Cornell Systems Seminar: Using Systems Engineering to Maximize Corporate Value by Measuring and Developing Intangible Assets

Cornell Systems Seminar

Using Systems Engineering to Maximize Corporate Value by Measuring and Developing Intangible Assets

The rise of intangible assets is well underway. Since 1995 and the dot-com boom, the value of companies has shifted from their financial statements and into their intangible assets. The narrow definition of intangible assets by regulators and investors causes innovative companies to be consistently undervalued. This undervaluation exacerbates the difficulty innovators have when aligning their competitive advantages, such as operational efficiencies, competitive business combinations, and cutting-edge technology with the business needs of a market. Systems engineering represents a powerful framework for solving this problem.

Joshua Jahani is a Cornell alum, NYU lecturer, and owner of Jahani and Associates, an investment banking firm focused on identifying and developing a company’s intangible assets to maximize its value. The firm’s Intangible Asset Methodology™ (IAM) is built on systems engineering principles to identify, develop, and monetize intangible assets across a variety of verticals. Utilizing proven qualitative and analytical skills driven by business objectives and up-to-date technology, he has spearheaded the movement towards rapid evolution and sustainable growth using rigorous profitability, ROI, and TCO analysis for organizations of all sizes. Working with exciting startups in digital advertising or large Fortune 500 companies keeps him traveling all over the world.

Joshua Jahani earned his M.Eng. in Systems Engineering from Cornell University in 2012 and teaches courses on strategy, finance, and entrepreneurship at NYU. His current research interests are intangible assets, goodwill calculation and sustainability, the customer franchise value in subscription businesses, and value-based healthcare systems and technology. He has a passion for uncovering how to create corporate value that is not shown on financial statements.


Enhance Your Company’s Strategic Assets to Increase Value

Enhance Your Company’s Strategic Assets to Increase Value

What are a Company’s Strategic Assets?

A company’s strategic assets sit at the intersection of tangible and intangible assets and create recurring benefits, are unique, and difficult to imitate. Such strategic assets can include intellectual property, customer relationships, proprietary business processes and algorithms, novel revenue streams, and brand value.

Why focus on strategic assets?

The definition of strategic assets is related to the accounting term goodwill, which is an intangible asset that results from the acquisition of a company at a premium value. The premium is the amount an acquiring company pays for a target company in excess of the target company’s book value. Strategic assets have historically been difficult to quantify, but are known to make a company more valuable.

Corporate buyers have been placing increased emphasis and value on strategic assets compared to tangible assets like property, equipment, and manufacturing facilities. Corporate resources applied to build a robust set of a company’s strategic assets are increasingly providing a higher return on investment than those focused strictly on earnings growth.

High-profile transactions such as Facebook’s acquisition of WhatsApp, AT&T’s purchase of DirecTV, and Campari’s acquisition of Wild Turkey all demonstrated the high percentage of purchase price allotted to goodwill due to the seller’s strong set of strategic assets.

According to research by Carol Corrado, “companies put far more money into non-physical assets, such as customer databases, than in building new factories. In 2014, companies invested the equivalent of 14% of the private sector’s gross domestic product in intangible/strategic assets. The investment in physical assets was about 10% of that sum, which is essentially the reverse of 40 years ago when 13% of the private sector GDP went to tangible/physical assets and only 9% to intangible/strategic assets.”

There is currently more than $2.5 trillion in goodwill on corporations’ balance sheets (source: Time magazine). Why? As corporate awareness of intangible asset value is increasing, fewer companies are pursuing acquisitions to add production facilities and other tangible assets. For example, when Microsoft bought LinkedIn, it was almost exclusively for their intangible and strategic assets, such as their brand, website platform, user/customer data, and perhaps the management team and their connections (e.g., Reid Hoffman!).

How to determine which company’s strategic assets to pursue?

Over the past few months, Gates and Company, in conjunction with Jahani and Associates, have been working to determine the strategic assets that help companies achieve premium valuations that can be identified and developed. Knowing that the concept of strategic assets would not benefit every business, and would certainly vary sector by sector, the team began by reviewing M&A deals in the tech sector. Over 500 transactions that closed between 2010 and 2016 were analyzed to determine strategic asset characteristics and goodwill drivers.

