This paper aims to assess to what extent intellectual capital is revealed once a company is acquired.
The research question was approached by analyzing official accounts of companies, like annual reports and documents provided to stock exchange authorities before and after the acquisition. In its purchase price allocation the acquiring company is providing insight in the total value of the company acquired.
The mean total value of the companies studied increases approximately six fold on acquisition. This increase is mainly due to the increase in intangible assets (including goodwill), which substantially overlap with intellectual capital. The intangible assets specified are mostly connected to rights‐related and technology‐related items, while goodwill shows more “bias” to expertise and customer‐related items. Thus it is hypothesized that a substantial part of the intellectual capital of the company acquired is revealed in the official accounts of the acquiring company.
This study is limited to companies primarily in the pharmaceutical sector. The situation with respect to intangible assets may deviate from the situation in other industrial sectors. Another limitation is the restriction to public companies with respect to the acquiring party because of the information requirements imposed by the authorities. Further, this study was restricted in time to the last seven years in order to have a group of acquisition situations for which similar recent accounting guidelines apply.
This line of research could have practical implications for future valuation policies in acquisition situations and for intellectual capital valuation strategies.
The paper is a quantitative evaluation of intellectual capital in mergers and acquisitions based on formal accounting records.
