The buyer is trying to value our business solely based on our physical assets and current working capital, completely ignoring our proprietary customer lists and long-term licensing relationships. How do we apply the market and income approaches under IVS 105 to force them to value our intangible assets?

Question

Tyler Smith · Accepted Answer

Buyers looking for a bargain will often try to focus on physical book value, especially in asset-light service or technology companies. To defeat this tactic, you must ground your negotiation in the International Valuation Standards, specifically IVS 105. This framework mandates that a valuation must consider the market, income, and cost approaches, choosing the method that best reflects the asset's true nature.

For a business with valuable intangible assets, like proprietary customer lists and long-term licensing relationships, the income approach is the most appropriate methodology. You must present a discounted cash flow analysis that explicitly projects the future economic benefits generated by these specific relationships.

Use your historical customer retention data to prove the stability and predictability of these cash flows. If your data shows a low churn rate and high customer lifetime value, you can mathematically demonstrate that these intangible assets are the primary drivers of your company's enterprise value.

In addition, apply the market approach by identifying recent transactions of similar, tech-enabled firms that sold for high multiples of revenue or EBITDA, rather than book value. This proves that market participants routinely value these intangible relationships highly. By combining these approaches under the IVS 105 framework, you force the buyer to abandon their asset-based valuation and pay for the actual future economic benefits your business produces.