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Brand Valuation University of New Hampshire Nevium

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The objective of a valuation is to express an unambiguous opinion as to the value, expressed as a monetary amount, of a business enterprise, asset or resource, or ownership interest therein. – Based on ASA BVS-I
A Few Valuation Basics:
Value = present value of future benefits
Valuation happens every day, only some involve a formal analysis
IP Valuation requires one more step compared to business valuation
When Asked about Valuation, we then Ask . . .
Why: Compliance, Reporting, Transaction, Litigation, or Considering a License?
What: Which assets, or group of assets?
How: What data is available and which calculations will be needed?

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Brand Valuation University of New Hampshire Nevium

  1. 1. Brand Valuation Doug Bania & Brian Buss Nevium Intellectual Property Solutions www.nevium.com University of New Hampshire School of Law April 2016
  2. 2. When someone says value . . . A Few Valuation Basics: • Value = present value of future benefits • Valuation happens every day, only some involve a formal analysis • IP Valuation requires one more step compared to business valuation When Asked about Valuation, we then Ask . . . • Why: Compliance, Reporting, Transaction, Litigation, or Considering a License? • What: Which assets, or group of assets? • How: What data is available and which calculations will be needed? Art & Science, but Not Magic The objective of a valuation is to express an unambiguous opinion as to the value, expressed as a monetary amount, of a business enterprise, asset or resource, or ownership interest therein. – Based on ASA BVS-I
  3. 3. What is “Brand Valuation” For these lists, “Brand” includes more than IP Top 5 “Most Valuable Brands” from three different publications 2015 Brand Valuation Tables (USD Millions, % of TEV at 12/31/15) Rank Brand Finance Millward Brown Interbrand 1 Apple $128,303 21% Apple $246,992 41% Apple $170,276 28% 2 Samsung 81,716 72% Google 173,652 37% Google 120,314 26% 3 Google 76,683 16% Microsoft 115,500 30% Coca Cola 78,423 37% 4 Microsoft 67,060 18% IBM 93,987 57% Microsoft 67,670 18% 5 Verizon 59,843 20% Visa 86,009 47% IBM 65,095 40% Method Relief from Royalty Excess Profits paired with an apportionment exercise Apportionment of TEV based on brand strength analysis The rankings change year to year and the Valuations vary by large amounts Brand appears to include a bundle of IP and Intangibles
  4. 4. Brand or IP? 4 We focus on valuing specific, identified assets; which can be the “Brand Bundle” or a specific IP Assets • Several published rankings, often cited in financial press • Brand is loosely defined, but almost always more than the Company’s trademarks • Sometimes “Brand” value is the difference between market value and book value, or the value of all intangibles and goodwill • Brand Bundle: TM, Domain Names, and name or logo-based rights • Identification & quantification of the economic benefits provided to the owner of an IP asset • Additional profits and/or costs avoided due to ownership or use of the IP asset • Requires identification of specific assets and apportionment of a company’s total profits to each identified asset Brand Valuation IP Valuation
  5. 5. Early on, All parties agree on what is being valued Which assets will be valued? Trademarks Copyrights Publicity Rights Patents Copyrights Trade Secrets Marketing Assets Technology Assets Domain Names Customer Lists Relationships Practices / Procedures Know-how / Research Test Results Relationships Practices / Procedures What other assets are related to the IP? What Assets are Included in the Valuation?
