May
18

Customer Data: The Intangible Asset You Did Not Realize You Have

Customer Data: The Intangible Asset You Did Not Realize You Have

Customer data is more than just addresses, phone numbers, 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 the number of customer data interfaces for the acquirer. For example, Alphabet’s acquisition of Famebit.
  2. Increased the processing power of the acquirer’s customer data. For example, Alphabet’s acquisition of DeepMind, which provides deep learning solutions. Ray Kurzweil, director of engineering at Google, said that he wants to build a search engine so advanced that it could act like a “cybernetic friend.”

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 use our experience in tech M&A and investment banking to understand how our clients will increase their competitive advantage around customer data.

We have developed this expertise from serving large $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.
You can learn more about our three-step process in the below articles.

Part 1: Identifying Intangibles In Ad Tech M&A Value

Part 2: Developing Intangibles In Ad Tech M&A Value

Part 3: Monetizing Intangibles In Ad Tech M&A Value

Jul
16

Part 2: Developing Intangibles in Ad Tech M&A Value

Part 2

Developing Intangibles in Ad Tech M&A Value

In this article, we will briefly explain how to develop intangibles.

In our earlier article Identifying Intangibles in AdTech M&A Value, we explored how you, as a business owner, can identify the intangible assets that make your company more valuable during the M&A process. After identification is complete, the next step is to develop those same intangible assets. Developing intangible assets relies on key performance indicators (KPIs) in the same way identifying intangibles does. KPIs are the metrics you choose to represent the performance of an intangible asset.

Developing an intangible asset is the set of actions you will take to optimize a KPI. For example, we previously explored how more data interfaces can lead to optimized conversion. Therefore, the intangible asset is the data interface and conversion is the KPI. Optimizing conversion means increasing or decreasing it based on drivers like technology, advertising spends, or advertising quality.

To measure conversion, you must define the desired final action you wish your customer or visitor to take. This could include clicking an ad, buying a product, or providing an email address. The development of the intangible asset (e.g., data interfaces) becomes any action, investment, or improvement you perform to accomplish the final objective (e.g., click, buy, provide email). These developments increase M&A value. In our next article, Monetizing Intangibles in Ad Tech M&A Value, we will show you how to monetize them.

There are multiple ways to develop an intangible asset. Building a company for sale requires considering accounting and banking principles as well as intuitive, strategic ones. Imagine a company that performs direct digital marketing. If this firm wants to increase the number of people who click ads served to drive more website traffic, they have several options to encourage their users to do so:

  • Create more compelling marketing content and design
  • Acquire new contact information of people who are more likely to click the links in the body of the message
  • Retarget consumers by making sure prospects are seeing ads in multiple locations and in multiple instances
  • Invest in new technology that places more relevant ads in front of potential “clickers”
  • A combination of some or all of the above

The best choice for the company is likely a mixture of the five options laid out above. The company must understand that each choice represents a distinct set of intangible assets, all of which are inherently identified and developed when the decision is made. The investments made in one, some, or all of these options are a part of “developing” the intangible asset. The intangibles must be measured and monitored so they can increase corporate value at the time of M&A.

As a business owner, how you choose to develop an intangible asset affects the accounting options available to your management team. Capitalization is a common technique for recording expenses as assets to minimize long-term costs. Specific rules exist about how and when to capitalize expenses that overlap with the development of the intangible assets recommended here. For example, you can capitalize costs to develop patents, copyrights, trademarks, and even proprietary software intangibles, but those costs must be recorded correctly. You cannot simply download a credit card statement 11 months after the expenses were incurred and then claim them as assets.

The principles of identifying and developing intangibles are relevant to business owners because they tie together strategies for growth, development, accounting, and exits. When used correctly, they break down silos between business units and bring together the operation and value of a business. Most venture-capital investors wait for companies to be purchased so the investor can then achieve liquidity. All owners desire M&A options for their hard work. Developing intangibles is the only way to combine the traditional business operations of growing, scaling, and building a company with the gritty accounting principles that affect the valuation and closing of an M&A deal.

Companies are rarely acquired with the intention to conduct business the same way it was conducted before the purchase. Therefore, it is important for you, the seller, to highlight the most valuable intangible assets of your business through their development and investment. This allows the buyer to utilize these intangibles to their own advantage. Ad tech companies are driven by these intangible assets, such as data interfaces, and new technology development that engages specific customers. Measuring these intangibles through the life cycle of the company will affect your exit valuation, creating a more accurate picture of what a buyer is ultimately paying for.

Part 1: Identifying Intangibles in Ad Tech M&A Value >
Part 3: Monetizing Intangibles in Ad Tech M&A Value >

Photo by Alice Achterhof on Unsplash

Dec
05

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.

Aug
31

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

Aug
17

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.

Jul
17

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

Jul
08

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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