Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
Land banking wikipedia , lookup
Financialization wikipedia , lookup
Investment fund wikipedia , lookup
Credit rationing wikipedia , lookup
Greeks (finance) wikipedia , lookup
Present value wikipedia , lookup
Mergers and acquisitions wikipedia , lookup
Financial economics wikipedia , lookup
ip4inno Module 4D i IP Valuation Name of speaker www.ip4inno.eu Venue & date 1 ip4inno is brought to you by: • European Commission, DG Enterprise & Industry • European Patent Office • 19 consortium partners in the first ip4inno project This particular module was written by: • Bay of Thermi Ventures www.bayofthermi.com • European Institute for Enterprise and Intellectual Property (IEEPI) www.ieepi.org with funding from the EC and EPO www.ip4inno.eu 2 The Disclaimer! This training material concerns intellectual property and business strategies only in general terms. This training material should not be relied upon when taking specific business or legal decisions. Rather, professional advice should be obtained which suits the circumstances in question. www.ip4inno.eu 3 IP Valuation I. II. III. IV. Why to evaluate Intangible Assets? The Different Valuation Methods Factors to Keep in Mind Exercise: Microtech Systems www.ip4inno.eu 4 1) What are Intangible Assets? (1) Allocation of the entreprise value (%) Tangible assets Buildings Vehicles Equipment… Tangible assets Goodwill Other intangible assets www.ip4inno.eu Intangible assets Human capital Goodwill Know-how Trade secrets Patents Trademarks Copyright Design Ernst & Young 2009 5 1) What are Intangible Assets? (2) Goodwill Other intangible assets Tangible assets Ernst & Young 2009 www.ip4inno.eu 6 2) The Notion of Value Value ≠ Price • Price: result from the transaction seller / buyer Willing Buyer (Licensee) €€€€ Willing Seller Property (Licensor) • Value: how much people are ready to pay Owner value: estimate of the value by the owner if he was deprived of the property of the item Purchaser value: how much the buyer could pay for it Market value: value ≈ price of similar items already sold Fair value: transaction equitable for both parties www.ip4inno.eu 7 3) IP Value (1) a) Why Valuing Intellectual Property? Litigation Resolution External reporting and accounting Taxation Planning www.ip4inno.eu Sales and Licensing Company Valuations Internal Management Raising Finance 8 3) IP Value (2) b) Who Needs to Understand IP Valuation? IP Valuation carried out by a broad range of stakeholders: • Patent owners • Technology Transfer managers • Business management • Investors / Banks www.ip4inno.eu 9 4) Importance of IP Value Influence of IP Value-Related News Events: example of RIM share value variation during a patent suit 30 USD per share 28 H B A F,G 26 E 24 C 22 20 D 18 2005 Apr May Jun www.ip4inno.eu Jul Aug Sep Oct Nov Dec 2006 Feb Fev Mar 10 5) Fictional example: New IP for Skis • Fictional company Ski-Tech SA is a small-sized materials development company, specializing in skiing technology • Patented innovative “FlowRide” elastic material. www.ip4inno.eu 11 IP Valuation I. II. III. IV. Why to evaluate Intangible Assets? The Different Valuation Methods Factors to Keep in Mind Exercise: Microtech Systems www.ip4inno.eu 12 1) Overview of the Different Methods Cost-based Income-based Market-based www.ip4inno.eu 13 2) Cost-Based Methods (1) a) Definition • The pricing of an asset is based on the cost of developing the technology asset • Cost considerations usually include: – R&D: salaries, materials & equipment – IP protection – Trials, testing and prototyping – Marketing & advertising – Cost of capital www.ip4inno.eu 14 2) Cost-Based Methods (2) b) Capitalization of Historical Costs • How much was spent to develop technology • Problems: – R&D costs are difficult to count (Which personal costs? Over which period of time? Including failures?) – How to take into account inflation – Cost ≠ potential value www.ip4inno.eu 15 2) Cost-Based Methods (3) c) Replication / Replacement Costs • Value of total costs to replace or re-create similar technology that may already exist • Value paid ≤ cost of re-developing it • For the buyer: – avoids development effort – minimises risk – Avoids costs related to a delayed market entry www.ip4inno.eu Option value of licensing License expenditure 16 2) Cost-Based Methods (4) c) Replication / Replacement Costs Practical considerations for the buyer Can you re-develop a unique, protected asset? Have development costs changed? Does a license secure freedom to operate? What is the cost of delayed time-to-market? www.ip4inno.eu 17 2) Cost-Based Methods (5) d) When to Use the Cost Approach • When the asset is at very early stage of development • When IP is easy to “design-around” • Bookkeeping