Valuing Your Company: Intangible Assets

Summary

In this discussion, Bruce from American Capital Advisors emphasizes the importance of valuing a company's intangibles beyond just financial metrics. He highlights the significance of factors like management team, market position, and product differentiation in determining a company's future growth and sustainability. The firm's deep dive into businesses, leveraging domain expertise and a quantitative model, allows for a more accurate valuation. Bruce illustrates this with an example comparing a profitable company in a declining market to a breakeven one in a rapidly growing market, suggesting investors often favor the latter due to its potential. The key takeaway is the importance of understanding and communicating the intangibles that drive business value.

Takeaways

• 🔍 Valuing a company involves looking beyond financials to understand the intangibles that contribute to its identity and future.
• 📈 The intangibles, such as management team, market position, and product differentiators, are critical for assessing a company's sustainability and growth potential.
• 💡 American Capital Advisors emphasizes the importance of intangibles over financials when evaluating a company's true worth.
• 🤝 Their approach involves getting to know the business deeply to understand the inherent business drivers and industry-specific nuances.
• 📊 In the software industry, they've developed a quantitative model that benchmarks a company against industry peers based on qualitative aspects.
• 💼 The firm leverages its domain expertise and deal-making experience to provide a comprehensive valuation that considers market conditions and growth prospects.
• 🌐 Market growth is a significant factor in valuation, as a company in a rapidly growing market with consistent growth is often more valuable than a stable one in a declining market.
• 📈 EBIT multiples can vary significantly based on the growth potential and market conditions of the company, not just its current profitability.
• 🤔 Investors are more interested in a company's future performance and growth prospects rather than just its past financial performance.
• 🛠 Mirus helps businesses identify the most impactful intangibles, using a combination of quantitative measures and qualitative insights to drive business forward.
• 💬 Effective communication of these intangibles to the market is key to maximizing a company's valuation and attracting investment.

Q & A

What does Bruce Bosom focus on when valuing a company?

Bruce Bosom focuses on the intangibles of a company, which includes aspects beyond just financials such as the management team, market, product differentiators, and other qualitative factors that contribute to the company's value.

Why are intangibles important when evaluating a company's value?

Intangibles are important because they are more indicative of a company's future, its sustainability, growth potential, and overall performance. They help investors understand what the company will do for them tomorrow, not just what it has achieved in the past.

How does American Capital Advisors approach understanding a business?

American Capital Advisors gets to know a business at a deep level, understanding the business drivers and leveraging their domain expertise within various industries to evaluate the company against other companies in the industry.

What is the significance of the quantitative model developed by American Capital Advisors for the software industry?

The quantitative model developed by American Capital Advisors evaluates a company against others in the software industry by benchmarking various intangibles, which helps in understanding the company's position and potential within the market.

What role do deal-making experience and market knowledge play in valuation?

Deal-making experience and market knowledge are crucial as they allow for a more accurate valuation by understanding market trends and applying this knowledge to evaluate a company's potential and position in the market.

What is the difference between EBIT and the intangible factors in company valuation?

EBIT (Earnings Before Interest and Taxes) is a financial metric that provides a basic understanding of a company's profitability. In contrast, intangible factors like management quality, market position, and product differentiation offer a deeper insight into the company's future potential and growth.

Why might a company with breakeven EBIT be valued higher than one with excellent EBIT?

A company with breakeven EBIT might be valued higher if it is in a rapidly growing market and consistently posts 20% growth. This indicates potential for future profitability and growth, which investors find attractive.

How does Mirus help businesses identify impactful intangibles?

Mirus helps by culling through various information, applying years of experience, quantitative measures, and qualitative analysis to figure out which intangibles are most impactful on a business's success and growth.

What is the role of market communication in getting the most value for a business?

Effective market communication is essential for translating the understanding of a company's intangibles and potential into a compelling narrative that can attract investors and command a higher valuation.

How does the script differentiate between a company in a declining market versus a growing market?

The script differentiates by highlighting that a company in a declining market, even with excellent EBIT, may not be as attractive as a company in a growing market with breakeven EBIT due to the latter's potential for future growth.

What does the script suggest about the importance of market growth in company valuation?

The script suggests that market growth is a critical factor in company valuation, as it can significantly influence the multiples and perceived value of a company, even if its current financial performance is breakeven.

Outlines

00:00

📈 Valuing Intangibles in Company Valuation

Bruce Bosin, a partner at American Capital Advisors, emphasizes the importance of intangibles in company valuation beyond traditional financial metrics. He discusses how investment bankers often overlook the value of a company's management team, market position, product differentiation, and other intangible factors that contribute to its future sustainability and growth. Bosin highlights that these intangibles are crucial for investors who are interested in a company's potential and future performance rather than just its past financials. American Capital Advisors uses their domain expertise and a quantitative model to evaluate and benchmark companies in the software industry against these intangibles, applying their deal-making experience and market knowledge to determine a company's true value.

Keywords

💡Valuing the Company

Valuing a company involves assessing its worth based on various financial and non-financial factors. In the video, the speaker emphasizes that while financial metrics like EBIT (Earnings Before Interest and Taxes) are important, they only tell part of the story. The true value lies in understanding the company's intangibles, which are the non-financial aspects that contribute to its long-term potential and growth.

