FITT Toolbox: Valuation


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The valuation process is dedicated to the various quantitative methods which can enable technology transfer actors to estimate the value of any intangible assets. Transfer practitioners will gain from reading this process an initial understanding of the various valuation methods and their respective drawbacks.

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FITT Toolbox: Valuation

  1. 1. Valuation 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. Process “Valuation” in general Valuation is an essential process in order to achieve the optimal exploitation of protected IP assets. Valuation, as a process, consists in choosing one or several dedicated methods in order to assess the value of an asset. A value is not a price. Value is subjective, in the sense that value can differ depending on the direct environment, whereas a price is an objective information.2 | April 2011 Valuation
  3. 3. Process “Valuation” in general  In the activity of IP Management, valuation is perceived as a technology and business focused activity. Business (see activity “IP Management” for more details about this triangulation) VALUATION EXPLOITATION IP Management PROTECTION Technology Legal3 | April 2011 Valuation
  4. 4. TTOs and valuation – Why? Reasons to conduct valuation activities are diverse : Company valuation Taxation planning External reporting IP exploitation IP sale & licence Accounting & management Dispute Internal management Capital Raise resolution/Litigation & Strategy support4 | April 2011 Valuation
  5. 5. Quantitative Valuation Approaches There are 3 major types of valuation approaches Market Approach  Mesures the value of an intangible asset based on what purchasers on the market would have paid for a reasonnably similar asset Cost Approach  Mesures the value of an intangible asset by taking into account all of the costs invested in the intangible asset (building, replacement and/or reproduction costs) Income Approach  Mesures the value of an intangible asset by reference to the Net Present Value (NPV) of the expected benefits over the remaining life of the asset5 | April 2011 Valuation
  6. 6. Market Approach  Value is determined using market-observable multiples Parametrization is based on recent market transactions for comparable assets Multiples are based on  Sales, Profit Margins, … x3 Price are converted x3 Value into multiples Historic of earning Forecasted Derived Observed purchase sales sales purchased price price to value (estimated) From price (observed)6 | April 2011 Valuation
  7. 7. Cost Approach Cost Approach can be based on historic and/or replacement costs Value Inflation-ajusted t costs/periods Historic costs7 | April 2011 Valuation
  8. 8. Income Approach Based on the actualized net present value of future cash-flows Value Period 1 Period 2 Period 3 Period 4 t Present Value = Sum of future Cash Flows8 | April 2011 Valuation
  9. 9. Parts of the process In the framework of the FITT project, valuation process is apprehended through practices and cases « Valuation Methods » exposes the nature of the various quantitative valuation approaches within a global practice « Cost Approach » details a case dedicated to a trended historical cost approach to valuation « A valuation tool » exposes a specific tool developped internally at Tudor which simplifies quantitative valuation procedures9 | April 2011 Valuation
  10. 10. Practice « Valuation methods » Quantitative valuation methods can be regouped in 3 categories Cost approaches Income approaches Market approaches Each have their own benefits and drawbacks, which are detailed in the practice10 | April 2011 Valuation
  11. 11. Case « Cost Approach » This case is based on a real-world experience dedicated to estimate the value of an IP asset composed of a patent portfolio Methodology exposed in the case details how to conduct a trended historical cost approach, based on a 6 steps procedure11 | April 2011 Valuation
  12. 12. Case « Valuation Tool » A valuation tool was developped internally at Tudor in order to facilitate valuation excercises This tool assists not only the valuation activity for all quantitative valuation approaches exposed in previous practice, but also helps the TT officer choosing among valuation methods based on the nature of available information The tool is presented in this case, alongside the major hypothesis that were used in order to develop it12 | April 2011 Valuation
  13. 13. Suggested Readings Link to code book: • intellectual property, intellectual property protection, intellectual property rights, valuation, licensing13 | April 2011 Valuation