist with an appreciation of the sector.

For more information, download our summary guide: Priceless thinking – Valuing intangible media assets for confidence [ 1339 kb ] (PDF).

Read the report
Download PDF [ 1339 kb ]