Valuation professionals have for a long time been appraising business enterprises and their underlying assets. The “dot-com” New Economy has dramatically changed how businesses can do business and has introduced us to some new forms of intellectual property rights. Have these changes altered our valuation methodologies? Prior to the 1960s, when valuation professionals were faced with a situation in which the value of a business enterprise appeared to exceed the value of its underlying assets, the difference was ascribed to “goodwill” or “blue sky.” No real effort was made to identify the constituents of this catch-all category, it was simply the difference between the value of the business and the value of its clearly identifiable assets. During the 1960s, however, the United States experienced the first of a series of “merger mania” periods. These were the days when the so-called conglomerates were being assembled. Acquirers quickly realized that there could be significant tax benefits in allocating a portion of an ambitious purchase price to identifiable intangible assets. The Internal Revenue Code at that time permitted amortization of such intangibles if the taxpayer could successfully support the notion that these assets had value, were identifiable, and had finite remaining economic lives. Because the resulting amortization reduced the post-acquisition tax burden for the buyer, this strategy attracted much attention. Valuation professionals were called upon to identify, value, and estimate the remaining economic life of these intangible assets that were formerly lumped together as goodwill.

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