Measuring a company to determine business asset valuation can include various aspects. One section typically includes a company’s intangible assets. Intangible assets lack physical property yet can provide competitive advantages. Examples of these intangible assets include trademarks, patents, copyrights, equities, securities, contracts and more. In this segment we will cover intangible assets in intellectual property.
Intellectual Property Asset Valuation
Determining an accurate intellectual property intangible asset valuation requires expert analysis including the market, income and cost approach. In order to have value, a common measurable amount must be determined. Expert patent valuation services is a critical aspect of any IP transaction and should determine the appropriate value of intellectual property assets. It is important to understand that reducing risk and increasing profitability must be the primary focus during a patent valuation. These valuations occur during a multitude of technology transfer transactions including the sale, licensing, or acquisition of any IP rights. Hence, the prices paid during an IP transaction must be evaluated for its perceived value, which is obtained through a detailed valuation process before it can be objectively understood by the potential buyer or seller. The necessary skill sets used in an IP valuation are cornerstones of our intellectual property consulting services and include: legal, financial, and technical experience.
A Simple Breakdown of the Three Intangible Asset Valuation Methods
The market approach for intangible asset valuation uses research gathered from competitors and comparable IP as the valuation methodology. This can include the transactions, license arrangements or comparable profit margin methods. Analysis of the market and if the comparable transactions are sufficient or match is important in this method. When comparing intellectual property, it is likely to have difficulty in finding comparable companies with similar transactions that match to an actual intellectual property.
The income approach for intangible asset valuation utilizes an appraiser to determine the valuation of the intellectual property and the gains expected from these assets. What is the level of income the intellectual property has compared to not having the property at all? If there were rental charges for the licensor, what would that be? The focus is on future earnings and what the worth is in the future. This approach is also known as discounted cash flow (DCF), which is essentially determining expected future returns to today’s value using a discount rate.
The cost approach for intangible asset valuation has various methods including historical cost, replacement cost and replication cost. Two common types are replacement and replication. Replication costs walks through the breakdown of the asset by determining the current cost to create it with current prices on the market. The replacement uses the standards of the product but the route to create or appearance may appear different and more up to date.
The Reason To Value Intangible Assets
David Post leads the Sustainable Accounting Standards Board’s of sector analysts, states that : “Intangibles have grown from filling 20% of corporate balance sheets to 80%, due in large part to the expanding nature, and rising importance, of intangibles as represented by intellectual capital vs. bricks-and-mortar, research and development vs. capital spending, services vs. manufacturing, and the list goes on.” (forbes.com)
Intellectual Property (IP) is a crucial portion of a company’s assets. A strong IP portfolio is instrumental for; fundraising, leverage in business transactions, an exit strategy, M&A valuation. Mergers & Acquisitions provides portfolio strength and freedom to operate. There are varying discount rates between 10-30% which can change the value of the company significantly. A strong valuation can have huge success to an initial public offering (IPO), provide leverage in cross licensing, easy liquidation, and strategic partnerships take a close look before investing. The IP transaction market has grown rapidly, due primarily to the boom in new patent claims.
At GHB Intellect, we have high-credentialed and industry-seasoned experts with strong valuation skills. Because we have deep roots in the high-tech industry, we are a trusted source for intellectual property consulting services. Our full-service IP services assign each client with a project manager who will assist the client through the entire process, from initial expert selection, through execution of tasks, to the final reports for the project.
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GHB Intellect is a full-service intellectual property consulting and engineering services firm. With a growing cadre of hundreds of industry-seasoned experts & professionals, as well as access to full suites of design and testing equipment, we specialize in high-tech, science, and innovation.