www.ip4inno.eu 18 3) Market-Based Methods (1) a) Definition • Value is based on the transactions of other purchasers & sellers in the marketplace • Licensee/buyer is not willing to pay more than others have paid for similar IPRs • Fair value of a patent = Price paid in comparable, “arm’s length” transactions www.ip4inno.eu 19 3) Market-Based Methods (2) b) When to Use Market Approach • When you can find sufficient transaction information • Similar transactions: IPR type, industry, market size Comparison considerations: • Technology: technical features, stage of development • Specific clauses, financial terms • Background: economic conditions, position of the parties www.ip4inno.eu 20 3) Market-Based Methods (3) c) Where to Find Transaction Data • • • • • • • • Company web sites, Industry presentations Company annual reports Online databases www.Royaltysource.com, www.Windhover.com Securities filings: SEC (US), FSA (UK) Licensing specialists Licensing Executives Society (LES) www.lesi.org Royalty-rate journal: Licensing Economics Review Court records www.ip4inno.eu 21 3) Market-Based Methods (4) percentage of commercial value d) Impact of Technology Development Stage Future successful technology (2 to 3% of total concepts) 100% 80% 60% Failure for 98% of total concepts 40% 20% 0% Laboratory www.ip4inno.eu Detailed Design Pilot/Prototype 22 3) Market-Based Methods (5) e) Fictional Example Market Approach: Royalty Rate Technology Licensor Licensee Royalty Base Low High Median F1 Fiber Cross-Hatch for Ski Core W X Gross Revenue 3% 3% 3% Plasma Ski Edge System Y Z Sales 4% 5% 4.5% www.ip4inno.eu 23 3) Market-Based Methods (6) f) Fictional Example Market Approach: Price Per Patent Technology Patent Life No. of Price per at Time Patents Patent ($) Patentee Buyer Terms ($) Ski Core Dampening System for alpine skis A B 1.8 M 6 yrs 3 600K Parabolic Skate Blade for roller blades C D 2.4 M 12 yrs 4 800K Average Price Per Patent www.ip4inno.eu 700K 24 4) Income-Based Methods (1) a) Definition IPR Value = Ability of Technology to Generate Future Income Fair Value of Patent = Present Value of the expected future income (cash flow) stream Three key parameters: 1. Amount of the income stream 2. Duration of the income stream 3. Risk associated with the realization of the income www.ip4inno.eu 25 4) Income-Based Methods (2) b) Discounted Cash Flow Discounting with an adjust Risk Rate Time t0 www.ip4inno.eu 26 4) Income-Based Methods (3) b) Discounted Cash Flow t1 t0 t2 tn PV = I1(1+r)-1 PV = I1(1+r)-1 + I2 (1+r)-2 PV = I1(1+r)-1 + I2(1+r)-2 + I3(1+r)-3….+ In(1+r)-n PV = Present value of IP asset I = Economic income projection www.ip4inno.eu n = Year r = Risk-adjusted discount rate 27 4) Income-Based Methods (4) c) DCF Derived Methods • Excess Earnings total value of a Business – value attributable to net tangible assets = value of intangible assets • Relief from Royalties volume of sales x royalty rate = royalty revenue saved www.ip4inno.eu Forecasts of future revenues: discount rate 28 4) Income-Based Methods (6) d) IP Option Value • Investments in patents and technology often provide value by creating the option to invest additional funds at a later time if the opportunity appears attractive • The option value created through investments in patents and technology can be estimated using decision-tree analysis and option pricing models. www.ip4inno.eu 29 4) Income-Based Methods (7) e) IP Option Value: Decision Tree Analysis Probability Payoff High Market Demand 25% Probability = 80% € 1500 High Market Demand Probability = 40% Low Market Demand Probability =25% 20% Invest €1000 Low Market Demand Probability = 60% High Market25% Demand Probability = 50% Low Market Demand 25% Probability = 50% 1 chance out of 4 to obtain a capital gain Intuitive decision is not to invest Rational decision? www.ip4inno.eu € 1000 € 750 € 500 30 4) Income-Based Methods (8) e) IP Option Value: Decision Tree Analysis Probability Payoff Expected Payoff High Market Demand 25% Probability = 80% € 1500 € 375 € 1000 € 250 € 750 € 188 € 500 € 125 High Market Demand Probability = 40% Low Market Demand Probability =25% 20% Invest €1000 Low Market Demand Probability = 60% High Market25% Demand Probability = 50% Low Market Demand 25% Probability = 50% Expected value = Expected payoff – Investment € 938 - €1000 = -62 Rational decision is not to invest www.ip4inno.eu € 938 31 4) Income-Based Methods (8) e) IP Option Value: Decision Tree Analysis Probability Payoff Expected Payoff High Market Demand 35% Probability = 80% € 1500 € 525 € 1000 € 250 € 750 € 188 € 500 € 75 High Market Demand Probability = 40% Low Market Demand Probability =25% 20% Invest €1000 Low Market Demand Probability = 60% High Market25% Demand Probability = 50% Low Market Demand 