💡Intangibles

Intangibles refer to the non-physical assets of a company that contribute to its value but are not easily quantifiable. These can include brand reputation, intellectual property, and customer loyalty. The speaker in the video argues that intangibles are crucial for predicting a company's future success and are more indicative of its sustainability and growth potential than just financial metrics.

💡Investment Bankers

Investment bankers are financial professionals who advise companies on matters such as mergers, acquisitions, and capital raising. In the context of the video, the speaker contrasts the typical approach of investment bankers, who might focus solely on financial metrics, with the deeper analysis that American Capital Advisors provides, taking into account both tangible and intangible factors.

💡Management Team

The management team of a company refers to its leadership group, which is responsible for the strategic direction and operational management. The video script highlights the importance of the management team as a key intangible factor in a company's valuation, suggesting that a strong team can significantly influence a company's future performance and value.

💡Market

In the video, 'market' refers to the industry or sector in which a company operates. The speaker discusses how the market's growth potential is a critical factor in company valuation, with companies in rapidly growing markets often being valued higher than those in declining markets, even if the latter have stronger current financials.

💡Product Differentiators

Product differentiators are the unique features or characteristics that set a company's products apart from competitors. The video emphasizes that these differentiators are an intangible asset that can significantly impact a company's valuation, as they can lead to competitive advantages and increased market share.

💡Sustainability

Sustainability in the context of the video refers to a company's ability to maintain its operations and growth over the long term. The speaker suggests that intangibles are more indicative of a company's sustainability than its current financial performance, as they reflect the company's potential to adapt and thrive in the future.

💡Growth Potential

Growth potential assesses a company's expected future expansion and success. The video script indicates that investors are particularly interested in a company's growth potential, which is closely tied to its intangible assets and market conditions, rather than just its current financial performance.

💡Domain Expertise

Domain expertise refers to the specialized knowledge and experience in a particular industry or field. The speaker from American Capital Advisors highlights the importance of their domain expertise in understanding the intricacies of different industries, which enables them to evaluate companies more accurately and identify the key drivers of value.

💡Quantitative Model

A quantitative model is a mathematical or statistical model used to analyze and predict outcomes based on data. In the video, the speaker mentions that American Capital Advisors has developed a quantitative model to evaluate companies in the software industry by benchmarking them against various intangibles, demonstrating a systematic approach to valuing companies.

💡Deal-Making Experience

Deal-making experience refers to the practical knowledge and skills gained from participating in various business transactions, such as mergers, acquisitions, and investments. The video script emphasizes the value of American Capital Advisors' deal-making experience in understanding market dynamics and translating qualitative insights into actionable valuations.

Highlights

Valuing a company involves looking beyond financials to intangibles.

Intangibles include management team, market, and product differentiators.

Financials are important, but intangibles indicate future company potential.

Investors are interested in a company's future performance, not just past.

American Capital Advisors delves deep into understanding business drivers.

Domain expertise allows for a deeper understanding of industries.

A quantitative model evaluates companies against industry intangibles.

Benchmarking is used to compare companies within the software industry.

Years of deal-making experience contribute to valuation accuracy.

EBIT is a starting point, but market growth is also crucial.

A company with no growth in a declining market is less valuable.

A breakeven company in a rapidly growing market can be more valuable.

Investor preferences can vary, but growth potential often commands higher multiples.

Mirus helps identify which intangibles are most impactful on business value.

Experience and quantitative measures are used to assess intangibles.

Qualitative intangibles are analyzed to drive business forward.

Translating intangibles into market communication for business valuation.

Transcripts

I'm Bruce boson partner here at American

Capital Advisors today I'd like to talk

to you about valuing the company

particularly the intangibles of the

company a lot of people a lot of

investment bankers when they look at a

business where I look at it just from

the financial standpoint look at IVA and

revenue run a quick calculation there's

the value of your company and mirus we

really look deeper than that we would

look at the things that go into making

up your company yourself all those

things that you work hard at over the

years to go into making the company

really what it is it's things like your

management team it's the market that

you're in get your product

differentiators it's all those various

intangibles if you will to go into

making the company financials are

important there's no question about that

but it's the intangibles that are more

indicative of the future of your company

its sustainability its growth the

potential that the company has and when

you're looking at it from an investor's

standpoint it's really where they're

where they're headed it's not just on

what you've performed but what you're

going to do for them tomorrow

so Amira's we really get to know your

business to a level of depth that we

understand inherently what the business

drivers are our domain expertise within

the various industries really allows us

to go take things to the next level and

really get in understand the all the ins

and outs of your company in the software

industry we've actually developed a

quantitative model from these various

qualitative aspects if you want that

evaluates your company against other

companies in the industry essentially

benchmarking the company against these

various intangibles we apply our years

of deal-making experience as well as our

knowledge of the markets to ultimately

come up with what that valuation is for

your company let's start with EBIT is

good right so one scenario has excellent

llevado let's call it 20% of it but has

no market growth

or has no company growth in a in a

market which is actually declining

second company has essentially breakeven

but they're in a market that's growing

rapidly and they've been able to post

consistently 20% growth which one would

you rather have well it really again

depends upon the investor but in most

cases I can assure you that the

multiples for the second one are going

to be much higher the key here is how

mirus can help you to really

cull through all the various information

and figure out which individual

intangibles are the most impactful on

your business it's our years of

experience our skills with quantitative

measures as well as being able to look

at the qualitative intangibles and

really come up with which things are

going to drive your business forward and

then ultimately translating that into

something we can communicate to market

to get the most value for your business