It is often difficult for companies to get recognition for investment in IP assets on their balance sheets, despite the fact that these assets often make up in excess of 80% of the company valuation. Although certain types of IP assets can be capitalised at cost, the accounting rules don’t make this easy – typically, the most valuable IP assets such as the company brand cannot be capitalised on the balance sheet.
These assets are therefore often invisible to, or ignored by, the C-suite, i.e. corporate investors and lenders. However, by creating a different corporate structure, these critical and often overlooked IP assets can all be valued, sold and used as security for borrowings in the same way as traditional balance sheet assets. This new corporate structure might involve separating the IP assets from the risks associated with the trading business, which can be achieved by moving these IP assets into an IP holding company (“IPCo”). This can be done under a sale and leaseback arrangement, whereby the use of the assets is licensed back to the trading business. This results in the value of these IP assets being reflected on the balance sheet of the IPCo, and as a debtor on the balance sheet of the trading business (until the IPCo pays for the assets it purchased) and, as an added benefit, ring-fences the IP so as to mitigate risks associated with the trading business.
This new corporate structure creates an IPCo with valuable IP assets, and new unencumbered revenue streams in the form of a royalty/licence fee against which the company can secure new finance. Metis Partners has a proven track record in monetising undervalued and unrecognised IP assets by helping banks & investors recognise this hitherto ignored asset class and getting them onto the balance sheet.
If you have any questions or would like to discuss how your company can benefit from getting its IP assets on the balance sheet, feel free to give us a call!