We are now increasingly valuing soft and hard IP for our clients.
Tomorrow is the Autumn Statement so next week’s insight may be full of or empty of(!) commentary of the impact of the Statement on valuations.
Meanwhile this week, I am pleased to say that we are increasingly been asked to value soft and hard IP which is a very enjoyable, if tricky, area to address.
Often one thinks of IP as patents or trademarks but it covers a myriad of assets ranging from the registered “stuff” to copyright and trade secrets and right through to those most interesting areas of value in a business such as the management team, the customer lists and even the supply chain. There will be other niches too.
IP can be valued using various methodologies and from time to time we find clues in academic research – who knew that early-stage investors tend to put 30% of the value of an opportunity on the management team, for example? And come to think of it if only 30% or so is the value of the team at that stage, where does the other 70% sit?
From retail trademarks to niche patents which will only be exploitable if blended into another business with an application where the patent comes into its own, this area of valuation is very technical. You need to use a lot of maths to get the answer right. The future cashflows tend to be critical to the understanding, and, of course, an exploitable piece of IP in the hands of a cash-rich owner who can push it to the maximum and protect it against copycats and infringers would be worth a lot more than that held by a solo individual in a shed who could not hope to finance litigation to protect it.
I frequently cite the Coca Cola trademark as a brilliant example of IP which, if you owned it, any one would fund you to build more factories to make the drink. Is not the most intangible of intangible brands, Apple, so powerful that its ads are instantly recognisable and its products don’t even need a “how to use it” leaflet because of the trust we have that they will just work?
We trademarked Athla because we are making a powerful brand in our market. The root of the word Athla is the same as for the word athletics. It encompasses sprints, marathons, team sports and solo endeavours. We like to think that it as what Athla can do around valuations or indeed other areas of business we can’t wait to reveal to you. Large exercises, small ones, those that are tricky and those that are – I was going to say straightforward, but a private asset valuation is very rarely just straightforward!
There are a few truths about valuing intangibles. We have to take into account accounting rules, as well as valuation approaches. There are issues like the moat around the IP, that must never be ignored. Is anything really irreplaceable? Who can out do the IP and where are they in relation to the situation we are examining. It is all very curious.
If you have a valuation exercise sitting on your desk which includes some tricky IP (and a clue, 80% of UK companies are services businesses – so the value will be in the intangible!), we would love to assist. Indeed, if you have a requirement where you require an expert to undertake the valuation work who understands about issues like referring to case law, explaining not only why you are taking a certain approach but also why you are not taking another, and disclosure, so that a valuation is defensible, we would like to explain how we can help.
