One consulting firm, Mathys & Squire Consulting, offers tools and insights into the IP valuation process as a way to attract clients, recognising that business owners may not fully understand the concepts. Further, many may not realise that intangible assets and registered rights such as intellectual property (IP) contribute significantly to overall business value, they say.
Lawrence Bickers, a business consultant at the firm, makes an important point that intangibles will be valued differently depending on the buyer. “A crucial consideration in IP valuation is to understand your business model and to evaluate whether it is most likely to lead to a transaction … with a party that has a key position in a strong value chain,” he writes for Lexology. “It can often be the case that several business model alternatives exist, and numerous factors need to be reviewed to determine the optimum approach to take when valuing IP.”
Bickers emphasises the following other aspects business valuers should consider when valuing IP:
- The assets’ ownership within the value chain (i.e., owned by the customer or subcontractor). At every step of the value chain, the value of an intangible asset tends to increase as businesses move deeper into the value chain.
- The purpose of the IP valuation. This “could be for the purpose of mergers and acquisitions; securing more funding and investments; asset transfers; infringement-related damage evaluation; or insolvency,” Bickers writes. “All these scenarios call for an IP valuation, but it is likely they will be approached differently.”
- Industry and market trends. IP assets can be more market-sensitive than tangible business assets. Their value “can fluctuate significantly given changes to the state of the economy, industry trends and market competitiveness. Such valuation should be updated as the business expands or any external changes occur, which could inflate or devalue the asset value.”