INTHEBLACK February 2022 - Magazine - Page 41
AT A G L A N C E
Global merger and acquisition
activity is estimated to have
reached a record high of
US$6 trillion (A$8.35 trillion)
at the end of 2021.
Intangible assets such as
intellectual property (IP) are an
important factor in the valuation of
an entity’s assets, but are not often
listed on a balance sheet, because
international accounting standards
do not require them to be listed.
This can cause complexity in the
exercise of valuing IP and other
intangible assets, as their fair value
cannot be increased after the
acquisition has taken place.
STORY GARY ANDERS
G
lobal mergers and acquisitions activity surged to
record levels in 2021, fuelled by a wave of major
deals.
Among the biggest transactions of the year
was Discovery’s US$43 billion (A$58 billion) merger
with WarnerMedia, a business owned by the US
telecommunications giant AT&T.
In addition to the iconic Warner Bros. film studios
business and its catalogue of thousands of movies and
TV shows, the deal incorporates a powerful portfolio of
famous entertainment, news and sports brands including
CNN, HBO and TNT.
Discovery folded in its own stable of well-known TV
brands including the Discovery Channel, Animal Planet
and TLC.
To get the deal over the line, both parties needed to
agree on fair values for all of their respective assets. This
included a huge list of intangible assets, such as registered
trading names, digital copyrights, technology patents,
designs and symbols, and other forms of intellectual
property (IP).
Adding to the complexity of this enormous valuation
exercise was the fact that most of the intangible assets
wrapped up in the merger are not listed on either
company’s balance sheets. That is because, under the
relevant international accounting standard IAS 38 and
Australia’s equivalent standard AASB 138, entities are
only encouraged, but not required, to disclose their
intangible assets.
There is a range of reasons for that. First and foremost,
internally generated intangible assets, such as brands, are
not recognised under the standards as having an actual
value.
The standards deem that a book value can only be
placed on acquired intangible assets resulting from
a business takeover or merger.
However, once recorded, the fair value of an
acquired intangible asset cannot be increased over
time. Furthermore, if an intangible asset has a finite
life, it must be amortised.
Facebook, for example, has more than US$19.7 billion
(A$27 billion) in intangible assets, including what it
calls acquired users, acquired technology, patents and
trademarks. This figure has been fairly constant for
more than a decade, but only because Facebook has
kept adding new acquisitions to its books.
intheblack.com February 2022 41