Puzzle Piece 1 – IP valuation isn’t just about the number (data & benchmarking)
Recent work with a client reminded us that an IP Valuation isn’t just about the number (data and benchmarking).
Our teams across M&A and R&B assignments gain hugely valuable experience and gather important IP-related data when working with small and large IP-rich businesses in UPSIDE scenarios who are growing, raising money and exiting. We gather so much insight on which IP strategies are working, and which are not, how IP assets are being monetized successfully in different markets and sectors. We use this data all the time.
Understanding how IP is being leveraged by successful businesses is also crucial when working with businesses in DOWNSIDE scenarios, distress or insolvency.
We can confidently inform lenders, insolvency practitioners and restructuring advisers how we’ve scored, benchmarked and valued the IP in a DOWNSIDE scenario, because we’ve seen similar IP be used effectively by many in the sector in an UPSIDE scenario e.g. where IP assets are being used to add price premiums, driving higher SEM rankings or making improvements in customer lifetime value. These insights and benchmarking data sets can be so valuable when selling IP assets, to demonstrate where the IP was making a positive impact, even though other factors such as real estate costs or supply chain issues may have dragged the business down.
One example I can think of was a recent retail business which was close to insolvency and because they had no e-commerce business (I know – hard to believe these days!!) the website and customer database were not considered to be valuable IP assets. However, when my team reviewed the data, it became clear the business was actually performing better than many of their peers (with a e-comm offering). We were able to demonstrate the mail outs to customers had higher open rates and click-throughs to their website than competitors, because they had a very loyal customer following. These mailouts were designed to let customers know about new in-store releases and launches which they tracked and were able to demonstrate in-store cashflow spikes from those same customers the week after the mail outs. This helped them predict future cashflows and product campaigns. Again, clear evidence of brand-related and valuable customer data IP assets being used to positively impact cashflows and so increase the IP and business valuation.
That’s true IP asset benchmarking, and the feedback we receive is that our experience and our valuable data sets give the market confidence in our IP valuations when it matters. For the advisers and the credit teams, creditors, directors and shareholders, IP valuation is more than just a number.
Stay tuned for more of the Key Pieces in the IP Valuation Puzzle.
Puzzle Piece 2 – IP valuation isn’t just about the number (IP strategy & IP value drivers)
A recent discussion with a business seeking an IP valuation to present to lenders, focused on their IP strategy. As the business was pivoting from a strategy which had stalled after a COVID bounce, they recognized they needed to demonstrate the evidence that was giving them confidence about the new plan for growth. They were reacting to what was going on in their market, both competitor behaviour and changes in demand.
They were shifting away from the IP assets that were considered valuable and underpinned the ‘old” strategy of locking out competitors and they needed to be certain about the strategy to repurpose some of those old IP assets and develop new IP assets more in line with “tuning in” to customer demand.
Lenders of course want an opinion on the recovery value of IP assets in a downside scenario, the FLV or OLV and they want to understand the “saleability” of the IP assets, but not as going concern, after all, who would want to buy and run a business model that failed and do more of the same?
For us, the lender’s downside valuation is not a hypothetical downside based on lots of hypothetical assumptions, but rather we argue, our narrative ought to be a real downside based on a business in sharp decline or going bust and how you might present the value of the IP assets to buyers to maximise the return / recoveries.
In those scenarios we need to understand how changes in the business, its IP assets and its IP strategy impact the value of the IP assets because we will have to present that story and evidence to buyers in a way that emphasises the unique value of the IP portfolio. Therefore we don’t work on the future value of the old business and instead we focus on the strategic opportunity the IP assets may crystallize for buyers, as well as the future value of cashflows it unlocks for buyers.
When we are valuing IP assets in downside scenario we are thinking about “hypothetically selling” IP assets, therefore we must do all the diligence to understand the IP assets and the IP strategy of the business in distress (borrower). Occasionally a smart strategy is often where the borrower can make the IP assets “more liquid” and valuable as collateral for lenders, and so we share those insights and key factors in our reports, including potential future buyers and their likely drivers for buying the IP assets in a downside scenario.
Stay tuned for more of the Key Pieces in our IP Valuation Puzzle.