Coller IP was acquired in 2017 as part of a strategic move to complement Mathys & Squire Consulting’s offering. Find out more here.
A valuation of your intangible asset portfolio is an important way of gaining an understanding of how to retain and build business value, and also in identifying significant risks facing the business. Our team uses defined and well recognised methodologies for the fair market valuation of IP, incorporating NPV calculations and discounted cash flows. We enable our clients to understand the assumptions made in the modelling and the methodologies, as well as the risks involved so they are well prepared for their negotiations.
Cost approachHere we make an estimate of the costs of development of the IP to date, allowing for obsolescence. Typically, this looks at the cost to replicate the product or service offering. For this purpose, we usually look at the research and development (R&D) costs in developing a technology and the IP costs associated with protecting that technology. This can be used as a baseline to understand value (and to support balance sheet reporting) but does not represent the full future potential of an innovation.
Market value approach
A market-value based approach relies on the ability to identify transactions similar in character and for similar types of asset. Such an approach is familiar in real estate and art markets. This approach essentially benchmarks the assets and transaction of interest against those of similar assets, in a similar technology in the wider industry. IP is very broad in its nature, and transactions are often private, so this approach is often of limited applicability.
Future income model
This approach is based on making an estimate of the current value of future cash that can be attributed to the intangible assets, often using a premium income or a “Relief from Royalty” methodology. This approach, based on the net present value (NPV) of these future discounted IP related cash flows attributable to the IP generated by the business, considers risk through a combination of explicit risk discounting and a discounted cash flow (DCF) methodology. We identify specific risks to the business and apply discounts based on those risks. This can be very useful when speaking to investors as you can identify the risk in a technology proposition, the routes to mitigation of those risks and the impact this has on the value.
For startups, spin-outs and SMEs seeking investment and entering into fundraising discussions with investors, we provide IP valuations, supported in many cases by an IP audit. A valuation of your IP at this stage can show potential investors that you have identified and protected your intangible assets, allows you to identify risks to delivering the business projections and how these will be mitigated, and therefore increase confidence with the investor. In other cases, we work with investors who need to understand the full value of the intangible assets in a potential portfolio company prior to investment.
We support our clients in valuing intangible assets and intellectual property ahead of asset transfers between companies and jurisdictions, where there may be tax and transfer pricing considerations. Our IP valuations are also used during M&A transactions and divestments, especially in technology and IP rich companies, where the value of the IP portfolio has a significant impact on the overall enterprise value. IP valuations using the relief from royalty methodology can be very useful to articulate the value of IP assets ahead of licensing discussions, and also to provide an insight into appropriate royalties for IP assets in specific technical fields. Furthermore, IP valuation can be a useful tool in cases of infringement, where estimates of damages need to be determined.
Intangible assets and intellectual property are asset classes that can provide considerable value to a company, not least when it unfortunately enters administration or insolvency. IP valuation is a necessary tool for not only providing reassurance to creditors of the existence of value retained in the business, but also an indication of the price at which those assets could potentially be placed on the market.
Where a business is looking to grow its IP portfolio through acquisition, it is imperative that the business receives a free market valuation of that IP asset to ensure it is paying a fair price. Increasingly, as company value nowadays becomes ever more reliant on intangible assets, many businesses are seeking to reflect this value on their balance sheets. IP valuations of such assets are frequently used for this purpose. For businesses actively using their IP assets to generate revenues, but also seeking to inject capital into the business, IP-backed financing may be a suitable option, with a valuation required to underpin the use of the IP assets as security.
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