An identifiable asset is an asset whose commercial or fair value can be precisely measured at a specific point in time, and which is expected to provide a future benefit to the company. These assets are especially crucial in the context of mergers and acquisitions.
Not all assets on a company’s balance sheet can be easily and accurately valuated at a given moment. Only those which can meet this criterion are classified as identifiable. Examples include cash, short-term liquid investments, property, inventories, and equipment, among others.
Identifiable assets differ from goodwill, which often cannot be specifically measured.
Key Takeaways
- Identifiable assets can be assigned a fair value or expected selling price, such as liquid investments, machinery, vehicles, buildings, or other equipment.
- Identifiable assets can be either tangible or intangible but are contrasted with goodwill.
- These assets are recorded on a company’s balance sheet and are essential for valuing a takeover bid.
Navigating Identifiable Assets in Business Mergers
When one company seeks to acquire another, the acquiring company can assign a fair value to the identifiable assets expected to benefit it in the future. These assets may be either tangible or intangible. The precise valuation of these assets is crucial for accurately appraising a business.
If deemed identifiable, the purchasing company records the asset as part of its assets on the balance sheet. Examples include separable items like machinery, vehicles, buildings, or other equipment. If an asset is not classified as identifiable, its value is added to goodwill during the acquisition.
Practical Example: Identifiable Assets vs. Goodwill
Suppose a conglomerate company purchases a smaller manufacturing firm and a smaller start-up internet marketing company. The manufacturing firm would likely have its value tied up in property, equipment, inventory, and other physical assets, making almost all its assets identifiable.
On the other hand, the internet marketing company may have few identifiable assets. Its value might be based more on future earnings potential, resulting in significant goodwill once purchased.
Example Calculation
If Company ABC’s fair value of identifiable assets is $22 million and liabilities are $10 million, its identifiable value is calculated as follows:
- Identifiable Value: $22 million - $10 million = $12 million
If Company XYZ agrees to purchase Company ABC for $15 million, the additional $3 million will be categorized as goodwill (since it exceeds the identifiable assets).
Real-Life Application
Consider the T-Mobile and Sprint merger announced in early 2018. This deal, valued at $35.85 billion as of March 31, 2018, illustrates identifiable assets in action. According to filings, the fair value of the assets was $78.34 billion, and the liabilities were valued at $45.56 billion. The difference between the assets and liabilities is $32.78 billion, setting a goodwill value of $3.07 billion for the difference.
Goodwill = $35.85 billion (purchase price) - $32.78 billion (difference)
Mastering identifiable assets will help you make informed decisions during mergers and acquisitions, keeping you a step ahead in the competitive financial landscape.
Related Terms: Asset, Goodwill, Tangible Assets, Intangible Assets, Balance Sheet, Fair Value.
References
- T-Mobile. “T-Mobile and Sprint to Combine, Accelerating 5G Innovation & Increasing Competition”.
- U.S. Securities and Exchange Commission. “Form S-4 Registration Statement, T-Mobile US, Inc.”, Page 243.
