Leveraging KM for M&A Transactions- Part 2: Valuation

For a potential merger, understanding the value of the organization to be acquired is critical to positioning a price that is both equitable and acceptable to the acquired company. If your organization is positioning itself to be sold understanding how knowledge management (KM) can increase the overall value of the company is essential to obtaining a fair price. So, how do we leverage KM to understand the value of the organization? One such way is to apply the concepts presented in The Knowledge Value Equation. This equation examines the use of discounted cash flow (DCF) and presents an equation: KM Value = F (cost, benefit, risk) = Total DCF created over life of KM investment. The equation states that the value created from managing knowledge is a function of the costs, benefits and risks of the KM investment (project or strategy) in leveraging and protecting the knowledge (Clare, 2002).

An important concept identified in determining the knowledge value equation is to build a knowledge value tree. A knowledge value tree makes the connection between knowledge and value in an organization more visible by understanding the relationship and connection of KM Functionality, Business Impact, and Financial Impact (Clare, 2002). This viability of the value of knowledge in the organization can be directly tied back to understanding what competitive advantage your organization has in its marketplace, its percentage of that market, and the potential capture additional market share. An examination corporate valuation can be found in this book: McKinsey & Company Inc.'s - Valuation. I believe that this is an important factor when considering to buy an organization as well as if you are positioning your organization to be sold.