A well-known and reputable leisure business required to repair a balance sheet deficit after a new venture was commercially unviable. The closure incurred significant write-down of the capital costs, thereby causing a balance sheet deficit for the financial year end accounts. This situation would result in the company receiving an adverse credit rating affecting their banking relationship and credit from suppliers.
Metis Partners was asked to help identify, value and leverage the critical IP assets value in the business such that they could be represented in the Company balance sheet. This involved performing a valuation of the company brand and customer database, as well as moving the IP assets to a special purpose vehicle, such that the IP value could be recognised under new corporate structures.
- Our process made it quick and easy for the Company to grasp the most important IP assets in the business, as well as quickly understanding around issues of ownership and/or rights the company had to use them.
- The Company had built a strong brand and reputation over many years operating a handful of outlets and it was important to the business that this brand value was recognised in the accounts. Our IP rating of the brand and other Company IP assets considered factors including the risks and strengths of each IP asset being valued.
- Our process linked IP assets to the revenues they produced and made clear what revenues were dependent on the Brand related IP assets (including a brand loyalty scheme and sales of own label products) and the contribution they made to the overall enterprise value.
- In addition, the customer database and loyalty schemes were valuable IP assets enhanced by promotions and a customer referral programme which ultimately generated additional revenues and improved their competitive advantage in a highly competitive sector.
- Our process also made clear how much these IP assets would cost to acquire, if the company otherwise didn’t already own them and had to licence them from someone else, e.g. similar to a franchise.
- The restructuring of the Company IP assets (as per the figure above) then made it clear to potential financiers that the IP assets were ring-fenced and protected from the trading company and therefore capable of being securitised/leveraged in their own right using the license revenue streams secured against them.
- The Company was able to get the most significant IP asset (the brand) value on their Balance Sheet and avoid the collateral damage, an impact of a decline of the credit rating of the Company.
- The Bank was happy with the outcome recognising the accounts write-down was a “one-off” event and that the long-term prospects for the customer’s business were positive and so worthy of their continued support.
Photo Credit: Dennis Jarvis