The Google/Motorola Mobility (MMI) acquisition (2011)^[2] represents one of the largest and better-known intellectual property (IP)-driven acquisitions. The consensus around this US$12.5 billion deal at the time of the acquisition was that the deal had primarily been driven by MMI’s extensive IP portfolio, including about 17,000 issued patents and another 7,000 patent applications covering seminal mobile technologies. Many acquisitions are driven by IP in high-tech and heavy research and development (R&D) industries (assets such as patents and developed technology) as well as in consumer goods and entertainment (assets such as brands and copyrights). While there is no dispute about the importance of IP in acquisitions, when it comes to valuation and pricing of the deal, it is not always easy or even possible to pinpoint exactly how intangible assets impact merger and acquisition (M&A) deal pricing. MMI was acquired at a significant premium to its trading price at the time, but was this premium all attributed to its patents? Around the time of the acquisition, many market experts were trying to guess what the IP portfolio’s share of the acquisition price was. Some went as far as attributing the entire US$12.5 billion acquisition price to the patent portfolio, disregarding all other assets owned by MMI. The main reason for the confusion is that the MMI balance sheet pre-M&A had no patents reported on it – a practice that is consistent with the accounting treatment of internally generated intangible assets, which does not require that these assets be reported on the balance sheet. As a result, when valuing a target company in an M&A deal, its intangible assets are not easily identifiable; as a result, they are not easily measurable. This problem is further exacerbated by the fact that M&A deal pricing is not done on an asset-by-asset basis but rather at the stock price level, resulting in many sellers who feel that intangible assets are ignored and are not reflected at their fair value in deal pricing. This ‘intangible valuation gap’ is discussed in detail in this article. We explore the types of M&A deals, how M&A deals are priced, how accounting rules and M&A pricing conventions result in intangible assets being ignored or undervalued in M&A deal pricing, and how addressing this gap can help close the valuation gap between buyers and sellers to get more deals done.

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The Guide to Monetisation: Closing the intangible valuation gap in M&A deal pricing