Trademark Value in Corporate Restructuring

942 views

Published on

Econometric analysis of the shift in the value of a typical B2C trademark sold in/out of the corporate restructuring context.

0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
942
On SlideShare
0
From Embeds
0
Number of Embeds
4
Actions
Shares
0
Downloads
0
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Trademark Value in Corporate Restructuring

  1. 1. Trademark Values in Corporate Restructuring Originally presented at the 2007 Western Economics Association International Conference Fernando Torres, MSc Chief Economist [email_address]
  2. 2. Abstract <ul><li>Reporting on progress made to date developing theoretical and empirical bases for trademark valuation in corporate restructuring and its application in several cases. </li></ul>
  3. 3. Agenda 1. I. P. and the Bankruptcy Context 2. Trademark Value Model 3. Econometrics of TM values in BK 4. Applications and Discussion
  4. 4. IP and the Bankruptcy Context <ul><li>Bankruptcy is a set of laws providing for the regulated transfer of debtors’ assets to creditors in order to settle claims </li></ul><ul><li>Assets and liabilities must be valued to arrive at the appropriate transfer ratio </li></ul><ul><li>An administrative process, not negotiated in a market </li></ul><ul><li>Increasingly, intellectual property (IP) represents a significant proportion of the value to be transferred </li></ul>
  5. 5. IP and the Bankruptcy Context <ul><li>Generally, IP [especially trademark values (V TM )] are not observable </li></ul><ul><ul><li>GAAP does not recognize internally generated IP value, only acquisitions (since 2001, FASB 141-142) </li></ul></ul><ul><li>When recognized in financial statements, rules of thumb are typically applied to estimate loss of value (10% or 20%) </li></ul><ul><li>We are building a database of V TM disclosed in relation to acquisitions in/out of bankruptcy </li></ul>
  6. 6. Trademark Value Model <ul><li>Literature uses indicators (registrations, etc.) as proxies looking to explain stock prices or marginal profitability as a function of intangibles </li></ul><ul><li>We seek to explain V TM as a function of the sales the TM supports, the context in which TM was acquired (liquidation or going concern), the scope of TM use, and other exogenous factors </li></ul><ul><li>V ™ = f ( S , t , GL , LIQ , other factors ) </li></ul>
  7. 7. Trademark Value Model <ul><li>In TM valuations reported, most often ‘Relief from Royalty’ method is applied </li></ul><ul><li>NPV (k) of growing (g) annuity cash flow of royalty (r) on sales (S): </li></ul><ul><li>A hypothesis is V TM may be =  S  </li></ul>
  8. 8. Trademark Value Model <ul><li>Allowing for the (  ) elasticity of V TM and Sales, the NPV solution is: </li></ul>
  9. 9. Econometrics of TM values in BK <ul><li>Relative orders of magnitude of the V TM /S ratio, for a 5% royalty rate in scenarios combining high and low risk (reflected in the cost of capital) and growth rates: </li></ul>V TM /S Slow Growth (g=2%) Fast Growth (g=5%) High Risk ( k =30%) 0.15 0.18 Low Risk ( k =12%) 0.48 0.69
  10. 10. Econometrics of TM values in BK <ul><li>Estimated log version of model: Ln (V™) = β 0 + β 1 Ln (S) + β 2 Year + β 3 Liq + β 4 Int’l + ε </li></ul>Table 1 General Model: OLS Estimates Dependent variable: Ln ( V™ ) Adjusted R 2 0.797712 F-statistic (4, 26) 30.5759 (p-value < .0001) Log-likelihood -45.2518 Akaike information criterion 100.504
  11. 11. Econometrics of TM values in BK <ul><li>Estimated reduced version of model ( β 1 =1 ): Ln (V™) - Ln (S) = β 0 + β 2 Year + β 3 Liq + β 4 Int’l + ε </li></ul>Table 2 Reduced Model: OLS Estimates Dependent variable: Ln ( V™/S ) Adjusted R 2 0.511644 F-statistic (3, 27) 11.4768 (p-value < 0.0001) Log-likelihood -45.2529 Akaike information criterion 98.5057
  12. 12. Applications and Discussion <ul><li>The liquidation trademark value is only 13.58% of the going concern value </li></ul><ul><li>The interquartile range for this ratio {exp( β 3 ) } is from 8.84% to 18.54% </li></ul><ul><li>International trademarks are more valuable per $ of sales </li></ul><ul><li>Applied in IBC, MM Chapter 11 reorganizations </li></ul>
  13. 13. Scattergram
  14. 14. Additional Application <ul><li>Investment fund client, IP asset backed securitization for $5M need 3x coverage </li></ul><ul><li>Conventional direct analysis: GC: $44.7 Liquidation: $6.72 (15%) </li></ul>
  15. 15. Thank You

×