A ‘pre-packaged sale’ is an arrangement under which the sale of all or part of the company’s business or assets is negotiated with a purchaser prior to the appointment of an administrator and the administrator effects the sale immediately on, or shortly after, appointment. Pre-packs are a useful business rescue tool, but have often been criticised by creditors because they enable an administrator to sell the assets of the company without first consulting them. An independent review of pre-packs led by Teresa Graham in 2014 recommended that the standards and guidance around pre-packs should be tightened.
As a result of the report the Joint Insolvency Committee has produced a revised version of SIP 16 in response to perceived shortcomings in the existing process of pre-packs. Although the proposed revisions do not represent a major re-write of the previous SIP 16, the report does acknowledge the high level of public interest in pre-packs, the importance of planning for this increased interest and possible scrutiny and the fact that the insolvency practitioner must be seen to be acting in the interest of company creditors and be able to demonstrate this.
Increased transparency and independence are at the core of these revisions, and three inclusions were of particular interest to us at Metis Partners:
We have been working in the niche area of valuing and selling IP assets for UK insolvency practitioners for more than 10 years, and have the UK’s best experience in this area. As the UK insolvency market becomes increasingly more regulated, we have adapted our processes and products to ensure we can provide a service based on professional rigour, independence and transparency.
We have experienced an increase in appointments in the last year relating to the valuation and marketing/sale of intellectual property in pre-pack scenarios. We are expecting further growth in this area resulting from the proposed changes to SIP 16, which recommends the use of qualified valuers for the assessment of business assets, including intellectual property assets and goodwill.
With the revised SIP 16 calling for increased transparency, Metis Partners is in a prime position to assist insolvency practitioners in achieving compliance with our relevant professional qualifications, independence and experience.
We have carried out hundreds of assignments valuing and selling intellectual property from insolvency scenarios and have recovered tens of millions of pounds for creditors from these sales. We also carry appropriate levels of professional indemnity insurance to conduct these assignments.
THE NEED FOR INDEPENDENT VALUATION OF INTELLECTUAL PROPERTY ASSETS
The revised SIP 16 highlights the need for increased transparency in pre-pack sales and for the insolvency practitioner to be “seen to be acting in the interests of the company’s creditors as a whole”. The review confirmed that, in the majority of pre-packs, an independent valuation was conducted, however these “were often desk-top valuations only.” In addition, where a valuation was carried out, “The valuation was often limited to certain assets, normally the assets and property but not the intellectual property or goodwill”.
In compliance with these principles, when we are providing advice on an offer received we ensure transparency by disclosing a valuation range and outlining the methodology used. Beyond a mere financial valuation, we get as close as possible to “market value” by benchmarking against our unique database of deal data from actual sales of intellectual property sold from insolvency.
Metis Partners perform both “desktop” & “full” valuations of intellectual property assets, however we always recommend a full Intellectual Property Valuation Opinion™ for pre-packs as it provides the most robust analysis and narration of intellectual property value. The full Intellectual Property Valuation Opinion™ includes:
Our valuation process is independent, rigorous and transparent, and our Intellectual Property Valuation Opinion™ provides insolvency practitioners with the necessary evidence to demonstrate compliance with the revised proposals of SIP 16. The Graham Report highlighted that “there was rarely any explanation as to the valuation methods used by the valuers” and this lack of transparency undermines the pre-pack process as a whole. Our rigorous valuation methods are fully documented and we expect our IP valuation expertise will be even more heavily relied upon by insolvency practitioners going forward.
Metis Partners is in a unique position to provide valuation advice in distressed scenarios having conducted numerous sales exercises in relation to IP assets both from formal insolvency and financial distress situations. We have created a database of IP asset sales which we utilise to provide a reliable market benchmark for our Intellectual Property Valuation Opinion™.
The Graham Report also discussed the public scepticism of the process where the purchase price exactly matched the valuation figure:
“The researchers also found that it was common, where there had been a connected sale, for the purchase price to exactly match the valuation figure. This could lead to a suspicion on the part of creditors that a purchaser had set a valuation as an indicator of how much it was prepared to pay, rather than the market value of the assets in question. It was not possible to test this, years after the sale.”
Our Intellectual Property Valuation Opinion™ enhances credibility in pre-pack scenarios by providing a valuation range, whereby an offer may be acceptable if it sits within this range and does not rely merely on reviewing value against an offer.
We occasionally deal with cases where the offer on the table from ex-directors/ex-shareholders is lower than our valuation range. In such cases, we work in a commercial manner to either negotiate the offer upwards (often by explaining the value as we see it in the intellectual property), run a sales and marketing process or structure the deal so that a higher value is being placed on IP – such as deferred payments.
INCREASED MARKETING IN PRE-PACK SALES
The Graham Report highlights the need for effective marketing to be conducted in an effort to achieve the transparency and independence that will provide reassurance to creditors. It states that “the quality of the marketing undertaken is just as, if not more, important than whether or not it was carried out in any form.”Certainly this is the case where shareholders/directors facing pre-packs often overstate the case for little or no marketing. This poses even more of a risk to insolvency practitioners in light of the proposed changes to SIP 16. The revised SIP attempts to enforce the idea of form over substance by recommending that the marketing process of a pre-pack sale conform to the following:
METIS PARTNERS SALES AND MARKETING PROCESS
Metis Partners has a decade of experience in marketing and selling IP in distressed scenarios, providing an independent, professional, comprehensive and documented process of marketing. Each marketing process is specifically tailored to the scenario. Given the revised version of SIP 16, our ability to tailor marketing processes and justify decisions will become more important. When performing our full sales process, we:
Metis Partners provides independent, professional advice in order to achieve best returns. We do not readily accept the word of directors without independent verification, and we do not simply put an ad in the paper in the hope that someone comes forward and call this marketing! At the same time, we do understand the need to be pragmatic and appreciate the need to run accelerated sales exercises where required. While we do acknowledge that this often leads to the purchase of IP assets by connected parties, who often most clearly understand their value, there are also genuine cases where marketing the IP assets will devalue the assets and jeopardise a return for creditors, and in these scenarios we are able to independently confirm this point of view.
Metis Partners are proud of the work we have done to ensure pre-packs are fair and transparent, and if you would like advice on handling intellectual property in pre-packs then please get in touch with us.