  6. 6. How IP Contributes to Value 6 Economic Benefits Monopoly Barrier to entry, exclude others from using • Pricing power • Greater profit margins Litigation Seek damages if others use • Litigation award (PV of award less costs) • Threat of litigation (force “Monopoly” or “Permission”) Permission Ability to be compensated when others use • Value of license (PV of royalties+fees – costs) • Value if sold Promotion Signals innovation, uniqueness, source of origin to consumers • Additional sales • Reduced marketing • Incremental margin Value is Derived From the Economic Benefits Created
  7. 7. 1. Define the Purpose and Context 2. Identify, Define & Group 3. Consider 3 Analysis Types: Financial, Behavioral and Legal 4. Isolate and quantify the benefits specific to the IP Assets 5. Reconcile the different analytical approaches employed Using Valuation Tools, you can value IP Assets; and Evaluate an opportunity to use IP Assets Valuation of IP Assets • Purpose is strategic or intrinsic value, need to quantify potential synergies • Counter-parties are known or identified, and the Analyst can estimate the impact on potential counter-parties • Goal is to quantify and evaluate the financial and economic net benefits of a transaction Value of an IP Opportunity or Different Purpose . . . but Same Tools The Value of IP
  8. 8. Effective use translates to financial benefits through greater revenues, and higher profits (From A to B) Goal of creating and using IP: A unique product that results in greater demand and/or higher price points The challenge: how to Quantify these benefits . . . The Goal of IP Assets
  9. 9. Valuation Approaches Same Approaches as Business Valuation . . . apply as many methodologies as possible Standard Methodologies IP Methodologies Cost Approach Cost to replace or replicate • Relief from royalty • Relief from pay per click • R&D, Marketing, Investment • Impressions Income Approach Present Value (PV) of future benefits • Discounted cash flows (DCF) • Relief from Royalty • Lost Profits / Unjust Enrichment PV of • Additional margin / profit • Additional volume • Cost savings Market Approach Study of transactions • Guideline companies • Guideline transactions • Industry benchmarks • Comparable acquisitions • Comparable licenses Analysis of the financial & economic impact of IP Assets will employ one or more of these methodologies
  10. 10. The IP Valuation Process Two types of calculations: • Apportion future benefits to the IP, calculate present value of apportioned future benefits • If a license is reasonable, or if using a Relief from Royalty calculation, apply a royalty rate to a measure of future benefits and check if both licensee and licensor will benefit from the transaction Both methods require a reasonable forecast of future benefits
  11. 11. Forecasting Future Benefits Asset Remaining Life (Years) Cash Flow ($) Asset Value ($) IP: Remaining Life, Cash Flow & Value • IP and the products that use IP have life spans • Companies can expect perpetual growth, IP cannot • Benefits from the IP will grow, peak and then decline as other IP and other products take their place Guiding Concepts Total Contribution Patents IP: Relative contribution Trademarks & Other Intangibles Time Products & Businesses Business Revenues Product Life Cycle IP Remaining Life Benefit Today’s Products Products In-development Future Products
  12. 12. IP Valuation & Apportionment Business Value > Value of IP Assets owned by the Business Apportionment: Identify the portion of future benefits derived from use of the IP Assets Present Value of Expected Future Benefits Value of Business Intangible Assets Tangible Assets Copyrights Patents Intangible Assets Tangible Assets Trademark IP depends on other assets and resources in order to generate economic benefits
  13. 13. It boils down to apportionment Apportionment Framework
  14. 14. Value of Trademark Forecast Profits x Apportionment = $1,000 year 1 x = $150 year 1 PV of Future Benefit Apportionment Results Analysis Type Low High Website Analysis 5% 20% Company Language 15% 25% CUT 8% 12% Use % of Profits to IP 15% = $603 Trademark Valuation Example
  15. 15. Apportionment Tools Use as many as feasible • Website Analytics • Social Media Analysis • Scoring Analyses • Company Language Analysis • Comparable licensing transactions (“CUT”) • Excess profits (“CPM”) • Feature count and comparison • Marketing Mix Analysis • Promotional Use Analysis • Surveys / Interviews /Focus Groups Tools to Apportion Economic BenefitsApportionment Framework What is the value of this box? Present Value of Expected Future Benefits Value of Business Intangible Assets Tangible Assets Copyrights Patents Intangible Assets Tangible Assets Trademark
