We have seen a shift over the last twelve months in the type of intellectual property valuations being sought to support Creditor Voluntary Arrangements (‘CVAs’), principally in retail, casual dining, and leisure sectors. In particular, reporting the forced liquidation value or ex-situ value of IP assets is not being seen as a credible alternative for many larger restructuring scenarios. Instead, stakeholders have been keen to evaluate a range of IP valuations, performed on multiple valuation bases, to reflect different reorganisation strategies.
Many of our CVA assignments have involved businesses with upwards of £75m revenues and a number of them had a good grasp of the importance of the IP assets underpinning their finances, driving brand loyalty, and helping maintain their market position. During COVID, some operators realised that IP assets could be more valuable, in real terms, actively using them to support communications and engagement with customers during the shutdown.
As you might expect – brands were the most prominent and valuable IP assets in all of these assignments, and whilst the associated customer-related assets were also critical, we found that they were not being as well-managed, and so less valuable as a result.
To accommodate our clients’ changing needs, we provided a range of valuations performed on different bases. This ensured our valuation figures were reflective of the alternative scenario being simulated in the CVA proposal. This included (1) ex-situ or forced liquidation valuation (‘FLV’), (2) in-situ or orderly liquidated valuation (‘OLV’) and (3) IP sale opinion (a bespoke product) focused on an M&A IP valuation basis.
The key trends we observed across the aforementioned sectors:
There were a number of interesting IP valuation insights, as we saw many businesses leverage their IP assets in different ways during COVID:
Leisure & Entertainment 1: FLV was circa £500k, however OLV was 5 times higher- why?
Key Factors in our IP Valuation Opinion:
- evidence of successful brand extension and an active brand strategy for more than 5 years;
- recognition and internal management of IP that helped maintain premium pricing in the market;
- evidence of brand development strategy documentation and competitor positioning analysis;
- extensive, enforced brand guidelines and a huge amount of organisational knowledge (incl. store layouts, formats and key processes).
COVID IP Asset Impact: The breadth and reach of the brand allowed consumers to continue to purchase through alternative channels during COVID providing both proof of the resilience and the value of the brand. The brand channels and third party revenues offered numerous valuation reference points to give stakeholders confidence in the analysis supporting the valuation.
Leisure & Entertainment 2: IP Sale (M&A) valuation was 10 times the OLV of £17m – no surprise?
Key Factors in our IP Valuation Opinion:
- the brand has a well-established market position and the customer proposition is clearly differentiated from competitors;
- the brand is actively managed on all platforms, and the business has secured valuable international traction relying on comprehensive brand guidelines and a trade mark policing service to protect brand value;
- our sector research confirmed that there was active and recent M&A in their market and IP was a key consideration reported in deal coverage;
- the business operates a valuable customer loyalty App with circa 2m users.
COVID IP Asset Impact: the customer App provided an invaluable channel to customers during COVID, keeping them updated on news about the brand, store openings and products offerings. Communications and promotions through the App helped get customers back into selected stores and the data from the App enabled the company to perform valuable customer behaviour analytics and personalised messaging.
Leisure & Entertainment 3: £4.5m OLV – relevant to prior M&A
Key Factors in our IP Valuation Opinion:
- a well-established and effective strategy for brand promotion and exposure, with a marketing spend close to 10% of revenues;
- the brand had secured many valuable collaborations and partnerships and there was evidence of high level of customer retention and recurring revenue growth;
- the business actively enforced their brand guidelines and possessed extensive documented organisational knowledge;
- recent M&A activity in the sector;
- the company utilised its 100k GDPR-compliant database via a sophisticated customer App to retain customer engagement.
COVID IP Asset Impact: The App allowed the brand to maintain contact with customers during outlet closures offering free value-add content and engagement for customers until outlets reopened.
Retail 1: FLV £0.5m – lower than expected!
Key Factors in our IP Valuation Opinion:
- 40-year old heritage retail brand with a successful stable of product brands, all backed by an extensive TM portfolio;
- resilient customer demographic / profile and almost 1m customers on a GDPR compliant database.
COVID IP Asset Impact: The Company didn’t have an active brand management strategy and there was a technology disconnect between ecommerce data and customer database and so it was missing content-rich customer analytics which undermined the valuation.
Retail 2: £6m OLV – surprised a few people!
Key Factors in our IP Valuation Opinion:
- an award winning multi-channel specialist retailer with a large portfolio of TMs and award-winning product brands with evidence of high customer loyalty over many years;
- we confirmed there was active M&A in the sector and IP value, particularly customer-related IP, was significant factor in M&A;
- the 10 million or more GDPR compliant customer database was enhanced with an active customer (incentive driven) loyalty plan.
COVID IP Asset Impact: The customer loyalty programme allowed this brand to move in-store customer engagement to its online platform during COVID. With personalised data on customers the company was actively adopting a personalised intelligent mobile messaging strategy with incentives to customers, based on prior purchasing analytics.
Conclusions:
What’s clear to us is that the current market needs a more sophisticated approach to IP valuations both by valuers and operators. The businesses which have been more resilient through the shutdown are those which embraced the opportunity of building customer loyalty and customer analytics through e-commerce, Apps, customer engagement and surveys / feedback.
The IP assets underpinning these strategies have been critical to maintain customer engagement, support declining revenue streams, improve strategies for engagement at regional and geographic store / outlets, as well as crucially providing key data, underpinning the assumptions for future strategy and financial forecasts.
Undoubtedly our M&A IP valuation experience was invaluable, allowing us to bring our unique insight into the type, quality and importance of certain IP assets and their value, particularly in support of these CVAs and other reorganisation plans that we worked on over the last 12 months.
