An established membership organisation, aimed at keen whisky drinkers, had undergone a change in ownership and required an IP valuation of goodwill and intangibles to support a purchase price allocation (“PPA”) for accounting purposes.
The Company, previously owned by an iconic whisky producer, had built an international membership of 30,000 over the last 30 years. It sourced whisky from various distilleries, blended and bottled it for events and for sale to its membership using its premium brand and reputation. A change in strategic direction resulted in the Company being sold to a group of private investors.
The Company needed to account for the acquired IP assets in its year-end financial statements. The assignment was referred to us by the Company’s accountant who recognised that an IP specialist was needed to perform the valuation of key intangibles as part of a PPA, in accordance with FRS 102. An independent IP specialist who could help the Company identify all the IP assets classes, value them and then report in detail on the value and the rigorous methodologies adopted, would enable them, as conflicted auditors, to rely on the PPA in the course of the year-end audit.
Metis Partners performed initial desk-based research on the Company and the sector in which it operates. We requested and reviewed client documents as part of our initial diligence to confirm the ownership of key IP assets and to assess how these had been leveraged and commercialised to date. We then conducted an Information Discovery Call with the Company’s management to gain a fuller understanding of the IP assets vesting in the business at the date of acquisition, the Company’s strategy for monetising these, and the key assumptions underpinning the financial forecasts on which the valuation was based. We performed detailed analysis and benchmarking, with a final Metis Partners Full IP Valuation Report being delivered to the client within 4 weeks of the assignment “kick-off”.
We identified key IP asset classes using our proprietary Metisology®. Our initial analysis indicated that the IP assets were driving the Company’s revenues at the date of acquisition and so selected an income approach, specifically the relief from royalty method, to value them.
We estimated the EUL of each IP asset using our EUL scorecard, which we benchmarked against our sector database. This enabled us to set a realistic period for related forecast revenues for each IP asset, and of course avoided the Company having to adopt the FRS 102’s presumptive 5-year useful life – an assumption that would have been contrary to the commercial and economic reality of the Company’s IP potential.
Metis Partners concluded on a suitable royalty rate for each of the Company’s IP assets only after analysing comparable royalty rate agreements from our reliable third party provider, and benchmarking the royalty rates against our own database of IP valuations and IP sales. We utilised our Indicator Scorecards to rate the quality of each IP asset within the Company, including brand & reputation, membership database and a website & domain name. The result was a royalty rate that was entirely specific to the Company’s IP assets.
Metis Partners used its proprietary Risk Scorecard to assess the risk that the forecast revenues may not be achieved, taking account of the Company’s track record, the financial position of the Company at the valuation date, the strategy and management team that would be monetising the IP and product/market opportunity that the IP assets supported.
The Metis Partners Full IP Valuation Report was delivered within 4 weeks and provided commentary on all aspects of the Company and its IP assets that influenced our assumptions in arriving at a valuation including:
During the audit process, our valuation had to withstand third-party and HMRC scrutiny. This assignment, like the other PPAs Metis Partners has performed, resulted in an auditor sign off in respect of the IP allocation within PPA.