M&A pros and valuators of acquired IP must take a hard look at risks

As Rachel Schwartz writes for ipCapital Group, once analysts have a fix on an expected income stream based upon the intended use of an acquired IP asset, time, technology and commercialization risks need to be factored in to make the valuation work.

  1. Weighted Average Cost of Capital (WACC). What is the acquirer’s overall cost of capital used to finance acquisitions and what alternative investments are there?
  2. Ability to protect. Without the ability, inclination and wherewithal to protect IP, its value is greatly reduced. If litigation were necessary, what is the probability of prevailing?
  3. Market growth and penetration. What factors might negatively affect the projected revenue stream for the asset? Will the product generate the envisioned demand? Will it be too costly to get to market? Will macroeconomic factors hinder the plan?
  4. Technology. Will it work? Can it be designed around? Will the patent be issued? Can related trade secrets be protected?