Valuation Consulting 49-50 The Hop Exchange, 24 Southwark Street, London, SE1 1TY Tel: 020 7403 3344...

Valuation Consulting49-50 The Hop Exchange,

24 Southwark Street, London, SE1 1TY Tel: 020 7403 3344 Fax: 0207 499 2266e-mail: [email protected]

www.valuation-consulting.co.uk

VALUATION CONSULTING

• DESIGN RIGHTS (CDPA 1988)DESIGN RIGHTS (CDPA 1988)

Intellectual PropertyIntellectual Property

THESE ASSETS WHOSE ESSENTIAL CHARACTERISTICS ARE THESE ASSETS WHOSE ESSENTIAL CHARACTERISTICS ARE DERIVED FROM THE LEGAL SYSTEMDERIVED FROM THE LEGAL SYSTEM

• REGISTERED DESIGNS (REGISTERED DESIGNS ACT 1949)REGISTERED DESIGNS (REGISTERED DESIGNS ACT 1949)

• TRADE MARKS (TRADE MARK ACT 1994)TRADE MARKS (TRADE MARK ACT 1994)

• COPYRIGHTS (COPYRIGHT DESIGNS & PATENTS ACT 1988)COPYRIGHTS (COPYRIGHT DESIGNS & PATENTS ACT 1988)

• PATENTS (PATENT ACT 1977)PATENTS (PATENT ACT 1977)


Characteristics - Economic Advantage The Spectrum of Creative Thought Formulae, Recipes Experience Negative Knowledge R & D, Information

Rights • Contracts

Relationships• Workforce• Customers

Group Intangibles• Goodwill • Brands

Intangible AssetsIntangible Assets


Bundle of RightsBundle of Rights

Privileges of OwnershipPrivileges of Ownership

• UseUse• SaleSale• MergeMerge• MortgageMortgage• GiftGift• Transfer Part of the RightsTransfer Part of the Rights


Occasions for Valuing Intellectual PropertyOccasions for Valuing Intellectual Property

• Portfolio Review and risk assessmentsPortfolio Review and risk assessments• Arrange a loan - securitisationsArrange a loan - securitisations• Tax purposesTax purposes• LicensingLicensing• Balance Sheet purposesBalance Sheet purposes • Joint VenturesJoint Ventures• Selling your CompanySelling your Company• Selling your IPSelling your IP• InsuranceInsurance


Why Are We Valuing?

• Tax Valuations and Open Market ValueTax Valuations and Open Market Value

• Fair ValueFair Value

• Fair Market ValueFair Market Value

• Commercial ValueCommercial Value

• Investment ValueInvestment Value


Methods of ValuationMethods of Valuation

Market BasedMarket Based• Comparable market transactionsComparable market transactions

Cost BasedCost Based• Historical or replacement costHistorical or replacement cost

Income ApproachIncome Approach• Future economic benefitsFuture economic benefits• Capitalisation of historical profitsCapitalisation of historical profits• Gross profit differential methodGross profit differential method• Excess profits methodExcess profits method• Relief from royalty methodRelief from royalty method


Comparable Market TransactionsComparable Market Transactions

CaveatsCaveats

• Few SalesFew Sales

• Lack of InformationLack of Information

• Separate ValuesSeparate Values

• Special PurchasersSpecial Purchasers

• Different Negotiating SkillsDifferent Negotiating Skills

• Distorting Effects of Varying ValuesDistorting Effects of Varying Values

• Assets Not Always ComparableAssets Not Always Comparable


Historical or Replacement CostHistorical or Replacement Cost

CaveatsCaveats

• Economic Benefits ExcludedEconomic Benefits Excluded

• Duration of benefit-economic lifeDuration of benefit-economic life

• Obsolescence difficult to quantifyObsolescence difficult to quantify

• MaintenanceMaintenance

• Time value of moneyTime value of money


Capitalisation of Historical ProfitsCapitalisation of Historical Profits

DRAWBACKSDRAWBACKS

ProfitabilityProfitability• Problems of averagingProblems of averaging• Problems of extrapolating from past performanceProblems of extrapolating from past performance• Decline & other key variablesDecline & other key variables• Net tangible assets not separately assessedNet tangible assets not separately assessed

MultipleMultiple• No reference point for price earnings multipleNo reference point for price earnings multiple• Often no regard to established marketplaceOften no regard to established marketplace• Often no reconciliation with market capitalisationOften no reconciliation with market capitalisation


HOW MUCH?HOW MUCH?

(CASHFLOWS)(CASHFLOWS)


HOW LONG FOR?HOW LONG FOR?

(TIME PERIODS)(TIME PERIODS)


Useful LifeUseful Life

• Physical lifePhysical life

• Functional lifeFunctional life

• Technological lifeTechnological life

• Economic lifeEconomic life

• Legal lifeLegal life


AT WHAT RISK?AT WHAT RISK?

(COST OF CAPITAL)(COST OF CAPITAL)


Modern Valuation Analysis is Effectively DCF Modern Valuation Analysis is Effectively DCF applied to the Business Enterprise Under applied to the Business Enterprise Under

ConsiderationConsideration

• The Net Present Value (NPV) of a strategy or business is the sum of itsThe Net Present Value (NPV) of a strategy or business is the sum of its expected free cash flows to a horizon (H) discounted by its cost of expected free cash flows to a horizon (H) discounted by its cost of capital (r) capital (r)

NPV = NPV = Year 1 Cash FlowYear 1 Cash Flow + + Year 2 Cash FlowYear 2 Cash Flow ... to ... to say Year 5 Cash Flowsay Year 5 Cash Flow (1 + r) (1 + r) ² (1 + r)H(1 + r) (1 + r) ² (1 + r)H

PLUSPLUS

The terminal value which is the value of the business at a horizon (HV)The terminal value which is the value of the business at a horizon (HV)HV = HV = Cash FlowCash Flow (r - growth)(r - growth)Also discounted back to present valueAlso discounted back to present value


The Discount or Capitalisation RateThe Discount or Capitalisation Rate

Derive the appropriate cost of capitalDerive the appropriate cost of capital

• Risk free profileRisk free profile

• Risk factorsRisk factors

Valuation Consulting 49-50 The Hop Exchange, 24 Southwark Street, London, SE1 1TY Tel: 020 7403 3344...

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