A diligence file that lists what a target owns has done half a job. In mid-market buyouts, the intangible workstream routinely produces a careful inventory — trademarks, customer contracts, source code, key people — and then hands it to a deal team that has already fixed the price. The inventory gets read, admired, and filed. Nothing in the model changes, nothing in the sale and purchase agreement changes, and the findings surface again eighteen months later as a problem nobody priced.
This is the part that follows identification. If you need the inventory method itself — the phase-by-phase checklist for intangible asset due diligence organised by asset class — that guide is the canonical reference and this article assumes it. What follows is the commercial layer: how a finding becomes a number in the model, a clause in the agreement, and an owner in the first hundred days.
The sequencing failure is almost always the same. Financial and legal diligence begin at exclusivity. The intangible workstream begins later, often after the offer letter, and reports after the price has been socialised with the investment committee. By then the only findings that can move anything are the catastrophic ones.
Run it in parallel with quality of earnings, not behind it. The two workstreams answer adjacent questions and each is weaker alone.
| Workstream | What it establishes | What it cannot establish |
|---|---|---|
| Quality of earnings | Whether reported EBITDA is real, recurring and cash-backed | Whether the assets producing that EBITDA survive completion |
| Legal diligence | Who holds title, and what the contracts say | What the asset is worth, or how concentrated the earnings are behind it |
| Commercial diligence | Whether the market and the pipeline support the plan | Whether the capability that wins the work is owned or embodied in three people |
| Intangible asset diligence | What produces the earnings, who controls it, and whether it transfers | Anything, if it reports after the price is agreed |
Intangible assets due diligence is not a specialist annex to the financial workstream. It is the workstream that explains why the earnings exist — which is the only reliable guide to whether they persist under new ownership.
An inventory entry is not yet a finding. It becomes one when it has been put through four questions, in this order. Anything that survives all four is a candidate for the model or the agreement; anything that fails one has told you where the risk sits.
Licences with change-of-control provisions, contractor-written code with no assignment, personally held domain registrations. An asset the seller cannot deliver is not an asset you are buying — it is a condition precedent.
Where the relationship, the technical judgement or the pricing authority sits with named individuals, you are pricing key person risk rather than an institutional asset.
A strong brand shows up in the margin the target already earns, and therefore in the multiple you are paying. Counting it again as separate upside is the most common double-count in buy-side work.
The only question that belongs in the value creation plan. An asset that is already well run is a reason to pay; an asset that is under-managed is a reason to underwrite an increase.
Two adjustments do most of the work, and both are routinely missed.
The first is normalisation. Businesses that build intangible assets internally expense the cost of doing so — engineering payroll, brand investment, data acquisition, content production. In the UK, under IAS 38, most of that spend never reaches the balance sheet — and under US GAAP the gap is wider still — so a target investing heavily in its own future looks less profitable than one that has stopped. If you take reported EBITDA at face value, you systematically underpay for the builder and overpay for the harvester. Restating the target's accounts to separate genuine operating cost from investment-like spend is not an accounting nicety; it changes which of two apparently identical targets you should want.
The second is maintenance. Intangible assets decay. Customer relationships need account management, software needs re-platforming, brands need spend, certifications need renewal. The reported cost base of a target that has been prepared for sale has frequently had that maintenance stripped out. A diligence file that identifies the assets without identifying what it costs to keep them is describing an asset base at a moment when it was least expensive to hold.
A target whose intangible maintenance spend has been cut in the twelve months before a sale will show flattering EBITDA and a decaying asset base at the same time. The two effects compound: you pay a higher multiple on an inflated number for assets that will need catch-up investment on day one.
| Finding | Where it lands in the model |
|---|---|
| Investment-like opex expensed through the P&L | Normalised earnings, with the capitalisation policy stated and applied consistently across the comparable set |
| Deferred maintenance on customer, technology or brand assets | Catch-up cost in the first two years of the plan, not in the multiple |
| Revenue concentration behind one relationship | Higher discount rate on that cash flow stream, or an explicit haircut |
| Capability embodied in named individuals | Retention cost in the plan, and a lower terminal assumption if it cannot be institutionalised |
Price is the blunt instrument. Structure is where a well-run intangible workstream earns its fee, because it converts a finding you cannot resolve before signing into a risk somebody has agreed to carry.
