Maximising Asset Value for Mergers & Acquisitions

12th Dec 2019
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Merger and acquisition activity may be on the up but for many organisations now looking for a buyer, maximising value is a major challenge. And while cash rich companies are keen to expand where possible, no organisation wants to acquire a business that is likely to need unexpected investment.

Yet with a large number of organisations still reliant upon spurious fixed asset data held in spreadsheets, achieving an accurate picture of the balance sheet and true profitability is proving a major challenge and a potential deal breaker.

Failure to put in place an accurate, up to date asset register could result in the company assets being significantly undervalued. It could also undermine the organisation’s ability to demonstrate strong cost control through asset reallocation and, with no asset maintenance history, a potential purchaser has no insight into asset health and the potential investment required, which could further reduce the price offered.

The problem is that while most companies have good systems in place for recording initial investments, they pay lip service at best to managing later asset disposal. Far too many organisations are still reliant upon spreadsheets for recording assets and create confusion by failing to record the movement of assets between locations.

Whilst that may not affect their value to a finance team concerned primarily with depreciation, should a company opt to divest a number of locations, inaccurately recorded assets could severely compromise the value of the agreement to either party. 

With such a lack of robust information, how can any acquiring organisation undertake due diligence on behalf of shareholders? And for those organisations looking to maximise company value prior to a sale, poor asset information can only result in significant undervaluation.

Acquiring organisations also need to understand asset health. Information on asset maintenance history and remaining asset lives is key to determining the required ongoing investment. Whilst cash rich companies are looking to grow portfolios, few will be keen to make major investment to overhaul an unhealthy asset base. An inability to provide accurate, trusted information over asset status and health can only result in further devaluing of the business.

In this economy it is also essential for every business to demonstrate strong cost control to improve corporate value, and good asset management is key to that process. With capital expenditure often being capped there has been a growing move to recycle assets and maximise the asset lifespan, from office equipment and IT kit to major pieces of manufacturing equipment.

Indeed, as organisations have relocated manufacturing activity from the UK to Eastern Europe and Asia, growing numbers are now actively considering relocating core equipment rather than purchasing new. Those companies that have put in place a strong asset register and management processes are now in a position to create an internal market for buying and selling assets within the Group to improve cost control and maximise asset value.

For those cash rich organisations looking to exploit distressed businesses there are always opportunities. But any business looking to sell needs to ensure its asset information is up to date and trusted. Without accurate records about asset life, usage and refurbishment history, potential acquirers will struggle to put a correct figure on asset value.

And without access to a consolidated asset register that also records asset maintenance, it will be impossible to ascertain an asset’s longer term value to the business. The result will undoubtedly be a significant reduction in any potential offer – or a significant business risk incurred by the acquiring organisation.

In contrast, an accurate asset register provides a platform for improved cost control and the ability to demonstrate sound business practice. It will also offer additional value to a potential acquirer by providing a platform for rapid post merger/acquisition consolidation – a key issue in achieving business success and reducing costs.

For further information on how a specialist solution can ensure an accurate audit trail of fixed asset information to maximise both the value of a business for sale and the post merger consolidated organisation, visit our website today.