Valuation

Financing

• A scale up looking to raise equity funding from a VC can strengthen its negotiation position by understanding the financial value of its IP portfolio.
• Conversely, an investor will want to understand what the IP is worth as part of the going-concern and on a standalone basis.
• Bank and private lenders are increasing accepting IP assets as collaterals for debt financing or asset-based lending and will want to understand what is the Net Orderly Liquidation Value (NOLV) of the IP portfolio.

Insolvency & Restructuring

• Insolvency practitioners managing companies in a distressed situation and protecting creditors will usually need a valuation of the intellectual property assets. In order to assess all corporate recovery options, it will be based on the market value whether IP are part of the going-concern (in-situ) or are sold / auctioned separately (ex situ).
• The SIP16 rule will require the IP assets to be valued for a UK pre-pack administration.

Spin-off, Spin-out and Joint Venture (JV)

• Understanding the value of IP assets contributed for example by a university to a spin-out entity or by a corporate to a new Joint Venture (JV) will support the management in the equity share negotiations.
• A corporate spinning-off a department into a separate entity will also need to understand the fair market value of the IP assets being transferred.
• When founding a company, capital and technology often originate in different parties. Contribution in kind of the party providing technology needs to be quantified.

IP Sale / Licensing / Litigation damages

• Determining the value of IP assets will strengthen a negotiation position in the context of an IP asset sale, licensing or litigation settlements/awards.

Accounting / Tax / Mergers and Acquisitions (M&A)

• Valuation of IP assets can also be required when being transferred to another entity (potential capital gains for the seller and purchase price allocation can unlock tax amortisation benefit for the buyer) or in the context of inheritance and probate.
• Financial reporting of acquired IP assets on the balance sheet will need to be supported by a valuation.
• A standalone valuation of the IP is often carried out in the context of M&A by both the acquirers and sellers to strengthen their negotiation position. It’s particularly important for IP-centric businesses where the IP is the main reason for the transaction.

Internal management

• Companies may want to value their IP to calculate an ROI on R&D expenditure.
• Carrying an appraisal of IP assets can also inform management of the potential to leverage the assets as part of an asset-based lending refinancing. A brand and trademark portfolio could for example be included in the collateral used to provide security to lenders.
• A rough valuation of IP is sometimes used to prioritise resource allocation between R&D projects.

What are the valuation methods?

• Dehns IP Consulting follows the globally accepted foundational standards from IVSC (International Valuation Standards Council) for IP valuation – IVS 210.
• Each situation requires to consider the most appropriate or multiple valuation methods. They include the cost, market and income methods.
• The cost method looks at the historical development cost of the IP assets and / or the cost of the IP protection and aim to calculate the cost to develop identical or substitute IP assets
• The market method looks at past similar transactions if available and requires to make adjustments to control the differences in not perfectly comparable assets.
• The income method is based on the future economic income attributable to the IP assets adjusted to the present value. Relief-from-royalty is the most used method.