Analysts should understand the limitations of market data in their search for reasonable royalty rates

Steve Economou, managing director of Curtis Financial, discussed how to support royalty rate valuations at the ASA Advanced Business Valuation Conference in Phoenix. Suggesting there is a decided preference on the part of practitioners, auditors and the courts for market data, he listed the limitations analysts need to be aware of when searching for royalty rate comps:

  1. A search for comps can yield a wide range of data, which may not add to the analysis;
  2. Agreement terms have to line up with the situation being valued;
  3. Often researchers know little about the licensee or licensor;
  4. What appears to be a comp may include inter-company transactions;
  5. Often it is difficult to match up time periods or market conditions;
  6. Early or extra payments can affect the terms.
All of these reasons dictate valuation analysts need to search the full text of license agreements to ensure comparability, which explains the overwhelming popularity of ktMINE, the license and royalty rate database that not only provides unsurpassed search tools and a database of over 13,000 agreements with non-redacted, variable royalty rate information, it serves up the relevant document in full text with one just click.