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Dell Appraisal Spawns a Multitude of Valuation Approaches

February 2017 | Issue 84 Introduction A Delaware Chancery appraisal case involving computer company Dell Inc. gave rise to a multitude of valuation measurements.  It is instructive to see how the court sorted through them in coming up with its final appraisal conclusion.  The case is In re Appraisal of Dell Inc., 2016 Del. Ch. LEXIS […] More...

Future Expected Investment Strategy Determines Value of FLP Interest

January 2016 | Issue 83 The estate of Helen P. Richmond held a 23.44% interest in Pearson Holding Co. (“PHC”), a family investment company.  The estate valued this holding at $3,150,000, later adjusted to $5,046,000.  The IRS valued it at $7,330,000.  This difference of opinion was aired in US Tax Court in a case called Estate […] More...

Do Attached Strings Affect the Value of a Gift?

October 2015 | Issue 82 Steinberg v. Commissioner, 145 T.C. No. 7 (Sept. 16, 2015) explores how a contingent liability accepted by a donee can impact the value of a gift for gift tax purposes. Introduction In 2007, Petitioner Jean Steinberg, age 89, entered into a net gift agreement under which she gave her four […] More...

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Goodwill Accounts for 47% of Average M & A Allocation

March 2009 | Issue 36

In a recent world-wide survey of purchase price allocations in business combinations, Ernst & Young found that the average acquirer allocated 47% of the enterprise value of the transaction (acquisition price plus net financial debt) to goodwill. Of the balance, 30% was allocated to tangible assets, and the rest, 23%, to identified intangible assets.

The most commonly reported category of identified intangible was customer-related assets, followed by brands/trademarks and technology.

As might be expected, allocations varied widely by industry. For example, in consumer product company acquisitions, the average goodwill allocation was 65% of enterprise value. At the other end of the spectrum was oil and gas, where the goodwill allocations averaged only 30%. The largest recognized intangible asset allocations occurred, not surprisingly, in the tech-heavy pharmaceutical and biotechnology industries, at 49% and 47% of enterprise value, respectively.

Companies did not generally disclose the method employed to value their assets. When they did, however, the study authors found the most-often used method for valuing brand names was the relief from royalty method. For customer-related intangibles, the multi-period excess earnings method was most common

E & Y gathered this data from descriptions of 709 transactions found in annual reports and other public sources. The data included 247 transactions of US-based companies. The balance came from companies in 20 other countries. A copy of the report is available here.