Merger & Acquisition Intangibles
by IPv4.Global Staff
In a typical merger and acquisition event, once a buyer and seller have expressed mutual interest in the exchange, financial information is shared and assessed to find value for both parties. The ultimate goal for the seller in any M&A deal is to maximize the company’s pre-sale value, so understanding the worth of all the assets in the transaction is important. The same is true for buyers, but secondary assets sometimes are overlooked or ignored by them as well. As a result, the primary goal of the acquisition may not include all the value inherent in the business.
In the past, it was easier to gauge a potential M&A’s worth because the business valuation mix was more heavily weighted towards tangible assets and goodwill. But in recent times, all that has changed and intangible assets—non-financial assets that lack physical substance—comprise a much larger share of the M&A pie.
These assets are easily overlooked and frequently excluded in a given company’s financial inventories. While some assets, such as brands or patents, are often included on balance sheets, others may be unaccounted for. Plus, even though they are valuable and capable of identification, there’s often no paper trail (either quantitative or qualitative) to demonstrate the assets’ true value. As a result, a seller could be sitting on an intangible asset goldmine and not even realize it. What’s more, a buyer may acquire value without any explicit knowledge or understanding of the transfer.
Businesses may have millions of dollars of valuable intangible assets hidden in plain sight, and here’s what they need to know before any M&A deal occurs.
Dozens of intangible assets may not be included in the company’s balance sheet, but still play an essential role in the company’s success, worth, and reputation. These assets can be worth lots of money; however, a business must first identify them before they can begin to quantify their value.
Some of the more valuable intangible assets include intellectual property and other intanglbles such as:
- Brand equity – This is the value the brand’s name adds to the product or service beyond the functional benefits.
- Domains – Domain names have become a valuable asset, especially exact-match, category domain names.
- Patents – Valuable for expansion, defense and monetization.
- Goodwill – This is the value of the company’s reputation and relationships, and is usually only included in an acquisition in which the value of the acquired company’s assets surpasses the purchase price.
- Contracts and agreements – The business may have established valuable long-term partnerships with suppliers, customers, and employees.
- Software and technology – A business may develop proprietary software and hardware that it owns exclusive rights to.
- Trade secrets – Confidential information that affords the business a competitive advantage.
- Customer lists and databases – Valuable consumer behavior data and customer information that businesses can use to better understand their consumer base and then target or retarget consumers.
- IPv4 addresses – These unique numerical identifiers enable company devices to access the internet using exclusive IP addresses, which can provide both security and performance benefits.
As mentioned, intangible assets are often not included on a company’s balance sheet. To make matters even more complicated, such assets can be either acquired unknowingly via purchases or exchanges or they may gain significant value over time and without being recognized as more valuable.
It’s within the acquisition process that incredibly valuable assets can frequently go unnoticed.
For instance, decades-old mergers between businesses may have resulted in the transfer of intangible assets, like large blocks of IPv4 addresses, that all relevant parties then forgot with time and disuse. This is especially true of IP addresses since their original costs were often at or near zero, and the fairly recent increase in their worth isn’t something CFOs tend to monitor.
There is also a potential snowball effect from multiple mergers and acquisitions to consider, which may muddy the intangible asset valuation waters even further.
In such cases, an IPv4 address block may have changed hands several times. But, because they aren’t included in the original inventories or balance sheets (rather looped in as some sort of “miscellaneous” item), they could remain completely overlooked and undervalued throughout several M&A deals. This means additional IPv4 blocks can be added from any one of these deals, that are then passed on in the next.
When the Internet was first established, its creators specified a system of approximately 4.3 billion unique, 32-bit IPv4 addresses that devices would then be assigned and are still used to connect to the internet. They thought this would be an adequate number of addresses, but the popularity and ubiquity of the Internet surpassed their wildest expectations.
With the rise of digitalism, the world is facing an IPv4 address crunch. According to Asia Pacific Network Information Centre (APNIC), the market has been rapidly exhausted over the past decade:
“All of the Regional Internet Registries (RIRs) have either limited supplies or have run out of available IPv4 addresses. ARIN and the RIPE NCC ran out of their available supply in 2015 and 2019 respectively, with APNIC, LACNIC, and AFRINIC rationing supplies according to their community policies.”
Today, 99.6% of IPv4 addresses have been delegated.
But business demand hasn’t dwindled—companies often still prefer IPv4 addresses as they seek to expand their already-established IPv4 infrastructure. And so, in light of rising demand with limited supply, the market valuation for IPv4 address blocks has skyrocketed. In just the past three years alone, the average value of an IPv4 address has increased by 300%, going from less than $20 a sale in 2019 to nearly $60 per sale in 2022.
As a result of all this, a business could potentially own a block of tens of thousands of IPv4 addresses worth several million dollars.
When companies know where to go mining for valuable intangible assets, what happens if they strike gold?
This is what the IPv4 address market is for. Today, there are IPv4 marketplaces and brokers—such as IPv4 Global—that can bring buyers and sellers together.
In the marketplace, a business can track IPv4 prices, receive an appraisal for their IPv4 blocks, offload or sell IPv4 addresses, and more. By performing this due diligence, businesses can ensure that they receive fair value for their valuable intangible assets—whether companies include them as a piece in the M&A deal or simply sell them outright.
In either case, IPv4 address blocks are an incredibly valuable asset to any business, but only if they know that they’re sitting on them in the first place.
For any M&A sale, the sell-side company has a duty to derive as much fair market value from the deal as possible. To do that, they must account for all of their assets, especially the intangible ones.
So, before sellers initiate a sale, they should first check to see whether or not they’re sitting on an IPv4 gold mine. Experts in intangible valuation, like Hilco Streambank, may be able to help evaluate holdings of all kinds of assets. IPv4.Global specializes in IP address valuations and transfers.