  16. 16. The Apportionment Model Present Value of Expected Future Benefits Value of Business Intangible Assets Tangible Assets Copyrights Patents Intangible Assets Tangible Assets Trademark Applies the Apportionment Framework • Value of Entire Business • Forecast each source of revenue (Products & Services) • Identify Key Assets & Resources (IP and Intangibles) • Develop Apportionment Rates • Value the Forecast Apportionment Rates • Apply concept of Equal Values Framework of the Model 6 Step Process
  17. 17. IP Marketplace Product Marketplace Valuation Using a Licensing Framework Licensor Transaction requires benefit for multiple parties For Licensee Value = Revenue – Compensation Paid (often a Royalty) Licensee Customer For Licensor Value = Royalty – Cost to Develop, Own & SupportIP Compensation Product Revenue
  18. 18. Value to Both Parties Both parties expected to benefit from the Opportunity Period 0 1 2 3 4 5 Forecast Licensee Sales 1,000 1,300 1,495 1,645 1,727 1,761 Growth Rate 30% 15% 10% 5% 2% Annual Royalty Rate 8% 8% 8% 8% 8% For IP User (Licensee) Up-front payment (50) Annual Fee (5) (5) (5) (5) (5) Additional Profit Margin 15% 20% 15% 10% 5% Additional Profits - 195 299 247 173 88 % of Sales Royalty - (104) (120) (132) (138) (141) Total Benefits (50) 86 174 110 30 (58) Present Value @ 25% (50) 69 112 56 12 (19) Value of IP to Licensee 180 For IP Owner (Licensor) Up-front payment 50 Promotions Commitment (130) (150) (82) - - Promotions Commitment % 10% 10% 5% 0% 0% Annual Fee 5 5 5 5 5 % of Sales Royalty 104 120 132 138 141 Total Benefits 50 (21) (25) 54 143 146 Present Value @ 20% 50 (18) (17) 31 69 59 Value of IP to Licensor 174
  19. 19. Finding a Reasonable Royalty Rate Income Statement Revenues Gross Sales 1,000 100% Discounts 5 1% Net Revenue 995 100% Cost of Sales 450 45% Gross Profit 545 55% Operating Expenses Sales & Marketing 100 10% General & Admin 75 8% Research & Development 50 5% Depreciation 35 4% Other 15 2% Total OpEx 275 28% Operating Income 270 27% Other Income / (Expense) Interest, net (55) -6% Non-recurring (45) -5% Sale fo Assets 85 9% Total Other Income (15) -2% Pre-tax Income 285 29% Tax Expense (100) -10% Net Profit 185 19% Not all royalties are the same Best for Licensor Best for Licensee FinancialRisktoLicensee $ / Unit made $ / Unit Sold Gross Sales ($ invoiced) Gross Sales (Collections) Net Sales Gross Profits EBIT Net Profits Level of Benefit Drives the Royalty
  20. 20. Royalty Rates A reasonable royalty considers: the level of benefit and the allocation of roles Licensor Activities Research/ Develop Design&Test Regulatory/ Approvals Manufacture Market Distribute Service Adopt Licensee Activities Allocation of Roles Drive the Royalty
  21. 21. Bringing it all Together Intellectual Property Valuation & Key Concepts Why value, and What IP? Apportionment Royalty Rates & Reasonable Compensation Present Value Calculations / Discounting Forecasting Future Benefits
  22. 22. Thank You Brian Buss and Doug Bania
  23. 23. Nevium Intellectual Property Solutions Nevium provides solutions for valuing, managing and monetizing intellectual properties and intangible assets. We work with entrepreneurs, corporations, legal counsel and IP owners to analyze and maximize the value of IP and intangibles such as copyrights, trademarks, patents, brands, rights of publicity, websites, customer lists, social media activities, new technologies, and other proprietary assets. We are dedicated, experienced managers who provide clear, comprehensive and thoroughly researched analyses, reports and evaluations. Our principals have a CFA, CLP, an MBA and an MA with over 30 years of combined business experience. We have worked with clients from a wide range of industries, including: apparel, food, medical technology, not-for-profit, entertainment, transportation, publishing, airlines, music, retail, sporting goods, manufacturing & distribution, photography, trade associations, education and professional services. The Firm’s experience includes: • Valuation of brands, patents, trademarks, copyrights, rights of publicity, technologies, domain names, customer relationships, and other proprietary assets • Expert opinions and testimony have been accepted in Federal Court, US Tax Court, State Court, arbitration and mediation • Calculation of economic damages and profit apportionment analyses • Damages due to trademark and trade dress infringement in Lanham Act claims • Quantify profitability of strategic alternatives for IP owners seeking new means to derive additional revenue and profits from their IP portfolio • Reasonable royalty and transfer pricing investigations • Due diligence and transaction advisory for buyers, sellers, licensors and licensees • Pricing studies and optimal pricing strategies

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