Some of the tech M&A deals reviewed for this initiative included:

  • Google acquired Waze for $969 million and allocated $843 million to goodwill
  • Yahoo! paid $990 million for Tumblr, with $750 million going toward goodwill, including $182 million for customer contracts and relationships
  • Facebook’s $17.2 billion acquisition of WhatApp had an astonishing $15.3 billion recorded as goodwill
  • Microsoft acquired LinkedIn for $27 billion and allocated $16.7 billion of its purchase price to goodwill; and when it acquired Skype for $8.6 billion, $7.1 billion went to goodwill

In each of these examples, the target company’s strategic assets (IP, customer relationships, brand, etc.) were valued significantly higher than their tangible/physical assets (plants, property, equipment, etc.). Results from the tech sector analysis indicated that companies with recognizable strengths in social media, web advertising, and data analytics consistently received valuations above market. Additionally, an active user/subscriber base was a driver in over 60% of the acquisitions.

Corporate leaders, business owners, and investors face a critical issue: in order to maximize value, they must enhance the set of strategic assets in their company and/or portfolio of businesses. A thorough analysis of transactional data to identify strategic asset characteristics and goodwill drivers must be considered in conjunction with corporate core competencies, market dynamics, and economic trends to build out the most relevant value-enhancing strategic assets.

About Gates and Company

With offices near Philadelphia and Munich, Germany, Gates and Company is an investment banking and management consulting firm dedicated to helping companies grow. With an impressive track record of helping numerous companies reach their goals, Gates and Company specialize in M&A, market research/analysis, growth strategy formulation, business plan development, product/venture launch, and financial advisory services.

Gates and Company’s management consulting team has invested significant time and resources to refine and validate its methodology of determining strategic asset characteristics and goodwill drivers in the tech sector. Current efforts are underway in the health IT sector. By reviewing market dynamics and hundreds of M&A deals on a sector-by-sector basis, Gates and Company offer these insights to their clients so they can better understand how to identify and develop an optimized set of strategic assets. Gates and Company’s investment banking team helps companies seeking liquidity with comprehensive M&A services to sell businesses or business units, including identifying and assessing those potential buyers most likely to be attracted to a company’s current and developing set of strategic assets.

For more information about Gates and Company, visit gatesandcompany.com.

Company’s Strategic Assets to Increase Value Articles


Identify, Develop, and Monetize Your Intangible Assets

Identify, Develop, and Monetize Your Intangible Assets

Jahani and Associates utilize a proprietary Intangible Asset Methodology™ (IAM) to help our clients identify, develop, and monetize their most valuable intangible assets. We recently led a Cornell Seminar on the same topic.

Intangible assets take work and time to develop into the premium commanding, goodwill-driving assets that maximize value in capital raises, M&As, and other scenarios. Think about a platform that boasts an above-average amount of time users spend on the technology per day. Such an intangible asset will command a premium, but only if it is identified and measured. Being able to measure this intangible asset (users spending more time on your platform than others) is work in and of itself. Some technological sophistication is required.

Developing the intangible asset takes the longest time out of the three steps:

Sticking with the same example of time spent on a platform per day, the theoretical firm in question must determine why users are spending more time on their platform, and then they must find ways to increase the user’s positive experience inside this intangible asset. Does the user want more videos? More pictures? Will the user share more on your platform when the colors are brighter? All these questions require testing. They require a rigorous process of engineering and business acumen.

Developing intangibles inside the IAM™ is done with consideration of those that generate the highest premium. This is always determined as part of the preceding identify phase. These two phases build on each other to empower the third and final phase: monetize.

Monetizing intangibles is done through investment banking scenarios. This can be done when bringing a company to market for an M&A, when performing investor relations for publicly traded companies, when raising capital from VCs, or a variety of other scenarios. This is when J&A takes its powerful, data-driven story to command a premium in the marketplace.


Startup Valuations and Intangibles: Take Back the Power

Startup Valuations and Intangibles: Take Back the Power

Startups are at the mercy of investors when it comes to seeking large amounts of capital for scaling their business. The solution? Startups must identify how their intangible assets will be monetized in a respective market through intelligent investment banking analysis and services.

Owners are in a better position to value their intangible assets and competitive advantages than any investor. This is because the real value of a startup isn’t found in the financial statements, financial terms, or traditional financial metrics that are used by investors on a regular basis. Startup assets are fundamentally intangible. These intangible assets are always unique to an industry and in many cases unique to a company.

Examples of these intangible assets are daily active users (DAUs), customer data to improve pricing, sales funnel optimization, and costs of customer acquisition.

Startups must work to identify, develop, and monetize their intangible assets by generating a narrative for predictable and repeatable processes. Additionally, they need a pro forma that allows the startup to monitor and improve corporate performance based on intangible metrics.

