News: M&As to boost India’s intangible asset value

(DNA 29/01/2007) Mumbai - A recent global survey from Brand Finance reveals that India comes in as runner-up only to Switzerland, garnering the second highest proportion of intangible asset value. What’s more, we should be numero uno on these charts in a decade’s time.

Indian dynamos are stoking the cylinders of global mergers and acquisition, a la headliner sagas involving Corus, Hutch, et al. Naturally, this will further feed the engines that drive India’s intangible asset value.

Caveats and promise

Interestingly, the Brand Finance study shows that countries with the highest levels of “disclosed” intangible assets are European: France (24% of total Enterprise Value); Germany (19%); UK (17%), partly reflecting the high level of acquisitions by companies in those markets in recent years.

There are caveats in italics though, for Indian M&A. Says Unni Krishnan, managing director, Brand Finance India: “It is an exciting time for corporate India, but it has to cherry-pick the acquisition opportunities and carefully review the value of intangible assets like the brand, especially in the light of new accounting standards like IFRS 3 which has been specifically designed to demonstrate to investors how their money was being spent by management on acquisitions.”

The most important step is for companies to stop taking refuge in the previous accounting climate, which said, “goodwill can’t be explained”.

In fact, Vodafone’s announcement last week that it was slicing £28bn of goodwill from its balance sheet relating to its mega acquisition of German telecoms provider Mannesmann in 2000 left observers open-mouthed.

Indian companies are all set to storm global markets on the back of IP driven branded goods and services. There is an urgent need to recognise the value that these strategic assets add to their own businesses and the firms they might wish to acquire globally. Further, the market valuations that Indian companies enjoy today signal the future expectations from investors. The market multiples being attached to firms can be only achieved by leveraging the value brand and intangible assets. CEOs and boards need to recognize this fundamental shift in the underlying foundations of the economy for sustaining the Indian growth story, underlines Unni Krishnan.

Ultimately, everyone’s gung-ho about the intangible India story, even versus China.

David Haigh, chief executive of Brand Finance, sums up: “While China is disciplined and good at manufacturing, India is creative and innovative at developing new products and services. China may become the workshop of the world, but India will become its innovation centre. Far more wealth accrues to innovators than workers — as Silicon Valley in California has clearly demonstrated.”