Financial Services Firms: Governance, Regulations, Valuations, Mergers, and Acquisitions, 3rd Edition

Chapter Ten

Intangible Asset Valuation

Often it is necessary for tax and accounting purposes, as described in Chapter 9, to value the intangible assets of an acquired company. This chapter addresses the unique characteristics of intangible assets and their role in the acquisition process. Specific examples of bank intangible assets are used where appropriate.

Nature and Types of Intangible Assets

Intangible assets do not have physical substance but are nonetheless integral components of the overall value of a business. The value of an intangible asset is usually a result of economic benefits that accrue to the owner. The fact that the purchase price of a business exceeds the net value of tangible assets confirms that intangible assets have benefits and the buyer perceives them to have value.

Criteria for Defining Intangible Assets

By standards of common law, assets such as stocks, bonds, and loans are considered intangible. For tax and accounting purposes in acquisitions, however, these types of assets are not considered intangible. For tax and accounting purposes, an asset is intangible if it possesses two key characteristics:

1. Immateriality.¹ This criterion distinguishes an intangible asset from a nontangible asset. Intangible assets are considered immaterial noncurrent assets, which means they have a relatively permanent nature and are not intended for sale. Nontangible assets, however, are claims against other parties, such as notes and receivables, and could be sold individually. ...