When these two goals are met, the power is in the owner’s hands. Now there is a clear way to define value, show how the market responds to it, and then maximize it to increase the value of the company.

Contact Jahani and Associates today. Take back the power and no longer be at the mercy of investors when seeking funds.

Read our next article: Identify, Develop, and Implement Intangible Assets to Maximize Your Value


M&A Insights: Use the Power of Intangibles to Maximize Your Value

M&A Insights: Use the Power of Intangibles to Maximize Your Company Value

M&A Insights: Two kinds of intangible assets

In the world of investment banking, there are two kinds of intangible assets. The first is known as “identifiable” intangibles. These are things like patents, trademarks, copyrights, and customer relationships. In short, these are intangibles that GAAP and FASB have determined are consistent enough to be subject to specific valuation rules. When valued these assets are referred to as “intangible assets.”

The second category of intangible assets is known as “unidentifiable” intangibles. These are essentially everything else. Examples include selection algorithms (Netflix, Amazon, and Hulu), operational synergies, talent, and other business combination advantages. When valued these assets generally fall under goodwill. Goodwill is defined as the amount over fair market value an acquirer pays for a target company.

These two kinds of intangibles play a significant role in the valuation of a company. In fact, Jahani and Associates analyzed over 500 M&A transactions among tech giants such as Apple, Alphabet, Facebook, and Microsoft to determine exactly how much value was placed in these categories. The results were astounding.

Intangible assets represented 22% of the money spent on acquisitions for these tech giants. Goodwill accounted for 77% of the money spent on acquisitions from 2010 – 2016. Together, identifiable and unidentifiable assets made up 99% of the purchase price for all acquisitions made by tech giants from 2010 – 2016.



M&A Insights: Maximizing a company’s value

These results are astounding, to say the least. They are astounding for two reasons: 1) They provide a clear and measurable path to maximizing a company’s value and the likelihood of being acquired by a tech giant and 2) they provide insight into why a tech giant will buy targets based on their business model.

M&A Insights: The way a company uses this information, and the unique value Jahani and Associates brings to our clients’ business, is based on three factors:

  1. The industry vertical of the target
  2. The specific business processes that are congruent with those of selected acquirers
  3. A proprietary and data-driven investment banking process

Owners of candidate businesses must consider these factors when building their business. The considerations play a significant role well outside of the traditional investment banking timeline. Meaning the business owner must identify, develop, and implement these intangible assets more than 12 months before they plan to sell their company.

Read our next article: Identify, Develop, and Implement Intangible Assets to Maximize Your Value


The Intangible Asset You Didn’t Know You Had: Customer Data

Customer Data: The Intangible Asset You Didn’t Know You Had

Customer data is no longer just phone numbers, addresses, zip codes, and work phones. In the age of programmatic media buying, customer data is quantified and codified down to screen behavior, social behavior, geo-location, favorite foods, favorite vacation spots, and much more. The evolution of customer data is the major driver behind creating business value and yet one of the most elusive.

Jahani and Associates analyzed over 500 M&A transactions among technology giants. We determined that 100% of the marketing and advertising acquisitions were driven by customer data capabilities. Technology giants use customer data to improve media buying. The acquired customer data capabilities:

  1. Increased number of customer data interfaces for the acquirer
    • For example: Alphabet’s acquisition of Famebit
  2. Increased processing power of the acquirer’s customer data

Companies seeking to maximize their value in the technology space must intimately understand their data and how it can be used to improve both collection and processing to generate insights. Jahani and Associates uses its proprietary Intangible Asset Framework to understand how our clients will increase their competitive advantage around customer data.

We have developed this framework from serving $100 million technology clients and partnering with large VC firms. Our findings consistently show how successful customer data strategies overlap with either a lucrative business model or the business model of a strategic partner. Our three-step process that identifies, develops, and monetizes intangible assets will measure your competitive advantages, such as customer data monetization. This provides consistent and repeatable results for maximizing value.

Identifying Intangibles in Ad Tech M&A Value


The Hungry for Health Games: Aligning Strategy and Competitive Advantage

The Hungry for Health Games: Aligning Strategy and Competitive Advantage

Jahani and Associates analyzed over 200 M&A transactions and equity investments in digital health from 2013 to 2016. We mapped a selection of these companies onto a four-quadrant plane to understand their natural differentiators. We considered both the scope of care delivery (for example, an urgent care company versus a software analytics company) and the size of the company’s financials and number of employees.

