Focus on Valuing a Brand and Other "Soft" Assets (Series: Valuation in Corporate Transactions)

2. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Practical and entertaining education for attorneys, accountants, business owners and executives, and investors. 2

6. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe DISCLAIMER The material in this webinar is for informational purposes only. It should not be considered legal, financial or other professional advice. You should consult with an attorney or other appropriate professional to determine what may be best for your individual needs. While Financial Poise™ takes reasonable steps to ensure the information it publishes is accurate, Financial Poise™ makes no guaranty in this regard. About this PowerPoint: if you are looking at this PowerPoint without the benefit of listening to the conversation that surrounded it then you are doing yourself a disservice. This PowerPoint was prepared in contemplation of being viewed in conjunction with listening to a one hour webinar on the topic 6

7. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe MEET THE FACULTY Moderator: John Levitske – Ankura Panelists: Garth Tebay – Value Defined Richard Claywell – J. Richard Claywell CPA David Taber – David Taber & Associates 7

8. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THIS WEBINAR: Focus on Valuing a Brand and Other “Soft” Assets A company’s name, logo and other intangible assets have no intrinsic value. Yet, such intellectual property (IP) rights are increasingly important. Other examples of such “soft” assets include trademarks, copyrights, and trade secrets. This webinar will help attendees understand how experts go about valuing such intangible assets. 8

9. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ABOUT THIS SERIES: Valuation in Corporate Transactions What is it worth? Valuation experts are commonly used by market participants to determine the price they are willing to pay or receive to transact a sale of a security, a business or a discrete asset. Valuations can be performed on assets such as equities, options, or business enterprises. They can also be performed on intangible assets such as patents and trademarks, or liabilities such as debt and contingent consideration. The concept of valuation permeates the business and legal world on a daily basis. Given the importance of valuation, it seems incongruous that two perfectly competent valuation professionals can conclude on significantly different values for the same subject interest. This webinar series addresses this and, more broadly, discusses how valuation experts go about their work. 9

10. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe EPISODES IN THIS SERIES 10/4/19 Episode #1: When, Who & Why to Value Your Assets 10/11/19 Episode #2: How to Value Your Assets 11/8/19 Episode #3: Focus on Valuing a Brand and Other "Soft" Assets 10 Dates shown are premiere dates. All webinars will be available On Demand approximately 4 weeks after they premiere.

11. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Episode #3: Focus on Valuing a Brand and Other “Soft” Assets 11

12. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WHAT IS A BRAND? • A brand is a set of symbols that summarize a company or product reputation in the marketplace, encompassing the relationship the public has with the values and aspirations of the firm. • A brand is usually represented by assets that may be subject to copyrights or other legal protection such as trade names, logos, trade dress, trademarks, internet domain names, tag lines, jingles and other intangible assets 12

13. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe WHAT IS A BRAND? (cont’d) • Intangible assets: nonphysical assets such as franchises, trademarks, patents, copyrights, goodwill, equities, mineral rights, securities, and contracts (as distinguished from physical assets) that grant rights and privileges and have value for the owner  International Glossary of Business Valuation Terms as agreed to by the American Institute of Certified Public Accountants, American Society of Appraisers, Canadian Institute of Chartered Business Valuators, National Association of Certified Valuation Analysts, and The Institute of Business Appraisers • Thus, a brand is generally a group of assets that would be considered a subset of intangible assets 13

14. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TYPES OF INTANGIBLE ASSETS • Intellectual Property  Patents  Trademarks  Copyrights  Trade secrets 14 • Intellectual assets  Unregistered but codified  Drawings  Software  Blueprints  Documents  Databases  Formulas  Recipes

15. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TYPES OF INTANGIBLE ASSETS (cont’d). • Intellectual capital  Uncodified human and organizational  Collective corporate knowledge  Individual employee skills and knowledge  Know How  Organizational culture  Customer satisfaction 15

16. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ACCOUNTING STANDARDS CODIFICATION 805: CATEGORIES OF IDENTIFIABLE INTANGIBLE ASSETS • ASC 805-20-55 presents five categories of identifiable intangible assets:  Marketing-related intangible assets  Customer-related intangible assets  Artistic intangible assets  Contract-related intangible assets  Technology-related intangible assets • According to ASC 805, goodwill is also an intangible asset, although it is not an identifiable intangible asset 16

17. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe MARKETING-RELATED INTANGLIBLE ASSETS • Web page design and graphical artifacts; cover designs and mastheads • Trademarks, service marks, trade names, collective marks, certification marks, logos and proprietary fonts • Trade dress • Internet domain name • Noncompetition agreements • Marketing Segmentation, Targeting, and Scripts • Active Prospect Lists • Search engine, Yelp, NetPromoter, and other web rankings 17

18. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe CUSTOMER-RELATED INTANGIBLE ASSETS • Customer lists • Customer contracts and related customer relationships • Non-contractual customer relationships • Order or production backlogs 18

19. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe ARTISTIC-RELATED INTANGIBLE ASSETS • Plays, operas, ballets • Books, magazines, newspaper, and other literary works • Musical works such as compositions, song lyrics, and advertising jingles • Photographs, drawings, and clip art • Audiovisual material including motion pictures, music videos, television programs 19

20. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe CONTRACT-RELATED INTANGIBLE ASSETS • License, royalty, standstill agreements • Advertising contracts • Lease agreements • Construction permits • Construction contracts 20

21. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe CONTRACT-RELATED INTANGIBLE ASSETS (cont’d) • Construction management, service, or supply contracts • Broadcast rights • Franchise rights • Operating rights • Use rights • Servicing contracts • Employment contracts 21

22. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe TECHNOLOGY-RELATED INTANGIBLE ASSETS • Patented or copyrighted software • Design patents • Mask works • Unpatented technology and know-how • Databases • Trade secrets 22

23. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe HOW DO INTANGIBLES CREATE VALUE? • Branding is a marketing strategy to build intangible assets that create a differentiated name and image in the market that will attract and retain customers • A brand and other intangible assets in general provide value through:  Market advantage/power o Premium pricing o Reduced costs o Increased market share o Known reliability, quality and consistency 23

24. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe HOW DO INTANGIBLES CREATE VALUE? (cont’d) • Defensive value/freedom to operate  Defensive assets protect market share or pricing advantages  Certain legally protected intangibles (i.e. intellectual property) create an arsenal to discourage lawsuits by others or from utilizing information  Hinder competition from branding efforts or differentiating product 24

25. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe PURPOSE OF SOFT ASSET VALUATION • Transaction advisory  Sale/purchase, licensing, M&A, joint ventures, etc. • Strategic decision-making (i.e., IP management)  R&D planning, make v. buy, maintenance fees, etc. • Tax regulation/planning  Transfer pricing, creation of IP holding/management companies • Financial reporting  Purchase price allocation, value impairment 25

26. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe PURPOSE OF SOFT ASSET VALUATION (cont’d) • Financing (i.e., use of IP as collateral) • Bankruptcy • Litigation (i.e., direct and consequential damages) • Regulatory and compliance requirements • Others 26

27. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe GENERALLY ACCEPTED VALUATION METHODS • Cost approach methods  Reproduction cost new less depreciation method  Replacement cost new less depreciation method  Trended historical cost less depreciation method • Market approach methods  Comparable uncontrolled transactions method  Comparable profit margin method 27

28. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe GENERALLY ACCEPTED VALUATION METHODS (cont’d) • Income approach methods  Relief from royalty method (cost savings)  Differential income (with/without method)  Profit split method  Residual (excess earnings) method • There are other unofficial methods that experts may resort to, such as  “Revealed Preference” with supporting surveys  “Counterfactuals” with supporting industry statistics 28

29. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe VALUATION PARAMETERS • Purpose of the valuation • Standard of value • Premise of value • Valuation date 29

30. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe STANDARD OF VALUE • The definition of value being utilized for a valuation • Typically selected to match the purpose of the valuation  Certain purposes require the use of a specific standard of value • Three primary standards of value  Fair market value/arm’s length standard – U.S. income, gift & estate tax reporting  Investment value (i.e., strategic value) – decision making  Fair value – U.S. GAAP for financial reporting • The same asset may have vastly different values under different standards of value 30

31. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe PREMISE OF VALUE • Operational Premise:  Going concern (value in-use) – assumes continued future use of the assets as a group  Liquidation (value in-exchange) – assumes sale of assets piecemeal o Orderly (sold over a reasonably period of time) o Forced (time-constrained – similar to auction; i.e., “fire sale”) 31

32. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe PREMISE OF VALUE (cont’d) • Valuation Premise:  Value in-exchange – the value of an asset of business interest assuming it will be changing hands in a real or hypothetical sale  Value to the holder – the value of an asset or business interest assuming it is not being sold but instead is being maintained in its present form by its present owners • The same asset may have vastly different values under different premises of value 32

33. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe VALUATION DATE • All valuations only represent a snapshot in time and are performed as of a specific date to be clearly identified for the user • The value of the same asset can change from one date to another 33

34. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe COMPARING BUSINESS VALUATION AND INTANGIBLE ASSET VALUATION • Both business and asset valuation consider the same three approaches: income, market, and cost  However, the methods within each approach may be different • Intangible asset valuation typically entails valuation of a single asset or small group of assets rather than assembly of all assets necessary to operate a business 34

35. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe COMPARING BUSINESS VALUATION AND INTANGIBLE ASSET VALUATION (cont’d) • Assets involving assessing an incremental benefit stream – specific cash flows attributed to intangible asset vs. total company available cash flow • Business valuation typically assumes an indefinite life – i.e. perpetual returns from a going concern, whereas most intangible assets are assumed to have a finite life/diminishing returns. 35

36. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe COMPARING BUSINESS VALUATION AND INTANGIBLE ASSET VALUATION (cont’d) • The assessment and quantification of risk can vary significantly  Finite life of assets  Lack of fungibility – uniqueness of the asset to a specific business precludes it from being redeployed in another business  Intangible assets are less desirable as collateral 36

37. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe COMPARING BUSINESS VALUATION AND INTANGIBLE ASSET VALUATION (cont’d) • Market approach is more difficult to apply to intangible assets  By definition, intangible assets are unique  Lack of robust secondary market to observe arms-length trades – i.e. no stock market • Business valuation more often entails partial ownership partial ownership interests that require a consideration of certain discounts and premia.  Partial ownership of intangible assets is rare 37

38. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe IDENTIFYING AND ACCOUNTING FOR RISK IN INTANGIBLE ASSET VALUATIONS • Types of risk  Business risk  Technology risk  Legal / regulatory / compliance risk • Methods to mitigate or manage risk  Due diligence  Pricing 38

39. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe IDENTIFYING AND ACCOUNTING FOR RISK IN INTANGIBLE ASSET VALUATIONS (cont’d) • Methods for pricing risk and uncertainty  Discounted cash flows – adjust discount rate for risk premiums  Discounted cash flows – adjust cash flow projections o Weighted range of scenarios (best, likely, worst) o Decision tree – lattice models with discrete probabilistic outcomes o Monte Carlo simulation – continuous probability distributions with a central tendency and standard deviation 39

41. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe John Levitske – John.Levitske@ankura.com John Levitske is a Senior Managing Director at Ankura, focused on business valuation and complex financial disputes. He has served as a senior advisor to companies, owners, executives, and legal counsel in business disputes, shareholder disputes, and M&A transactions regarding issues of valuation, finance, damages, and accounting. John is based in Chicago. With more than two decades of Big Four public accounting and international consulting experience, John is seasoned in business valuation, financial analysis, economic damage quantification, forensic accounting, retrospective solvency analysis, and post-merger & acquisition accounting calculations. He handles appraisals of healthy and distressed companies for buyouts of shareholders and creditors, transaction planning, estate and gift taxation, financial accounting, bankruptcy proceedings, and litigation disputes. John has provided consulting and expert witness testimony services and has served as a neutral party in arbitration and mediation. He has testified as an expert witness in the US and Europe in depositions, hearings, bench and jury court trials, and domestic and international arbitration (ICC, SCC, AAA, JAMS, FINRA, and ad hoc arbitrations) and has served as a neutral arbitrator. In addition, he has rendered binding decisions on disputed matters. To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/john-levitske/ 41

42. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Garth Tebay – gtebay@valuedefined.com Mr. Tebay is a practicing Certified Public Accountant, Certified Valuation Analyst, Master Analyst in Financial Forensics, and Certified Merger & Acquisition Advisor with over 46 years of experience. He is the founder and Managing Partner of Value Defined, LLC, a business valuation, M&A, forensic and litigation support firm in Sylvania, Ohio. He is also associated with Weber Clark Ltd., accounting, tax and consulting firm in Sylvania, Ohio as well as Managing Director of Family Office Direct Investment Services (FODIS) and a Core Service Provider of the Business Growth Alliance LLC (BGA). Mr. Tebay is a frequent speaker at the National Valuation Conference of NACVA/CTI and other professional associates as well as instructor for the NACVA Certification Program and Current Update in Valuation. Mr. Tebay received his Bachelor of Science in Accounting in 1972 from Findlay College in Ohio. He then received certification as a Public Accountant in 1975. In 1997, he became a Certified Valuation Analyst, awarded the CM&AA (Certified Merger & Acquisition Advisor) in 2001, and Master Analyst in Financial Forensic in 2008. He is the recipient of the Circle of Light Award and currently serves on the Executive Advisory Board of NACVA. 42

43. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe Richard Claywell – richard@biz-valuation.com Richard is a practicing Certified Public Accountant, and holds the additional designations of Accredited in Business Valuation, Accredited Senior Appraiser, Certified Business Appraiser, International Certified Valuation Specialist, Certified Valuation Analyst, Certified in Merger & Acquisition Advisor, Master Analyst in Financial Forensics, Certified in Fraud Deterrence, Accredited in Business Appraisal Review. Richard has been valuing closely held companies since 1985. Richard’s practice is restricted to business valuation, economic damages, profit enhancement and exit planning. Richard received his Bachelor of Science in Accounting in 1979 from the University of Houston – Clear Lake. He then received certification as a Public Accountant in 1983. Over the years, Richard has earned additional accreditations that relate to business valuations, economic damages and fraud. Richard has been an instructor for the National Association of Certified Valuation Analysts for many years, has been an instructor for the Internal Revenue Service and the International Association of Consultants Valuators and Analysts (IACVA). Richard is currently the Director of Education for the IACVA and is responsible for the business valuations materials being taught in 55 countries. Richard has taught business valuation or economic damage courses in China, Korea, Taiwan. Richard has performed over 1,000 business valuations since 1985. Richard has testified in Texas County Court, Texas State Court, Bankruptcy Court and Texas State Courts. Richard has given testimony in economic damages (lost profits), shareholder disputes, personal injury, wrongful termination and divorce. 43

44. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe David Taber – David@SalesLolgistix.com David is CEO of SalesLogistix, a CRM best practices consultancy, and serves as an expert witness in marketing and software intellectual property cases in state and federal venues. With more than 20 years in the marketing profession, he served as a senior vice president of marketing for two publicly-traded software companies, took a company public, and spearheaded two acquisitions. He has served on the integration teams of a dozen corporate mergers, and has advised venture capital firms on mergers and divestitures of high-tech companies. David has taught business courses at the undergraduate and graduate level at UC Berkeley, and is a frequent guest lecturer and speaker on marketing, sales, and technical management topics. He is the author of the Prentice-Hall book, "Salesforce.com Secrets of Success," now in its second edition, as well as hundreds of articles on marketing and technical management topics. To read more, go to http://www.saleslogistix.com/services/ExpertWitness.html 44

45. Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™ Receive our free weekly newsletter at www.financialpoise.com/subscribe QUESTIONS OR COMMENTS? If you have any questions about this webinar that you did not get to ask during the live premiere, or if you are watching this webinar On Demand, please do not hesitate to email us at info@financialpoise.com with any questions or comments you may have. Please include the name of the webinar in your email and we will do our best to provide a timely response. IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education. 45

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Focus on Valuing a Brand and Other "Soft" Assets (Series: Valuation in Corporate Transactions)

Focus on Valuing a Brand and Other "Soft" Assets (Series: Valuation in Corporate Transactions)

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