Originally Posted by
Snoopy
Scrunch, you have to remember that the intangible assets came into being because at the time, a business was purchased that was generating a really good return. A return so good that buying that business at 'tangible asset' value would have been a 'steal' for the purchaser and would have seen the seller 'ripped off'. The intangible asset value was created at one point in time. However, once the asset was purchased the purchaser now has a new business unit, and the purchaser is now concerned with the return they are getting on their new purchase in the future. After the purchase, the fact that some of the assets purchased were 'intangible' becomes irrelevant.
If this same business unit was 'on sold' the next year to a third party and the profitability of the business unit has increased, then there is every chance that new purchaser would pay a higher total price for that business unit. Thus the new purchaser would have an even higher intangible value for that business unit on their own balance sheet. But for last years buyer (this years seller) what was an intangible asset would suddenly become very tangible as they received cash for it. The point I am making here is that an 'intangible asset' on a balance sheet is 'time frozen' at the time of its creation. At any future time point the market value of that intangible asset will not be the same on an open market, unless the business outlook is identical to the business outlook at the time of the first purchase (i.e. when the intangible asset was first created).
If a business unit really goes bad then both the value of the tangible and intangible assets of ther business are under threat. If, for instance, you own a manufacturing plant that has been superseeded by technology, then the intangible assets representing those manufacturing plant assets on the balance sheet will be worth nothing. But it is also true that the tangible assets representing those manufacturing plant assets on the balance sheet will be worth nothing. I am using this example to show that there is no difference between the fate of the tangible assets and the intangible assets. Intangible assets on a balance sheet are an historical construct. There is nothing to say that some years down the track that there is any difference between the value of the tangible and intangible assets in terms of their respective worth. So I wouldn't worry about the split of intangible to tangible assets on the TRA balance sheet.
It is not correct to say that if business conditions deteriorate the value of TRA's intangible assets will go down. Because even in a downturn the intangible asset value will only reduce if the business conditions deteriorate to below the level set way back at the time the original business unit was purchased. The Turners Auction business was purchased at very cheap multiples at the bottom of the independent advisors fair valuation range. Since then profits from selling cars have sky rocketed. So even if car sales profitability fell by -say- 40% from here in a recession, I would expect no change to the intangible assets on the TRA books relating to that business unit.
Short summary: You have very little to worry about with most of those Turners Automotive Group intangibles, IMO.
SNOOPY