Global intellectual property value reached $57.3 trillion, but 75% of the world’s intangible assets are still missing from balance sheets
Brand Finance has released its latest Global Intangible Finance Tracker (GIFT) report, with Amazon.com overtaking Microsoft as the company boasting the highest level of intangible value. Technology companies dominate the top 10, but the picture is different when only disclosed intangible value is considered – prompting a call for a new approach to financial reporting.
In terms of headline findings, the report found that:
Turning to the companies possessing the greatest total intangible value (disclosed and undisclosed), Amazon.com topped the list – leapfrogging Apple and Microsoft. In this regard, the pattern mirrors the previously published Most Valuable Brands list, in which the tech giant overtook Apple and Google to secure top spot.
In some respects, that many of the world’s most valuable brands possess the greatest intangible value is not a surprise. After all, the sectors possessing high levels of patents, technology and marketing intellectual property are invariably those with a larger proportion of intangible assets within their overall enterprise value – with marketing IP including trademarks, service marks, trade dress and domain names. For instance, the report notes that the cosmetics & personal care sector, “which is dependent to a large degree on brand recognition and the need to continually roll-out new marketing and advertising”, has the highest percentage of its enterprise value attributable to intangibles (90%). As a result, the leading companies within the sector have extremely high levels of intangibles, notably Procter & Gamble (97%), Unilever (96%) and L’Oréal (88%).
The top 10 industry sectors in terms of total intangible value are:
As noted above, Anheuser-Busch InBev’s boasted the second-highest value of disclosed intangibles worldwide, totalling $187 billion. However, in terms of overall intangible value (declared and undeclared) it drops to tenth place. This is the case in a number of instances. For instance, AT&T tops the list of disclosed intangibles but is in ninth place for overall intangible value. Elsewhere, Amazon and Apple, while sitting on significant intangible value, don’t make the top 100 ranking of companies when only disclosed value is counted. In fact, the list of top ten companies by disclosed intangible value (AT&T; Anheuser-Busch Inbev; British American Tobacco; Verizon Communications; Berkshire Hathaway; Comcast Corp-Class; Charter Communications; Pfizer; Allergan; The Kraft Heinz Co) is notable for the absence of the tech giants that dominate the overall tangible value top ten.
This is not surprising, intellectual capital is the wealth creating asset of the future. Patents, trademarks, copyright, knowledge, secrets, brands etc. are the most important advances in wealth creation. These assets are capable of separate identification.
Our company Dubai Copyright Office (member of global network Aston Alliance) specialises in Intangible Asset and Intellectual Property capitalization, valuation and assists with their valuation and proposed exploitation by way of modeling and market comparability to advise concerning licensing structures and royalty rates.
It is important to identify the value of intangible assets and intellectual property in any deal. This study of intellectual capital reinforces the value drivers. Furthermore every business has intangible assets even if it is only in the name under which it trades. Management and institutions need to know the value of what might be the single most valuable asset in the company and business managers need to know, or should know, the value of all assets under their stewardship and control.
In today's market the ability to understand and analyse the intellectual property and intangible asset strategies of your business has never been more important. The starting place is to understand valuation and to be able to judge whether you can exploit the assets better.
It does not take a giant leap of imagination to work out that if there is such a key component of corporate value the ability to create, manage and exploit these rights to maximum effect is a required core business skill for companies both large and small.
With most M&A deals company management is concerned with the level of intangibles recorded and resulting amortisation. For many deal makers the attempt is to maximise the amount of goodwill recorded. This strategy has been viewed as attractive but only in the short term. In view of this lack of detailed information many are therefore, instead, looking more closely at reporting transactions where a number of specific intangibles are recorded in terms of their type as well as their value to the overall deal, even if this leads to more amortisation (see next paragraph) than would have been the case (goodwill is not amortised).
Successful IP including brands may have indefinite useful lives. The indefinite life status is reassessed annually and whenever indicators show a need. The IP is not amortised but tested for impairment. Assets that must be individually accounted for under IAS38 and IFRS3 can be categorised as follows:
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