In today’s shifting economic landscape, mergers and acquisitions (M&A) continue to be a strategic tool for growth, diversification, and survival. However, as the uncertainty with tariffs and interest rates volatility continues, and markets cool, buyers and sellers are facing heightened scrutiny around transaction fundamentals, and one critical area where missteps are still far too common is in the valuation of tangible assets.
Whether part of a strategic acquisition or a distressed sale, tangible assets — including land, buildings, machinery, equipment, and specialized infrastructure — often make up a substantial portion of the transaction price. Yet, despite their importance, these assets are frequently undervalued or overvalued due to inadequate or outdated valuation methods.
Beyond the Ledger: Why Relying on Fixed Asset Records Isn’t Enough
Too often, tangible assets values are developed by indexing up original costs using accounting records to estimate current costs and then depreciating these based on the purchase date. While this might seem efficient, this is a risky manner to develop Fair Value, as it overlooks key realities:
- Fixed asset registers may be outdated, incomplete, or inaccurate.
- The cost on the records may be an allocated cost and not an actual original cost.
- Currency exchange fluctuations since the purchase date of the assets are not accounted for, in the instances where the assets that have been imported.
- Depreciation for book and tax purposes rarely reflects economic value or remaining utility.
- Book values do not equate to market-based Fair Value.
In an M&A context, using such shortcuts can materially distort the balance sheet and misrepresent the true worth of the acquired entity’s physical assets — creating risk for both buyers and their auditors.
Fair Value Requires Market Insight and On-Site Verification
Professional, independent valuation of tangible assets ensures that Fair Value — as defined under both IFRS and US GAAP — is determined based on real market data, not internal estimates or accounting entries. This means:
- Conducting physical inspections of the major assets to verify existence, condition, and functionality.
- Applying a market-based approach, often incorporating cost, income, and/or sales comparison methods depending on asset type.
- Considering obsolescence, utility, and economic trends that influence current and future value.
This approach provides a much clearer picture of what the acquiring entity is truly purchasing and helps justify the transaction price in a defensible way.
Why Useful Remaining Life Matters
Beyond establishing Fair Value, acquiring companies must also assign a Useful Remaining Life (URL) to each class of tangible asset. This is essential for:
- Accurate depreciation schedules post-acquisition,
- Financial reporting and audit compliance, and
- Ongoing capital planning and asset management.
The URL is not simply an accounting estimate — it must reflect physical wear, maintenance history, functional utility, and technological relevance. An experienced appraiser can provide a well-supported analysis that aligns with audit expectations and industry norms.
The Cost of Getting It Wrong
Failing to properly value tangible assets can have significant consequences:
- Overstated goodwill that may later trigger impairment losses,
- Increased audit risk due to lack of substantiation,
- Disputes during post-deal adjustments, and
- Misaligned investment assumptions that affect ROI calculations.
In contrast, a credible third-party valuation brings transparency, accuracy, and defensibility to the transaction — reducing risk and increasing stakeholder confidence.
Partner with the Right Experts
As a Canadian-based valuation firm with deep experience in tangible asset valuation, our team specializes in conducting detailed inspections and applying real-world market data to deliver reliable, audit-ready results. We support M&A transactions across a wide range of industries — ensuring our clients are equipped with the insights they need to make informed decisions and meet regulatory requirements.
In a market where every dollar counts, accurate valuation isn’t a formality — it’s a strategic necessity.