Intangible assets are cornerstone of M&A deal success: Study

Companies ignore the value of the target company's intangible capital, which can account for up to 75% of the value of any organisation: Hay Group

Amid M&As in Asia-Pacific picking up pace, dealmakers will need to develop a more comprehensive understanding of intangible assets like people, brands and organisation structure in order to achieve success, a study says.

The acquisition process in today's business environment, is less about companies and their physical resources and more about the intangibles, the Hay Group survey said.

However, despite awareness of intangible capital, time and again, it often goes overlooked as focus is placed on closing negotiations and completing the transaction.

"Companies ignore the value of the target company's intangible capital, which can account for up to 75% of the value of any organisation.

"Our experience has repeatedly demonstrated the strong link between the intangible capital of a company and the future business performance of the merged entity," said Hay Group Managing Director for Business Solutions David Derain.

Echoing similar sentiments, Hay Group's Leader for Building Effective Organizations Practice for India and South and South East Asia, Pacific and Africa, Mitali Bose said: "It is vital to assess the intangible elements, in addition to tangible assets, as early in the deal lifecycle as possible, as this has been proven to identify and manage post-merger integration risks,".

As a growing list of Indian corporates pursue outbound acquisitions, the ability to handle cultural differences will prove to be a make-or-break factor in their M&A forays, the study said.

For inbound acquirers, dealing with Indian companies can present a number of cultural frustrations and roadblocks.

According to Mergermarket, differing approaches to deal timelines have been known to impede M&A in India. The common thread is that many Indian companies do not follow agreed upon timelines for deal milestones, often resulting in "two steps forward, one step back" scenarios.

Indian companies continue to make outbound acquisitions.

In 2012, Indian companies completed 69 outbound transactions worth $10.5 billion. While these figures are lower this year 36 deals worth $9 billion the general consensus among industry practitioners and observers is that India's outbound ambitions will continue in the years ahead.