Everybody should be interested in IP as every company relies on them to a greater or lesser extent and may want to sell.
And they apply to all sectors – to a greater or lesser extent. Covered in more detail later on.
Firstly I am going to introduce a game. 3 different examples of acquisitions that have included IP asset value. Guess the price paid for the IP in each sale and whoever guesses the closest aggregate score will win a prize. Extra challenge is guess to be in pounds.
Different scenarios will necessarily change the method in which you sell the assets and the price.
Harness the power of the Internet: In this new age the power of the internet should be harnessed to reach as many potential purchasers, intermediaries and networks as possible. • Have a global presence: Marketing should include exploring not only the UK market but overseas markets. If you don’t have the contacts then either build them or more simply tap into someone who does. • Target competitors: they are most likely to understand the intangibles you are trying to sell and consequently likely to offer the greatest return.
As with selling any asset, competitive tension is key to driving up returns. This means strategising about how to present the assets to market and how to structure your bidding process to ensure returns are pushed upwards whether this be an English, Dutch or first-price auction with or without a reserve or minimum offer level.
Insolvency assignment – package up, market and ultimately sell the IP asssets in relation to Kshocolat
The result – sold to Bon Bon Buddies one of the largest confectionary companies in Europe
The position of the parties!!! Will the IP give the buyer key strategic advantages – seeing off competitors. Does the seller need money quickly? Is the seller distressed?
In general terms what do they look for? If you are a seller or are looking to sell out in the future then you should assess your IP assets against these.
The potential market - Whether or not there is a potential market affects the value of IP assets. If there is a market: 1. the nature of that market, 2. its size 3. value, 4. its location, 5. amount customers are willing to pay 6. potential market share E.g. Whether the brand is limited geographically or by sector.
Buyer - spend large amounts before a product is ready for market . Sellers and buyers often underestimate the investment needed , the time it will take to be ready for market and to attract customers. The longer it takes to get to market , the greater the risk that competitors will get to market first. buyer is taking the risk that the development may not be successful . if almost ready for market, the costs and the risks to the buyer are reduced and competitors may have to spend a lot of time and money to catch up . The higher those costs, the less they will pay for the IP assets.
Do the IP assets create a barrier for competitors or can they easily work round them? If they can work round the IPRs, the length of time it will take to do this, and how much it will cost , will affect the value of the IPRs.
The economic life of IPRs = period during which they generate income . The economic life of IPR is rarely the same as its ‘legal life’, different sectors ( The economic life of a software program will be shorter than the duration of copyright in the software . In the pharmaceuticals industry generic competitors enter the market when patent protection comes to an end.) The likelihood of technological change , how quickly and easily competitors are able to produce something which is as good as (or better), changes in legislation, unforeseen developments in technology, market shifts, challenges to the validity of the IPR and increases in production costs … all have a bearing on the economic life of IPRs. The level of income generated by the IPR will not remain the same throughout its economic life. Income will increase as market share increases, but it may reach saturation point. Competitors may catch up or improve on the technology, or the technology may become obsolet
If there is less money about, it is more difficult to find a buyer. They are prepared to pay less. But if IP assets add a real advantage and they have the resources to exploit that advantage, the value of the IPR may not be as depressed as you might think. And some buyers will find opportunities which do not exist in better times. Economic downturns do not last forever. Any deal should not assume that the returns from the IP assets will always be as low as during the downturn.
Compliance with the law and regulatory controls in areas such as testing, health and safety and advertising, will affect the costs of manufacture and selling, and have a bearing on the value of the IP assets. (Remember that the law and regulations are different in different countries.) A buyer will not be willing to pay a lot if the IP assets are restricted to a country where the law affords little protection for the IPR . Where the barrier to entry is low or not effective.
As with selling any asssets, sellers want up-front payment of some sort . The larger the up-front payment, the more likely it is that any royalty rates or revenue shares will be smaller. The cleaner an offer is the more attractive it is likely to be. Deals can easily fall down on payment structure – especially when there is competitive situation. If you are a buyer push too hard on payment structure at you peril!
No pictures here! Information comes from US M & A deals from a few yrs ago now and assesses the “intangible gap” – that’s the gap between the book value of the assets and the actual price paid. What are the assets: Goodwill = unallocated intangibles- generally we would expect this to be brand Marketing-related Intangibles = trade marks, trade names etc Technology-Based Intangibles = Patents and In-process R & D (patented and unpatented tech recognised in 36% of transactions) Customer related intangibles – relationships, contracts, lists and orders. (fastest increase in allocation is in this area) Contract – eg non-compete agreements most frequently recorded. Clearly see whole of market goodwill is highest with Tech based and Customer relationships broadly speaking of around the same value Manufacturing – goodwill/brand perhaps surprisingly high but customer relationships valued most highly out of all the sectors. Computer software, supplies and services – marketing related intangibles valued higher than other sectors. In communications its all about brand and customer related intangibles. Drugs, Medical supplies and equipment – Patents are clearly hugely valuable even though the days of the blockbuster drugs are said to be behind us. Banking and finance – value brand.
