Paul Adams (Andersen Consulting): Balance sheets have inverted – management and investors must follow
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Paul Adams, Global Partner at Andersen Consulting and one of the world’s leading intangible asset strategists, discusses how hidden assets; data, software, brand and know-how, are reshaping investing and company performance. He explains why understanding these assets is now critical for growth and risk management. Interview.
You argue that most company balance sheets have been “inverted”. What does that mean for investors?
Corporate value has undergone a fundamental shift. In the mid-1970s, intangible assets made up less than a fifth of company value. Today, they represent close to 90%. These assets; data, software, brand, relationships, regulatory approvals, and know-how, are now the primary sources of competitive advantage, growth and resilience. Yet they remain largely invisible in financial statements. Modern accounting standards were designed for an industrial-era economy, where factories, machinery and physical inventory explained performance. That’s no longer the case. As a result, the most important value drivers today sit off the balance sheet, are buried within goodwill, or are recorded at cost with no connection to their economic value. This creates what can fairly be called a balance-sheet inversion: the assets that matter the most are the ones investors see the least. Two companies with identical earnings may in reality have completely different intangible asset quality and therefore very different prospects for sustainable margins, defensibility and long-term return. Understanding a company increasingly requires understanding its intangible assets.
How does this shift affect transactions, valuations and value creation?
A clear pattern is now evident: companies that invest more in intangible assets consistently outperform those that don’t. Top-quartile growth companies invest nearly three times more in intangibles as a share of revenue, yet grow six times faster, regardless of sector. This is because intangible assets; data, software, brand, proprietary processes and know-how; scale more rapidly and efficiently than physical assets. They compound, embed competitive advantage and expand returns without equivalent capital intensity. This shift is now decisive during transactions. The quality, control and defensibility of a company’s intangible assets increasingly determine whether it can command a premium multiple, attract strategic buyers or support a stronger valuation. In one instance, by identifying and properly positioning an overlooked intangible asset (data) we lifted a portfolio company’s exit from 4x EBITDA to 32x, underscoring how much value can sit outside the financial statements. During the holding period, the same assets drive disproportionate value creation. Intangibles enable new revenue models, support market expansion, create pricing power, improve unit economics and enhance resilience. These are not edge cases, they reflect a structural shift in how value is built, protected and monetised. In a world where most enterprise value now resides in intangible assets, understanding and managing them has become central to modern investment performance.
“Ninety percent of corporate value now lies in intangible assets —making them the biggest opportunity and biggest blind spot for investors and management.”
What risks arise from intangible assets, and why are they often missed?
As value has concentrated in intangible assets, risk has followed the same pattern. Common intangible asset risks include inability to prove ownership of key assets, hazardous use of open-source code, leakage of competitive information, IP infringement exposure and vulnerabilities in brand protection. Traditional diligence frameworks typically miss these risks. Financial diligence focuses on on-balance numbers not off-balance sheet assets. Legal diligence focuses on registered legal rights such as patents and tends to ignore non-registered assets such as know how or content. Technical diligence focuses on product functionality rather than the assets underlying it. As a result, investors can unknowingly expose themselves to major transaction risks. The consequences can be severe: we’ve seen forced rebrands, major software rewrites, data ownership issues and failed transactions. All these go straight to IRR. The risks are there: people just aren’t looking.
Conclusion
Intangible assets have become the primary drivers of value, growth and risk, yet remain largely absent from financial statements and are often under-examined during transactions and operations. Investors and management teams who can identify, assess and manage these assets will be better positioned to create value, avoid surprises and generate stronger, more resilient returns in today’s economy.