Companies today are generating more and more value from intangible assets. Those intangibles—such as customer data, technology, research and development, and brand identity—now account for over half of the total value of acquired assets in mergers and acquisitions, up from about one-third in the early 2000s, research from Stanford’s John D. Kepler and Chicago Booth’s Charles McClure and Christopher Stewart finds. Customer data on their own account for about 23 percent of acquired assets, totaling over $1.1 trillion.
Yet US accounting practices typically exclude intangibles from company balance sheets in favor of observable assets such as buildings, machinery, and raw materials, they write. This means company-level productivity measurements also ignore intangible capital. The researchers argue that failing to include intangibles in these calculations can skew productivity figures and lead to misstated growth prospects.
To study this, the researchers turned to financial records on mergers and acquisitions. An acquiring company typically considers all assets, tangible and intangible, when evaluating a target company’s purchase price. After the sale closes, the buyer has to determine how much of the purchase price should be attributed to both tangible and intangible assets.
Using annual filings from 2002 to 2024, Kepler, McClure, and Stewart examined close to 21,000 M&A transactions, valued at approximately $15 trillion, for public companies including Kraft Foods, LinkedIn, and Time Warner. They collected and categorized the values of all the target companies’ assets.
The researchers measured each company’s productivity before acquisition in order to understand how much of an effect intangible capital had on output prior to any merger activity. Then they ranked all companies in their sample by total factor productivity (TFP). The higher the number, the more productive the firm.
The TFP calculation doesn’t typically include intangible assets. But including them moved more than 70 percent of acquired companies into a different productivity tier, affecting which of them appeared more or less efficient. The average change was nearly 70 percent. The largest shift in TFP rank was in manufacturing, at more than 94 percent, largely due to the growing importance of customer data. Overall, when intangible assets were included in TFP, they accounted for about 12 percent of company revenue, compared with 14 percent for tangible assets, suggesting a nearly equivalent impact.
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