How often is a business purchased solely for the assets on the balance sheet? Hardly ever! In most cases, a predominant reason that businesses are acquired is for the intangible assets – assets Are not shown on the Balance Sheet.
Strategic buyers first look for a track record of success and then for a pathway for growth in the future. To assure their vision can be accomplished, they seek “hidden” assets that will contribute to fulfilling strategic direction. Such off-balance-sheet assets could include a company’s brand in the marketplace, its customer list, its supplier relationships, or the unique skills of the employees.
Although many sellers intuitively know that these off-the-balance-sheet assets have significant value, they do not understand how to quantify and demonstrate that value to a potential buyer. For example, a seller knows its customers and the revenues each customer generates for the business. However, when it comes to properly explaining customer segmentation, customer trends, customer concentration, customer attrition, and potential sources of additional revenue from specific customers, the seller’s analysis and documentation frequently fall short.
Time and attention spent first identifying off-balance-sheet assets that hold potential value for particular buyers, and then documenting, packaging and properly valuing those assets can help assure that the seller receives a fair value for all assets of the company at the Closing Table.