How do manufacturing companies approach intangible asset valuation?

Full Explanation

Manufacturing companies are frequently perceived as tangible-asset-heavy, but intangible assets often represent 30-60% of their enterprise value. Key intangible assets in manufacturing include: patented manufacturing processes and formulations (valued via RFR using industrial royalty rates, typically 2-6%), trade secrets and proprietary know-how (process optimisations, yield improvements, quality control methods that provide competitive advantage), customer relationships (often long-standing in manufacturing, valued via MPEEM using historically low attrition rates of 5-10% annually), quality certifications and accreditations (ISO 9001, AS9100 for aerospace, IATF 16949 for automotive — valued via cost approach reflecting the time and investment to obtain), and proprietary tooling and die designs (valued via cost approach). Favourable supply contracts are also common, particularly in industries with volatile raw material prices. Manufacturing PPAs require careful attention to the distinction between tangible assets (the machinery itself) and the intangible know-how embedded in how that machinery is configured and operated. An assembled workforce in manufacturing can be particularly valuable when specialised skills (CNC programming, quality inspection, welding certifications) are scarce and costly to develop. The sector-specific challenge is that many manufacturing intangibles are deeply embedded in operations and not documented as separate assets, requiring the valuation team to work closely with operational management to identify and articulate the intangible asset base.

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