FITT Toolbox: Valuation Tool


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The valuation tool exposed in this case is intended to facilitate valuation within technology transfer activities. This tool, composed of an excel document, embraces three quantitative valuation approaches, namely cost, income, and market. This valuation tool, and the related case, will grant technology transfer officers a solution in order to choose a valuation method, and to conduct the chosen valuation activity accordingly.

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FITT Toolbox: Valuation Tool

  1. 1. Valuation Tool FITT– Fostering Interregional Exchange in ICT Technology Transfer – www.FITT-for-Innovation.euExcept where otherwise noted, this work is licensed under a Creative Commons Attribution 3.0 License.
  2. 2. Practice in general The objective of this case is to expose an excel-based worksheet (the Tool) designed to support valuation processes This Tool aims at assisting “quantitative” valuation methods • Facilitates valuation processes • Helps choosing among a quantitative valuation method • Cost Approach • Market Approach • Income Approach Tool was designed for internal use at Tudor • Tool is a work in progress, aimed at being optimized through further use experience Tool needs adaptation on a case-by case basis2 | April 2011 Valuation Tool
  3. 3. Valuation methods used in Tool Cost Approach  Measures the value of an intangible asset by taking into account all relevant costs invested or related to the appraised asset Historic costs : accounting all costs (effective and sunk) directly related to the appraised asset (such as securing, research, development, and licensing-in costs) Replacement costs : valuing the costs for buying an asset bringing the same utility than the appraised one Reproduction costs : valuing the costs induced in creating, at the time of the appraisal, a similar asset based on actual knowledgeCost approach is generally favored under high uncertainty and limited information3 | April 2011 Valuation Tool
  4. 4. Valuation methods used in Tool Market Approach  Value consists in the price of a comparable asset in a similar market transaction. Market approach relates to the quantification and adjustment of pricing multiples in order to create theoretical comparable conditions Lack of active and transparent market for IP transactions and market dynamics have to be taken into account in the process Income Approach  Measures the value of an intangible asset by reference to the expected and actualized benefits, incomes or saved costs over the remaining life of the asset. Such prospective- based quantification of financial flows needs to take into account various risk-related factors such as Endogenous : Extend of IP protection, nature of competition, … Exogenous : Substitute product development risks, maturity of market, …4 | April 2011 Valuation Tool
  5. 5. The Tool – Part 1 (Choosing a valuation method)Various parameters help choosing among valuation methodsMaturity of technology  Based on the notion of the technology life cycle. The maturity of a technology impacts the amount of products based on such technology available on markets at the time of valuation.  Strong maturity is needed for market approaches.Level of novelty  Is to be considered strictly for the considered market . An asset under valuation can be old from a technological standpoint, but new for a given market.  High level of novelty favor cost and income approaches.5 | April 2011 Valuation Tool
  6. 6. The Tool – Part 1 (Choosing a valuation method) Nature of technology  Either discrete (asset usable solely) or complex, meaning that the use of such technology relies on the necessity to use other dependant technologies.  Complex technologies favor cost and income approaches. Substitutable technologies  Availability of other technologies that can be use in order to replace an existing one with no or minimal loss of utility  For replacement costs, technologies need to be substituable. Sustainaible technologies  Implies that they have a potential for a long life cycle remaining  Sustainability favors income approaches.6 | April 2011 Valuation Tool
  7. 7. The Tool – Part 1 (factors impacting royalty and risks) Impacting factors (which need to be analyzed prior to valuation activity) • Legal-focused criterias Freedom to operate (based on third party IP) Level of Protection granted by IPR (level of appropriability) • Internal and organisational-focused criterias Nature of the value proposal (understanding of how value will be created) Accounting rules and reporting methods (if important) • External and market-related criterias Market risks (strong or weak – known or unclear) Comparable markets (existing or not) Consumer behaviour (understood and “rationnal” or not)7 | April 2011 Valuation Tool
  8. 8. Historic Cost Approach  Inflation and depreciation should be managed externally8 | April 2011 Valuation Tool
  9. 9. Market Approach  Market price for comparable technology/asset (known price) Example : 1 M€  Advantage induced by this comparable technology/asset Example : 20% productivity gain  Number of years of technology/asset exploitation on market + inflation rate  Current value of comparable technology 1M€ x (1- 0,03)^5  Valuated technology  Gain for the valuated technology Example : valuated technology permits a 30% productivity gain  Value of technology 20% gain = 858k€ 30% gain = 1,288k€ (50% increase)9 | April 2011 Valuation Tool
  10. 10. Income Approach10 | April 2011 Valuation Tool
  11. 11. Income Approach Discount Rates calculation  Need WACC info (specific for market/technology  IT = +/-8%)11 | April 2011 Valuation Tool
  12. 12. Income Approach Initial need for income Approach = Sales Plan12 | April 2011 Valuation Tool
  13. 13. Income Approach Calculation of actualized net present value13 | April 2011 Valuation Tool
  14. 14. Income Approach Value range +/- 20% of NPV14 | April 2011 Valuation Tool