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:
- A search for comps can yield a wide range of data, which may not add to the analysis;
- Agreement terms have to line up with the situation being valued;
- Often researchers know little about the licensee or licensor;
- What appears to be a comp may include inter-company transactions;
- Often it is difficult to match up time periods or market conditions;
- Early or extra payments can affect the terms.