| Finding | Structural response | Who carries the risk |
|---|---|---|
| Material contracts contain change-of-control provisions | Condition precedent — consents delivered at completion | Seller, pre-completion |
| IP developed by contractors without written assignment | Condition precedent plus specific indemnity for anything unresolved | Seller, uncapped or separately capped |
| Founder holds the top customer relationships | Earn-out tied to retained revenue, with a service commitment | Shared |
| Trade marks unregistered in a core market | Price reduction, or a retention released on registration | Buyer, funded from the retention |
| Disputed ownership of a component of the technology stack | Specific indemnity; warranty and indemnity insurance will usually exclude a known issue | Seller — insurance does not cover diligence findings |
| Assembled workforce concentrated in a small team | Retention pool inside the funds flow, not the operating plan | Buyer |
Warranty and indemnity insurance covers the unknown. Anything your own diligence has surfaced is a disclosed matter and will be carved out of cover. Finding a problem and then relying on the policy to carry it is the single most common structural error in intangible-heavy deals.
The identification work you have already paid for is the same work the purchase price allocation will demand after completion. Under IFRS 3 in the UK — and under ASC 805 in the United States — the acquirer must recognise the identifiable intangible assets acquired, with anything left over falling to goodwill. A diligence file built to be reused is worth materially more than one built to be read once.
That split is not cosmetic. In the UK, the corporate intangible fixed assets regime determines whether amortisation on acquired intangibles is deductible, and the treatment differs between goodwill and other classes — but the regime bites on an asset or trade-and-assets purchase, not on a share purchase, where there is no step-up at all. In the United States, IRC §197 amortises most acquired intangibles over a fixed fifteen years regardless of their economic life. Either way, how the PPA divides the price sets a tax profile that runs for a decade or more, and the evidence that supports that division is gathered during diligence or reconstructed expensively afterwards.
A buyer identifies customer relationships, proprietary software and a trade mark during diligence, evidences each with contract data, engineering records and registration certificates, and carries the same asset register into the PPA. A second buyer, working from a summary memorandum, allocates most of the price to goodwill by default. Both paid the same price. Only one has a defensible amortisation position and a register the operating partner can manage against.
The same register is the natural spine of the value creation plan. The four questions above have already sorted every asset into "pay for it", "fix it", or "replace it". Naming an owner against each one in the first hundred days is the difference between a plan built on the target's own capabilities and a plan built on generic levers.
It also outlives the transaction. Deal models age quickly; the evidence behind them does not. An asset-level record that carries from the offer letter through completion and into the holding period is what turns a periodic valuation question — a lender review, an audit, a mark, an exit process — into a retrieval exercise rather than a rebuild.
Every material intangible asset is named, not categorised. Each carries evidence of ownership, an assessment of transferability, and a view on whether it survives the seller. Each is mapped to a price adjustment, a clause, or a hundred-day owner — or explicitly to none of the three, with a reason. The file is structured so the post-completion purchase price allocation reuses it rather than repeating it.
Opagio Intangibles is built around exactly this register. The Value Drivers Register holds named assets rather than categories, with separate accounting-recognition and operational-lifecycle status on each one, which is the distinction a buy-side team needs and a generic asset list does not make. The Normalised P&L basis selector restates a target's accounts to separate operating cost from investment-like spend under a stated capitalisation policy, across six accounting bases including UK IFRS and FRS 102. The Asset Valuator applies the standard methods — relief from royalty, multi-period excess earnings, with-and-without, and replacement cost — asset by asset, so the allocation you argue at completion is the one you evidenced during diligence.
The Opagio 12 framework then carries the same register into the holding period, so the assets you underwrote are the assets the operating partner is measured against. For a fuller view of how this works on a live transaction, see Opagio for investors, or work through the PE Due Diligence programme in the Academy.
Tony Hillier is Chairman of Opagio. He served on the executive board of NM Rothschild & Sons and GEC Finance, and as a non-executive director of Financial Security Assurance in New York, with a career spent on cross-border structured finance and the question of what a cash flow is really secured against. Read more about the team at Opagio.
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