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Unaccounted intangible assets leave UK companies vulnerable to takeovers

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The airport most tourists land in, Heathrow, is owned by Spanish company Ferrovial. Arriva busses are owned by Germany’s Deutsche Bahn. Boots has gained dual nationality status, being co-owned by Italian billionaire Stefano Pessina and US drugstore company Walgreens. 

Selfridges has been passed on to Canadian businessman Galen Weston, and Harrods has become one of several buildings in London to be owned by Qatar Holdings.

These are but a few British companies to have passed onto foreign hands

Brand Finance and the Chartered Institute of Management Accountants (CIMA) claimed to know the reason why UK companies were so quick to be snatched up by other countries. 

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Research, which spanned across 120 stock markets, revealed that €1.50tn of assets are left unaccounted for by UK companies. This makes them vulnerable to underpriced bids and subsequent exploitation.

The problem is especially acute in Britain as there is a history of strong brands and industries that are heavily reliant on intangible assets such as pharmaceuticals, luxury, aerospace and engineering. 

Ownership, talent and profits may flow out of the UK as a result. A worse alternative is that the acquisition may be made by asset strippers with no concern for the long-term interests of the business, its employees or the country. 

Furthermore, the UK ranks as the fourth most “intangible economy” behind the US, Denmark and Belgium. 

From growing Asian, Russian or Middle Eastern companies seeking to acquire established brands to companies in developed markets looking to minimise tax, British businesses are in high demand. However, markets are erratic and a dip in share price leaves companies open to opportunistic bids. 

The primary source of worry cited in the research, however, was the “collective blind spot for business decision makers and policy makers” that had been allowed to develop. 

Since 2012 undisclosed intangible value has grown by 50 per cent to $27tn. It now accounts for more than a third of the average firm’s enterprise value, rising as high as 70 per cent in sectors such as pharmaceuticals and advertising. 

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“The issue of inaccurate intangible asset value reporting rose to prominence in the M&A boom of the 1980s,” said David Haigh, CEO of Brand Finance. “After 30 years of arcane debate among accounting standard setters, and despite huge strides being made in valuation techniques and standards, we enter the next great M&A boom. The huge BG and Shell deal is just the latest example, with financial accounts which still fail to explain intangible asset values to stakeholders.”

Regular valuation of intangibles ensures that the true value of a company is known, affording protection against underpriced bids. 

Pfizer’s controversial and ultimately aborted attempt to acquire Astra Zeneca might have been rebuffed sooner had all intangibles been accounted for.

According to the report, “failure to effectively account for intangibles risks the undervaluation and acquisition of strong brands” such as Cadbury’s, government income and the success of the government’s “long-term economic plan”.

Image: Shutterstock

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