UK companies needlessly at risk of takeover
Research from Brand Finance with the Chartered Institute of Management Accountants (CIMA) reveals over $1.58trn (€1.50trn) of assets unaccounted for, leaving UK companies vulnerable to underpriced bids and subsequent exploitation
Many of the UK’s company directors and government ministers are in the dark about the value of the assets they control and influence, threatening the government’s long-term economic plan, the report highlighted.
The joint report calls for valuation of the UK’s ‘intangible assets’ and a debate about policy change.
The research of intangible assets was revealed at an event featuring Business Secretary, Vince Cable and Newton Investment Management CEO, Helena Morrissey. The value of UK plc event, hosted by CIMA and leading valuation consultancy Brand Finance, saw the launch of Brand Finance’s Global Intangible Finance Tracker (GIFT™) report with CIMA.
The annual study of 58,000 companies across 120 stock markets, stressed how a collective blind spot for business decision makers and policy makers has been allowed to develop. The report reveals that since 2012 undisclosed intangible value has grown 50% to $27trn (€25.5trn). It now accounts for more than a third of the average firm’s enterprise value, rising as high as 70% in sectors such as pharmaceuticals and advertising.
It also shows that failing to account for intangibles favors short-term economic gains over long-term value and undermines service-sector dominated economies such as the UK. According to the report, failure to effectively account for intangibles risks the undervaluation and acquisition of strong brands such as Cadbury’s or Astra Zeneca threatening jobs, government income and the success of the government’s ‘long-term economic plan’.
The UK is particularly good at creating strong brands and is a centre for industries that are heavily reliant on intangible assets such as pharmaceuticals, luxury, aerospace and engineering, making Britain the fourth most ‘intangible economy’ behind only the US, Denmark and Belgium. Brand Finance’s research shows that intangible assets account for two thirds (64%) of the true, total value of UK companies, a growth of 17% since 2012.
Over $1.58trn (€1.50trn) of those intangible assets are ‘undisclosed’ on balance sheets and are all too easily overlooked by those who should be protecting them, whether at the corporate or government level. There are many keen to exploit this lack of vigilance. There is currently high demand for UK businesses whether from growing Asian, Russian or Middle Eastern companies seeking to acquire established brands and from companies in developed markets looking to minimize tax.
Markets are erratic and a dip in share price leaves companies open to opportunistic bids. Ownership, profits and expertise may flow out of the UK as a result or worse, the acquisition may be by asset strippers with no concern for the long-term interests of the business, its employees or the country. 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 UK success story Astra Zeneca, might have been rebuffed much sooner had all intangibles been accounted for.