M&A activity is rebounding, but the way value is measured has shifted. For companies in IT services, construction, and business contracting, the assets that matter most are often not tangible ones like buildings or equipment, but intangibles: customer contracts, proprietary technology, data, and brand equity. These drivers of growth create opportunity, but they also add significant complexity for CFOs.
According to Deloitte’s CFO Signals survey, 61% of CFOs expect deal activity to increase in 2025, with interest rate reductions making financing more accessible. At the same time, 43% rank valuation challenges as one of their top risks when approaching acquisitions.
“Too often, CFOs underestimate the complexity of valuing intangibles early in the deal process,” says Brian, CFO Worx CEO. “Getting valuation right isn’t just about numbers. It’s about aligning assumptions, navigating reporting rules across borders, and protecting post-deal value.”
Intangibles Now Dominate Deal Value
The rise of intangibles is undeniable. Ocean Tomo research shows that 90% of the S&P 500’s market value now comes from intangible assets, compared to just 17% in 1975.
In project-based industries, this means purchase price allocations (PPAs) often reveal that customer relationships, software platforms, and brand equity represent more than 70% of the enterprise value. For a U.S.-based IT services firm acquiring a European SaaS company, the true value lies not in laptops or office leases but in subscription contracts and customer loyalty.
Why Intangible Valuation Creates Risk
The valuation of intangibles presents challenges at every stage. Accounting regimes treat intangibles differently- goodwill under U.S. GAAP might require separate recognition under IFRS. Valuation methods, from relief-from-royalty to multi-period excess earnings, rely on assumptions that can dramatically alter results. Even small changes in customer renewal rates, discount rates, or growth projections can shift valuations by millions.
Compounding this, mid-market targets often lack reliable data on churn, profitability by customer segment, or contract renewal histories. Without that clarity, acquirers are forced to model scenarios based on incomplete information. Even when the numbers look sound at signing, integration risks loom large. A misstep in retaining customers or talent can erode intangible value quickly, leading to impairment charges and lost credibility with investors.
The CFO’s Playbook for Intangibles
CFOs must start by identifying where intangible value truly sits. It’s not limited to patents and trademarks. Customer relationships, proprietary algorithms, internal data assets, and brand reputation can carry enormous weight in a transaction.
“We see CFOs surprised by how much hidden value lies in customer renewal patterns or churn data,” Brian notes.
“If you don’t uncover that early, you risk overpaying or misjudging the risks entirely.”
Next comes the question of methodology. Relief-from-royalty approaches work well for software or brand assets but depend on solid market benchmarks. The multi-period excess earnings method (MPEEM) is widely used for customer contracts, but its accuracy rests on dependable renewal assumptions. Cost approaches can be helpful for replicable technology but tend to undervalue strategic uniqueness. According to KPMG’s Global M&A Valuation Survey, more than 50% of deal disputes arise from disagreements over assumptions in intangible valuation models.
Stress-testing assumptions is non-negotiable. Building best-, base-, and worst-case scenarios allows CFOs to measure the resilience of valuations under shifting conditions. Factors like foreign exchange volatility, rising cost of capital, and churn rates must be modeled to surface vulnerabilities that may otherwise remain hidden.
Finally, valuation must be aligned with financial reporting requirements from the start. Under GAAP and IFRS, identifiable intangibles must be separated from goodwill, and amortization schedules can materially impact earnings. EY reports that 73% of deal impairments in 2024 were tied to goodwill and intangible misvaluation, an outcome that damages investor confidence.
A Lesson from the Field
Consider a U.S. construction-tech company acquiring a European project management software provider. The acquirer built its valuation on an assumption of 85% contract renewal rates, inflating the intangible value of customer relationships. But after closing, cultural misalignment and slow onboarding drove renewals down to 65%. Within 18 months, the company was forced to write down goodwill, miss earnings targets, and defend its credibility with investors.
Protecting Value in Practice
To avoid these pitfalls, CFOs need to position finance at the center of deal strategy. That means engaging finance teams early in due diligence, demanding clean contract and renewal data, and ensuring valuation models are tied to the strategic rationale of the acquisition. Growth-driven deals must rigorously test revenue projections, while efficiency-driven deals should pressure test cost synergies. Documenting assumptions creates a defensible record for auditors, regulators, and investors.
Equally important is preparing for life after closing. Retaining key staff, protecting customer relationships, and aligning systems to track intangible performance ensures the value identified during due diligence is preserved over time.
The CFO Worx Perspective
At CFO Worx, we’ve seen too many deals falter not from lack of opportunity but from poor handling of intangible valuation. Whether it’s flawed assumptions, weak data, or poor integration planning, the outcome is the same: lost value and reputational damage.
“Valuation is not a checkbox,” Brian emphasizes.
“It’s the foundation of negotiation, the story you tell your investors, and the ability to deliver on promises after the ink is dry.”
Are you preparing for a cross-border deal? CFO Worx provides M&A services to help mid-market companies stress-test valuation models, prepare financials for due diligence, and safeguard deal value through integration.
Content Disclaimer: The information shared in CFO Worx Insights is for general informational purposes only and should not be considered professional, legal, accounting, or tax advice. Each company’s situation is unique, and readers should consult qualified advisors before making business or financial decisions.