In the current economy, even with the significant downturn in
financial markets, intellectual property (IP) remains an important, and
sometimes the most significant, asset of many businesses. IP provides its owner
specific exclusive legal rights which it can exploit for economic gain.
Increasingly, as funding from more conventional sources dries up, companies are
looking to IP as a source of financing.
IP can take many forms – trademarks, brands, copyrights, patented or unpatented
technology, and trade secrets. VRC values IP for a wide variety of purposes
including financing, tax and financial reporting. The following case studies
detail engagements where we valued IP.
CASE STUDIES
VRC valued six trademarks owned by Holley Performance Parts, Inc. in support of
a debt facility provided to the Company by Wells Fargo Foothill. We provided
three premises of value - fair market value, orderly liquidation value and
forced liquidation value. Holley is the world’s #1 manufacturer of performance
fuel systems including carburetors, fuel injection, fuel pumps and intake
manifolds, cylinder heads and engine dress-up products for street performance,
race and marine applications. The trademarks we valued were as follows:
• Holley Performance Parts
• NOS
• Weiand
• Earl’s
• Flowtech
• HookerheadersFor Oxford Industries, Inc., VRC valued one of its primary
trademarks, Tommy BahamaŽ. The trademark served as collateral support for $150
million of debt financing. The senior secured notes were placed through a group
that included Banc of America Securities, Sun Trust Robinson Humphrey, Credit
Suisse Securities, BB&T Capital Markets, Morgan Keenan & Company, Barclays
Capital and PNC Capital Markets. Tommy BahamaŽ is a lifestyle brand of men’s and
women’s sportswear and related products that define casually elegant island
living.
Other recent examples of IP valuations conducted by VRC include the following:
• Software and trademarks of a payment processing company in
Mexico
• Trademark of a U.S.-based interim and turnaround management
services firm
• Proprietary business process design and software of an auction and
bidding solution company
• The trademark of a large U.S. gas station and convenience store
chain
• Proprietary software of a large Brazilian bank authorization and
credit and debit card processing company
METHODOLOGY
The valuation of IP is completed with different standards of value depending
on the purpose of the valuation. For instance, the valuation of IP for financial
reporting purposes is determined at its estimated fair value (as defined in SFAS
157). The valuation of IP for tax and financing purposes is typically determined
at its fair market value. In certain situations, lenders may also ask valuers to
determine the orderly liquidation value and/or forced liquidation value of the
IP, to get a better idea of the value of the IP under potential downside
scenarios.
While each of the cost, market and income approaches are considered, IP is most
often valued using an income approach. Cost data is typically subjective and not
necessarily reflective of the assets future value. Market transactions involving
similar types of IP are often infrequent and difficult to measure.
In valuing IP, the valuer needs to consider a variety of qualitative and
quantitative characteristics of the asset. Although both types of
characteristics are considered, the economic factors (a subsection of the
quantitative analysis) can drive the IP valuation. That is, the value of the IP
is a reflection of current and/or future economic benefits that can be derived
through its ownership/exploitation. The key quantitative factors can include:
• historical and projected growth rates • expected IP
share
• profitability of the related product
• market share
Key qualitative factors to consider include:
• legal rights
• viability of the IP in the industry
• ability to limit competition
• universal appeal of the IP
• ability to protect market share • potential ability to license the
IP
In addition, when valuing trademark/brand IP assets, the valuer should consider
such qualitative factors as:
• history/heritage and longevity of the brand
• perceived product quality
• brand recognition in the marketplace
• potential to extend the brand into other adjoining areas
• ability to protect the integrity of the brand
• brand’s breadth of distribution
• level of pricing premiums received by the brand
• advertising and maintenance of the trademarks
The valuation of IP requires a careful analysis of qualitative and quantitative
factors by a skilled valuation professional. For more information contact your
VRC representative. VR
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