Quadrant 1: Social Players

These companies typically have a large customer base, but are relatively lean due to the simplicity of their products. These are socially themed companies, like FitnessKeeper and b.well.

Quadrant 2: Analytic Leaders

These are software-dominated companies that built their businesses by providing automation, simplicity, and streamlining to the data-rich and complex USA healthcare ecosystem.

Quadrant 3: Agile Players

Our research indicates that these companies are in the process of competing to transition to quadrant four. They have strong customer relationships and are starting to scale.

Quadrant 4: Tomorrow’s Healthcare Providers (THP)

THPs are the dominant players of today and tomorrow. These are companies that have a proven ability to scale, are generally profitable, and have strong brands. They are challenged to increase their competitive advantage by generating new, innovative digital health products or by acquiring other innovative companies.

Jahani and Associates work with digital health companies to identify, develop, and implement their competitive advantage powered by intangible assets.

You may also be interested in our article Part 2: Developing Intangibles in Ad Tech M&A Value.

Also you can read our article Identify, Develop, and Implement Intangible Assets to Maximize Your Value.


How Do I Maximize My Company’s Sale Price? (I’m a Business Owner)

How Do I Maximize My Company’s Sale Price? (I’m a Business Owner)

Jahani and Associates have been asked “How do I maximize my company’s sale price?” time and time again. The answer is always simple but the execution is never easy. Owners looking to sell their company must understand the fundamental dynamics of identifying, developing, and monetizing corporate value.

An acquisition price includes five parameters: tangible assets, intangible assets, cash, liabilities, and goodwill. Companies maximize their value by creating clarity around cash and tangible assets, having clean and transparent financial statements, and pitching themselves in a way that demonstrates sustainable value.

But that is not the key to maximizing your company’s sale price. The facts show that the vast majority of investment decisions are made based on intangible assets and goodwill. Through extensive research and market experience, Jahani and Associates have identified goodwill drivers specific to a company’s industry and competitive advantage. Whether you are selling to a mid-market private equity company or selling to Apple, you will maximize your company’s value by increasing transparency around intangibles and goodwill drivers.

Jahani and Associates will identify, develop, and monetize your high-value intangible assets and goodwill drivers to maximize your company’s sale price.

Intangible investments have been dominating the industry since 1995 and the subsequent dot-com boom. Intangible assets are consistently undervalued, particularly for small companies at the mercy of large players. This is where we come in.

We utilize our intangible asset framework to systematically and rigorously maximize a company’s sale price.

The process starts well in advance of the transaction execution date to definitively build and identify value. Business owners will maximize their company’s value by partnering with Jahani and Associates, an investment banking firm that understands the true value of a company and how to maximize it.

Read our article: Identify, Develop, and Implement Intangible Assets to Maximize Your Value


Digital Health: Competition for VC Dollars

Digital Health: Competition for VC Dollars

Digital health is an exciting area, ripe with growing Medicare reimbursements, new technologies, and real potential to improve the frustrating healthcare consumer experience in the USA.

Jahani and Associates analyzed over 200 M&A transactions and equity investments in digital health from 2013 to 2016. Our results showed a 20% decrease in investment funds per company in 2016 versus 2015. Despite a 604% growth in Medicare reimbursements from 2006 to 2016 and a 62% increase in telehealth consultation over the same period, digital health companies must carefully develop their competitive advantages to both increase access to capital and decrease their cost of capital.

By analyzing companies that maintain competitive advantages such as Welltok, SnapMD, Pager, and Teledoc we elicited two opportunities for creating value:

There are opportunities for digital health returns, but companies must respond to a saturating market by focusing on improving the customer experience while at the same time optimizing the business model of existing healthcare giants.

Jahani and Associates recommends digital health companies focus on four major intangible assets to accomplish the value goals listed above:

  1. Optimize member access via subscription contracts, members per client, providers per network, and the visits offered to members based on contracts.
  2. Create a revenue model driven by customer engagement. Digital health companies are much closer to their consumers than traditional healthcare companies.
  3. Create a scalable and flexible business model that responds to seasonality, subscription fees, and access fee changes.
  4. Consistently provide regulatory compliant solutions in response to existing and expected reforms such as HIPAA one and two, HITECH, ACA, and BPCI.

This is all predicated on the ability to identify, develop, and monetize intangible assets using the Jahani and Associates’ intangible asset framework.

Read our article: Identify, Develop, and Implement Intangible Assets to Maximize Your Value


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