What Is an Identifiable Asset?
Let me explain what an identifiable asset is: it's an asset whose commercial or fair value you can measure at a specific point in time, and it's expected to deliver future benefits to the company. You need to know that these assets are particularly important when we're talking about mergers and acquisitions.
Not every asset on a company's balance sheet can be valued quickly and accurately right then and there, so only those that can qualify as identifiable. Think of examples like cash, short-term liquid investments, property, inventories, and equipment, to name a few.
You should contrast identifiable assets with goodwill, as they are quite different.
Key Takeaways
Identifiable assets can be assigned a fair value or expected selling price, covering things like liquid investments, machinery, vehicles, buildings, or other equipment. They can be tangible or intangible, but remember, they stand in contrast to goodwill. These assets appear on a company's balance sheet and become relevant when evaluating a takeover bid.
Understanding Identifiable Assets
When one company is looking to acquire another, the buyer assigns a fair value to the identifiable assets that are reasonably expected to benefit them in the future. These can be tangible or intangible. Identifiable assets are critical for accurately valuing a business.
If an asset qualifies as identifiable, the acquiring company records it on their balance sheet as part of their assets. These consist of anything that can be separated from the business and sold off, such as machinery, vehicles, buildings, or other equipment. If it's not identifiable, its value gets lumped into the goodwill from the acquisition.
How Identifiable Assets Are Used
Consider this example: suppose a conglomerate buys a smaller manufacturing firm and a start-up internet marketing company. The manufacturing firm would have most of its value in property, equipment, inventory, and other physical assets, so almost all would be identifiable.
The internet marketing company, however, would have few identifiable assets, with its value tied to future earnings potential. That means the purchase would create a lot more goodwill on the books, since the total value isn't easily measurable despite some tangible assets.
Example of Identifiable Assets vs. Goodwill
If Company ABC's identifiable assets have a fair value of $22 million and liabilities of $10 million, the identifiable value is assets minus liabilities, equaling $12 billion. Wait, that should be $12 million—let's correct that in context.
If Company XYZ buys Company ABC for $15 billion, the premium is $3 billion, which goes on the acquirer's balance sheet as goodwill, exceeding the identifiable assets.
For a real-life case, look at the T-Mobile and Sprint merger announced in early 2018. The deal was valued at $35.85 billion as of March 31, 2018, per an S-4 filing. Assets had a fair value of $78.34 billion, liabilities $45.56 billion, so the difference was $32.78 billion. Goodwill was thus $3.07 billion ($35.85 minus $32.78), the excess over the fair value of identifiable assets and liabilities.
