Guide to Intangible Asset Valuation
The highly experienced authors of the Guide to Intangible Asset Valuation define and explain the disciplined process of identifying assets that have clear economic benefit, and provide an invaluable framework within which to value these assets.
With clarity and precision the authors lay out the critical process that leads you through the description, identification and valuation of intangible assets. This book helps you:
- Describe the basic types of intangible assets
- Find and identify intangible assets
- Provide guidelines for valuing those assets
The Guide to Intangible Asset Valuation delivers matchless knowledge to intellectual property experts in law, accounting, and economics. This indispensable reference focuses strictly on intangible assets which are of particular interest to valuation professionals, bankruptcy experts and litigation lawyers.
Through illustrative examples and clear modeling, this book makes abstract concepts come to life to help you deliver strong and accurate valuations.
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Common Reasons to Value an Intangible Asset
Many times, the requirement for the intangible asset valuation is obvious because the valuation is effectively mandated by a requirement of generally accepted accounting principles (GAAP), a statutory provision, an administrative ruling, or a regulatory authority. An example of an obvious statutory reason to conduct a valuation is the intergenerational transfer of an intellectual property, such as a copyright or patent. In this example, the value of the copyright or patent will need to be estimated for federal transfer tax (that is, gift tax) return compliance purposes.
There are frequently opportunities for the owner/operator to use the results of an intangible asset valuation for tax planning, strategic or transaction planning, litigation support, or management information purposes. An example of the discretionary use of an intangible asset valuation is the structuring of a partnership or shareholder buy-sell agreement, particularly for an agreement wherein the price of the ownership interest being transferred is a function (at least in part) of the value of the entity’s commercial intangible assets.
There are numerous compliance requirements for, and commercial opportunities related to, an intangible asset valuation. The following is a list detailing many of the reasons why a valuation analyst may be asked to value an intangible asset.
Transaction pricing or structuring reasons:
- Pricing the sale of an individual intangible asset or a bundle of two or more intangible assets
- Pricing the license of an individual intangible asset or a bundle of two or more intangible assets
- Equity allocations in a de novo business enterprise or joint venture in which different investors contribute different tangible assets and intangible assets
- Asset allocations in the liquidation of a seasoned business enterprise or joint venture in which different investors receive tangible assets or intangible assets in exchange for their equity ownership
Intercompany use and ownership transfer reasons:
- Transfers of intangible assets between wholly owned subsidiaries (or other business units) of a consolidated business enterprise
- Transfers of intangible assets between less than wholly owned subsidiaries (with different minority shareholders) of a consolidated business enterprise
- Cost accounting allocations and inventory pricing in which in-process goods are transferred between entities with varying intangible asset ownerships in a consolidated business enterprise
- Cost sharing agreements in which business units under common control produce or continue to develop an intangible asset
Financial accounting and fair value reporting reasons:
- Purchase price allocations among all assets acquired in a business combination
- Goodwill and other intangible asset impairment testing
- Post-bankruptcy fresh start accounting for all emerging entity tangible assets and intangible assets
Taxation planning and compliance reasons:
- Business acquisition purchase price allocations among all acquired assets
- Depreciation and amortization accounting for purchased tangible and intangible assets
- Charitable contribution deductions of donated intangible assets
- Intercompany transfer pricing of intangible assets owned by cross-border subsidiaries of a multinational corporation
- State and local ad valorem property tax appeals related to exempt intangible assets
Financing collateralization and securitization reasons:
- Use of cash-flow-based intangible assets as collateral on corporate debt/financings
- Sale/leaseback or sale/licenseback financing of corporate intangible assets
Bankruptcy and reorganization reasons:
- Use of intangible assets as collateral for secured creditor debt
- Use of intangible assets as collateral for debtor-in-possession (DIP) secured financing
- Sale or license of intangible assets as a spin-off opportunity
- Use of corporate intangible assets in the assessment of debtor solvency or insolvency
Litigation claims and dispute resolution reasons:
- Intellectual property royalty rate analysis in infringement claims
- Breach of contract or noncompete agreement damages claims
- Condemnation, expropriation, eminent domain, dissipation of corporate assets, or other tort claims
Management information and strategic planning reasons:
- Formation of intellectual property joint venture, joint development, or joint commercialization agreements
- Negotiation of inbound or outbound intellectual property (or other intangible asset) use, development, commercialization, or exploitation agreements
Corporate governance and regulatory compliance reasons:
- Custodial inventory of both owned and licensed intangible assets
- Assessment of the amount of insurance coverage on intangible assets
- Defense against infringement, torts, breach of contract, and other alleged wrongful acts
- Defense against dissipation of corporate assets allegation
Commercialization and development opportunity reasons:
- Identification of license, spin-off, joint venture, and other intangible asset commercialization opportunities
- Negotiation of license, spin-off, joint venture, and other intangible asset commercialization opportunities
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