Hand up if you had an aggregate figure for all 3 over £20bn.
Jaguar and Land Rover = 40% of the purchase price. Cadbury’s powerful brand and status as a British institution led many to believe that the IP assets of the company were being undervalued and given away too easily to foreign investors . A 2011 analysis of the IP assets concluded that the brand portfolio of Cadbury’s is worth £3.2 billion alone (more than a quarter of the purchase price) and the total value of the intangible assets is in fact £12.0 billion. The report observed that this internal brand value went unreported in the Cadbury balance sheet and as a result Kraft were able to acquire at a price which does not truly represent Cadbury’s intellectual property worth. Part of the global IP war raging between Apple, Samsung and Google = head off costly litigation. This price works out at circa $500k per patent. Any good patent is believed to be worth between $25K and $750K ; the very best can go for over a million dollars.
Brand Valuation - Buying and Selling
APPRAISING: THE POWER OF THE MARKET MARKET SECTORS, MARKET PRICES, GOING TO THE MARKET NAT BALDWIN, METIS PARTNERS
WHAT DOES THIS GUY DO? BUYS, SELLS AND VALUES INTELLECTUAL PROPERTY ASSETS
GAME SLIDE 1: TATA’S ACQUISITION OF JAGUAR & LAND ROVER FROM FORD 2008 <ul><li>Purchaser: Tata Motors </li></ul><ul><li>Brand: Jaguar and Land Rover </li></ul><ul><li>Intellectual Property Assets: Jaguar and Land Rover brands as well as associated brands. The formal IP assets included numerous design rights, patents and trademarks relating to the logos and corporate identities. </li></ul><ul><li>Key info: </li></ul><ul><li>Daimler, Lanchester and Rover brands included in the sale </li></ul><ul><li>Jaguar had 22 trademarks in the UK and this included the iconic E-Type Jaguar. </li></ul><ul><li>Land Rover had 20 trademarks in the UK relating to the Rover and Land Rover brands. </li></ul><ul><li>Clue: Ford had bought Jaguar for $2.5 billion in 1989 and Land Rover for $2.7 billion in 2000. What were the IP assets worth in this 2008 deal? </li></ul>
1. GOING TO MARKET – SELLING IP (THE ONLY TRUE METHOD OF VALUATION!)
WHAT’S THE CONTEXT FOR SELLING THE BRAND/IP? M & A (wider business sale)? Non-core assets? Distressed sale?
HOW DO YOU BUILD A PROCESS THAT TICKS ALL THE BOXES AND ENSURES YOU GET AS CLOSE TO MARKET VALUE AS POSSIBLE?
MARKETING Pro-active marketing is key. Maximise value by getting out there, researching the market and analysing who the likely buyers of the assets you have are. Here are some tips: • Harness the power of the Internet • Have a global presence • Target competitors
THE ASSETS: STRONG AWARD WINNING BRAND: 5 YRS TRADING + SIGNIFICANT MARKETING SPEND • MULTIPLE GROCERS (EG. SAINSBURY’S/WAITROSE) • INDEPENDENTS (EG. HARVEY NICHOLS) • DEPARTMENT STORES (EG. JOHN LEWIS) • CORPORATE/FOOD SERVICE (EG. BRITISH AIRWAYS) • HOTELS/TRAVEL RETAIL (EG. FIRMDALE HOTELS) REGISTERED TRADE MARKS
MARKETING MATERIALS • PRODUCT CATALOGUES • BRAND MANUALS • PRODUCT PACKAGING DATABASES • SUPPLIER INFORMATION • CUSTOMER INFORMATION E-COMMERCE WEBSITE AND DOMAINS NAMES THE KEY: LEVERAGE PAST MARKETING EFFORTS
GAME SLIDE 2: KRAFT’S ACQUISITION OF CADBURY 2010 Purchaser: Kraft Brand: Cadbury Intellectual Property Assets: Goodwill in the brand of Cadbury. Numerous trademarks with 20 alone in the UK. Many hundreds of patents with 56 in the UK under Cadbury UK Ltd. 27 design rights in the UK and more worldwide. Key info: The trademarks of the brand relate to the marks of the Company such as ‘Milk Chocolate’ and ‘Summertime’ as well as the corporate logo ‘Cadbury’ registered in 1886. The patents include the unique methods of manufacturing chocolate, the packaging and even the composition of the chocolate itself. Clue : In November 2009 a formal hostile takeover bid of £9.8 billion was made by Kraft but failed. What do you think the Cadbury’s brand is now valued at?
