“Taking the luck out of making IP fortunes!”

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IP VALUATION

 

In this challenging financial climate, IP assets are capable of transforming funding options available to businesses, particularly as finance providers increasingly recognise the ability to take security over these valuable assets under different corporate structures.

Metis Partners has been carrying out a variety of IP valuations for clients in different scenarios in order to:

  • Provide a purchase price allocation of goodwill and intangibles
  • Support a seller’s exit value negotiations with a purchaser
  • Facilitate the intra-group transfer of IP assets
  • Secure funding from a pension fund using IP assets as security
  • Help settle a dispute over the value of IP in certain business scenarios
  • Support fundraising by leveraging the value of patents or other IP assets
  • Support the sale of IP assets as part of a value release strategy
  • Secure bank support by offering IP assets as security

We can also provide strategies related to value release options in distressed scenarios. Below are some of the applications of IP Valuation services offered by Metis Partners:

Raising Finance

Raising finance can be challenging in the current climate given the uncertainty in the marketplace around traditional securitised assets such as land & property. While these are readily understood by lenders and reliably valued, banks are increasingly averse to risk in asset-based finance. However, if a company’s competitive advantage is adequately protected by its IP assets, and it can be demonstrated that they underpin revenues and forecasts (and that competitors lack equivalent IP assets), banks or investors will consider taking security over them. Furthermore, banks have been more inclined to take security over IP assets when they can see possible recovery value from the sale of these assets in a distressed or insolvency scenario.

Balance Sheet Value

As a growing organisation – perhaps with different divisions or business streams – investment in the future can be costly, especially since successful innovation and entrepreneurship often results in some failures prior to success. Although it may not present immediate issues, a balance sheet deficit on year-end accounts can adversely affect a company’s credit rating. Metis Partners has a proven track record in valuing unrecognised IP assets for the purposes of an internal sale/transfer, thereby realising that value on a company’s balance sheet. Metis Partners has helped monetise and securitise a number of critical IP assets, including brands, trade secrets, customer contracts, software, patents and critical technical specifications.

Restructuring Debt

The ability to manage existing debts amid changing market conditions is a constant challenge, and businesses are acutely aware of the danger in breaching banking covenants. Metis Partners provides innovative solutions to alleviate pressure on companies in this situation. We first carry out an analysis to demonstrate that critical IP assets, without which the company could not operate, have been protected. Metis Partners then advises the company on the creation of new corporate structures to enable refinancing, whereby debt can be transferred to an IP holding company where the bank (which now understands the value of these critical intangible assets) takes security over the IP.

Support for PPA Valuations and Accounting for Intangibles

With FRS 102 becoming the main new UK GAAP standard, accounting for business combinations has changed. Companies are now required to recognise all intangible assets that have been acquired as part of a business transaction.

Whether adopting FRS or IFRS, all companies making an acquisition must now fully recognise all assets and liabilities acquired at their fair value, to assist in arriving at the goodwill figure on acquisition. The result is likely to be a lower value attached to goodwill and many more intangible assets appearing on group financial statements in the UK. Intangible assets are relatively unfamiliar to accountants, which proves problematic when valuing and estimating their economic useful lives, which must be recorded on company accounts.

Metis Partners has adapted its valuation process to specifically meet PPA/auditor needs by:

  • Identifying key IP assets within a target company as at the date of acquisition
  • Ensuring fair value measurement of IP follows a consistent and robust process
  • Using market comparable data sources to ensure a commercially defensible valuation
  • Limiting future P&L goodwill write-offs for clients
  • Creating robust framework for impairment/useful life testing

Why use us:

  • We know what we are talking about – Metis Partners has over 10 years’ experience in assessing this asset class and identifying material IP assets that can be separately recognised
  • We reduce the risk – Our robust process of valuation (when first reporting the acquisition) limits the risk of significant future write-offs
  • We make it easier – Our scorecard/benchmarking approach to IP valuation makes for smoother impairment reviews and assessment of useful lives
  • We used a sector based approach – We assess the materiality of IP assets based on sector using our experience and database of IP valuations & IP sales, which is vital for PPAs

PPA Infographic

We recently took the opportunity to review some of our PPA valuations to date, and have highlighted our main findings in an infographic, to provide insights around recognition, measurement and potential overpayment. Click the link here to see our recent infographic…

IPCo

The benefits of a separate IP Holding Company (“IPCo”) structure:

  • Identifies critical IP assets in an organisation which are often overlooked and undervalued by management
  • Protects valuable IP assets and shelters them from the risks associated with the trading business
  • Provides a valuation of the identified IP assets
  • Solves working capital or funding problems by leveraging a hidden asset class
  • Prevents adverse credit ratings resultant from balance sheet deficits in financial year end accounts by monetising previously unrecognised IP asset value

We have advised on growth finance deals where IPRs have been taken as security by investors leading to over £tens of millions of new investment in SMEs. For further information on IP valuations, please contact Stephen Robertson on 0141 353 3011.