15% Probability = 50% Expected value = Expected payoff – Investment € 1038 - €1000 = 38 Rational decision is to invest www.ip4inno.eu € 1038 32 4) Income-Based Methods (9) e) IP Option Value: Decision Tree Analysis Period 1 Period 2 High Market Demand Probability = 80% Payoff Expected Payoff € 1500 € 480 € 1000 € 80 € 750 € 225 € 500 € 150 High Market Demand Probability = 40% Low Market Demand Probability = 20% Invest €1000 Low Market Demand Probability = 60% High Market Demand Probability = 50% Low Market Demand Probability = 50% Expected value = € 935 - €1000 = -65 Rational decision is not to invest www.ip4inno.eu € 935 33 4) Income-Based Methods (10) f) IP Option Value: Decision Tree with Option Period 1 Period 2 Expected value = 2055- 1500 = 555 Rational decision is to invest Payoff Exp. Payoff High Demand Probability = 80% €3000 €960 Low Demand Probability = 20% € 2000 €160 High Demand Probability = 80% € 1500 €480 Low Demand Probability = 20% € 1000 €80 € 750 €225 € 500 €150 Invest € 500 High Market Demand Probability = 40% Do not invest Invest €1000 High Market Demand Probability = 50% Low Market Demand Probability = 60% Low Market Demand Probability = 50% 2055€ www.ip4inno.eu 34 5) Valuation Tools: Patent Rating • Automated tools, up to 50 econometric indices agregated: – Global Patent Scorecard (Patent Board) – IP score (EPO) – Patent Factor index (Patent Café) – Patent strength (Innography) – IPQ (Ocean Tomo) • Limitations: • Often works as a black box • Limited value for a single patent • Strongly depends on the field of activity www.ip4inno.eu 35 IP Valuation I. II. III. IV. Why to evaluate Intangible Assets? The Different Valuation Methods Factors to Keep in Mind Exercise: Microtech Systems www.ip4inno.eu 36 1) How to Choose Valuation Methods • The choice should be influenced by: – The kind of industry – The degree of maturity of the technology – The degree of risk – The IPR – Available information / price of comparable assets • Combine several methods to get the envelope of values for each IP asset • Valuation should be done on a regular basis www.ip4inno.eu 37 2) Mistakes to Avoid: Royalty Stacking Normal situation Royalty Stacking Earnings Variable royalties Royalties Royalty ceiling Royalty floor Final earnings www.ip4inno.eu Final earnings 38 IV. Exercise: Microtech Systems (1) Table 1 Royalty Rates Licensor Licensee Royalty Base Low High Median A 01 gross revenues 3% 5% 4% B 02 gross revenues 5% 5% 5% C 03 unknown 1% 1% 1% D 04 net sales 5% 5% 5% E 05 net sales 1% 2% 1.5% F 06 net sales 10% 10% 10% G 07 net sales 4% 4% 4% H 08 unknown 3% 3% 3% I 09 unknown 5% 5% 5% J 10 net sales 7% 7% 7% www.ip4inno.eu Upfront Fee $2.5 million $3.5 million 39 IV. Exercise: Microtech Systems (2) 1. What characteristics of your product can influence the licensing transaction? 2. Using a market-based approach, explain what royalty rate you could ask for. You think 5% of the sales, no upfront fee could be the deal. In order to convince senior management, you should argue in terms of earnings. 3. Considering that today is the 2nd of January 2011 and that commercialization starts the 2nd of January 2012, calculate the present value of your royalties using DCF analysis and the data in the table. www.ip4inno.eu 40 IV. Exercise: Microtech Systems (3) 1. What characteristics of your product can influence the licensing transaction? - the degree of maturity of your technology the competitive advantage given by the speed of the device: the speed of testing increased to what extent? How important is the factor of speed of testing for the prospective user & what other factors are important? Price of a similar but slower chip on the market? How many is needed per year by the industry? Are there many competitors? www.ip4inno.eu 41 IV. Exercise: Microtech Systems (4) 2. Using a market-based approach, explain what royalty rate you could ask for - Gross revenue / net sales With / without upfront fee Comparison of royalties based on net sales: low : 5.4% high: 5.6% mean: 5.5% low maturity degree of the technology lower royalty rate: 5% of net sales www.ip4inno.eu 42 3) 2012 2013 2014 2015 2016 2017 2018 Year (n) 1 2 3 4 5 6 7 Potential market 200 450 900 1080 1500 1530 1350 Market shares 10% 10% 10% 10% 10% 10% 10% Potential sales 20 45 90 108 150 153 135 % Royalties 5% 5% 5% 5% 5% 5% 5% Royalty earnings 1 2,25 4,5 5,4 7,5 7,65 6,75 Risk-adjusted discount rate 25% 25% 25% 25% 25% 25% 25% Discount factor 0.8000 0.6400 0.5120 0.4096 0.3277 0.2621 0.2097 Present Value 0,8 1,4 2,3 2,2 2,5 2,0 1,4 Total PV www.ip4inno.eu 12,6 43 Thank you for your attention! <insert presenter's name & contact details> Over 50 teaching hours of material, case studies, exercises, links and more can be found on www.ip4inno.eu www.ip4inno.eu 44