WHAT DO BUYERS LOOK FOR?: <ul><li>Increase sales </li></ul><ul><li>Charge a premium for products or services </li></ul><ul><li>R educe production costs </li></ul><ul><li>Increase the speed of production </li></ul><ul><li>Improve the quality of their products </li></ul><ul><li>Create a customer following </li></ul><ul><li>A void or reduce development costs </li></ul>
MARKET POTENTIAL 1. Size and value 2. The nature of the market 3. Market location 4. Price customers are willing to pay 5. Potential market share
DEVELOPMENT AND INVESTMENT? <ul><li>Is the product/service ready for market? </li></ul><ul><li>What is the cost of getting it to market? </li></ul><ul><li>Risk that competitors get to market first </li></ul><ul><li>Buyers will take the costs of development, IPR protection, production and advertising into account </li></ul>
LIFE OF THE BRAND/IPR <ul><li>Period of income generation </li></ul><ul><li>Economic life not necessarily the legal life </li></ul><ul><li>Technological change </li></ul><ul><li>How quickly can competitors adapt? </li></ul>
RE-CAP: FACTORS AFFECTING PRICE – SOME PRACTICAL ADVICE: <ul><li>The potential market </li></ul><ul><li>The competition </li></ul><ul><li>The need for further development and investment </li></ul><ul><li>The economic life of the IPR </li></ul><ul><li>The economic climate </li></ul><ul><li>Legal and regulatory matters </li></ul><ul><li>The Payment Structure </li></ul>
GAME SLIDE 3: GOOGLE’S ACQUISITION OF MOTOROLA MOBILITY 2011 Purchaser: Google Brand: Motorola Mobility - formerly known as the Mobile Devices division of Motorola until it was spun-off as a separate entity in January of 2011. Intellectual Property Assets: 24,500 patents and patent applications. 17,500 registered and 7,500 applications. Key info: The patents relate to wireless, audio, video, security, user interface and product designs. Includes numerous patents related to various industry standards, including 2G, 3G, 4G, H.264, MPEG-4, 802.11, open mobile alliance (OMA) and near field communications (NFC). Clue: The final acquisition price represents the value of the patents. How much do you think one patent is worth? Is there such thing as a benchmark value?
IP BY SECTOR Source: SEC Filings of companies identified in Mergerstat Review IP Assets Whole of market Manufacturing Computer, Software, Supplies and Services Communications Drugs, Medical Supplies and Equipment Banking and Finance Goodwill 61% 60.2% 67.0% 70.5% 37.0% 85.5% Marketing-related Intangibles 6.2% 3.0% 5.4% 0.5% 1.9% 0.2% Technology-Based Intangibles 13.5% 15.2% 12.1% 2.1% 53.0% 0.0% Customer-Related Intangibles 12.7% 18.9% 10.2% 19.2% 2.3% 14.3% Contract-Based Intangibles 4.6% 0.7% 3.1% 7.6% 5.7% 0.1% Miscellaneous Intangibles 2.0% 2.1% 2.2% 0.1% 0.1% 0.1%
Retail : Brand is clearly very important and well understood by the sector. See recent insolvency brand sales: Jane Norman, Woolworths, Oddbins. High-Tech market : Formal IP is important and understood. Note the difference in value between granted patents and patent applications. Property/construction : A difficult time for the sector and the market for formal IP is depressed as corporates seek to stick to core products and services. Recruitment : Again, suffering in the economic climate. Usually based primarily on IP and there are buyers although extra effort has to be taken to preserve value and prohibit unauthorised appropriation (i.e. of candidate and client databases etc.). Hospitality : Brand and marketing assets are known to be valuable although frequently legal protection is lacking. SOME QUICK THOUGHTS ON IP BY SECTOR..
1.Tata and Jaguar/Land Rover: Tata acquired the brands of Jaguar and Land Rover in 2008 for $2.3 billion. IP assets: £900 million 2. Kraft and Cadbury: Kraft acquired Cadbury for £11.6 billion in 2010. But IP assets now estimated to be worth £12.0 billion (Brand portfolio valued at £3.2 billion). 3.Google and Motorola: Google acquired Motorola Mobility for $12.5 billion (£8 billion) in 2011. IP assets: The IP assets made up the whole acquisition price. TOTAL IP ASSETS VALUE: £20.9 BILLION THE RESULTS ARE IN…