Inspiration for this post came from payments processor Bill.com ($BILL), which filed its latest annual report last week. We were snooping around the company’s business acquisition footnote, and found a discussion of Bill.com’s acquisition of Invoice2Go back in 2021. The deal was valued at $674.3 million, and that purchase price was allocated as follows in Figure 1, below.

As you can see, intangible assets were valued at $91.22 million, or 13.5 percent of the total $674.3 million price. (Goodwill was a whopping 86.8 percent of the total price, but we’ve written about goodwill in acquisitions plenty of times before.) 

So exactly what went into that $91.22 million of intangible assets? We skimmed further down the footnote, and found a nifty table describing the three main elements. See Figure 2, below.

All of those elements are quite typical of a software acquisition. The acquiring company gains new customer relationships, technology developed by the target company, and residual value of the target company’s name until the acquirer washes that name away after some period of time.

At this juncture we should pause to appreciate the accounting rules here. For reasons that only a CPA could love, internally developed software assets are not included on the balance sheet as intangible assets; internally developed software isn’t listed anywhere, actually, other than as an operating expense. So it’s often more advantageous for a high-growth software venture to acquire other software companies, since those other companies’ technology is listed on the balance sheet as an intangible asset.

Like most intangible assets, however, those customer relationships, developed technology, and trade name do depreciate over time. Which means the weighted average useful life disclosure (as seen in Figure 2) can become quite important. 

For example, analysts could ask: Has the company made a reasonable estimate of the useful life? Could external factors (say, a rapid advance in competitors’ technology) shorten or otherwise change that estimated lifespan in the future? Could a poor estimate of the useful life risk an impairment of the intangible asset sometime in the future? 

Bill.com’s discussion of the Invoice2Go acquisition is simply an example of the disclosures one can find with Calcbench. So we wondered — what do other software companies say about the intangible assets involved in their acquisitions?

Searching for Detail

That information is not difficult to find in Calcbench. For example, we went to the Footnote and Disclosures database, then searched for any reference to “developed technology” by the S&P 500 in their 2023 annual reports (and then narrowed the search to companies using that term in their business combinations footnote). We found dozens of results. 

For example, Trane Technologies ($TT, maker of HVAC systems) disclosed multiple acquisitions in 2023 worth a total of $843.4 million. Intangible assets were valued at $330 million, or 39 percent of total acquisition costs. Those intangibles were valued as follows:

Analog Devices ($ADI, maker of various micro-electronic components) discussed its $27.95 billion acquisition of Maxim Integrated Products from 2022. Intangible assets were $12.43 billion (or 44.8 percent) of that deal, and were accounted for as follows:

And for good measure, we should also examine the disclosures of cybersecurity firm CrowdStrike ($CRWD) because it discusses two quite different acquisitions.

First is the company’s acquisition of Bionic Stork, a privately held company that provides an application security posture management platform, whatever that is. CrowdStrike paid $239 million for Bionic last year, including $34.9 million worth of intangible assets. In that $34.9 million, $29.9 million of that sum was assigned to “developed technology” with a lifespan of 72 months.

OK, cool beans; but CrowdStrike also acquired a smaller firm last year called Reposify Ltd. for $18.5 million. That amound included $3.8 million of developed technology, which seems to be the only intangible asset reported from the deal — and CrowdStrike estimated the lifespan of Reposify’s developed technology also at 72 months. (The deal was so small that CrowdStrike didn’t report it in table format so we have nothing to show you.) 

We’re not cybersecurity software developers, so we don’t know whether 72 months is an appropriate lifespan estimate or not — but we did notice that CrowdStrike is using the same estimated lifespan for both acquisitions. Well, why? Does the company use 72 months as a standard benchmark for all acquisitions? Is that appropriate for the cybersecurity industry? 

Those are questions for investors and analysts to ponder. Calcbench simply has the data so that those questions can be brought to the surface, and you can find the answers.