How Creative CFOs are Funding Pension Plans with IP
Diageo funded its pension plan with whiskey – actual “liquid assets.” And now a European public entity is contributing rights to several of its most valuable trademarks to its pension plan. We believe this contribution of trademarks is a new – and creative – way to fund pension plans.
The London office of Valuation Research Group has been actively supporting this funding, and valuing the trademarks for the intended pension contribution. To fund up to £275m of its UK defined benefit pension plans, TUI Travel PLC is utilizing a partnership arrangement, backed by its Thomson and First Choice brands. TUI, listed on the London Stock Exchange and with 49,000 employees, is the world’s leading leisure travel company. TUI operates in over 180 countries.
To fund three defined benefit pension plans, the plans will be provided with a limited interest in a partnership which holds the brands. The partnership will receive royalty payments for use of the brands and make income distributions to the pension plans. We believe this is the first time that brand assets have been provided as sole collateral for a funding.
New bank loans and public offered debt are also now looking for additional comfort and collateral for financings, and we have been completing many more valuations of trademarks – particularly in the apparel industry – in support of this. The lending community often calls these alternate forms of collateral, taken to provide additional cushion, “boot” collateral.
Now more than ever, companies are needing to obtain an independent appraisal of major assets. Often these assets are trademarks, trade names and other intellectual property (IP).
IP can take many forms, including copyrights, patented or unpatented technology, and customer and subscriber lists. In addition to valuations for financing and pension contributions, VRC values IP for a wide variety of purposes, such as financial reporting and tax reporting, and transfer pricing.
CASE STUDIES
VRC recently valued over a dozen trademarks for a $1 billion global fashion company, as additional support for secured financing.
For Liz Claiborne, Inc. (NYSE: LIZ), VRC recently valued key trademarks and their associated rights and agreements, as support for secured financing. Liz Claiborne, Inc. designs and markets a global portfolio of retail-based premium brands including JUICY COUTURE®, KATE SPADE®, and LUCKY BRAND®.
For Oxford Industries, Inc. (NYSE: OXM), VRC valued one of its primary trademarks, Tommy Bahama®. 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, Credit Suisse Securities, BB&T Capital Markets, and Morgan Keenan & Company.
Other recent examples of IP valuations conducted by VRC include the following:
- Technology for genetic and molecular testing
- Proprietary software for medical data extraction and analysis
- Proprietary technology, including software, patents and know-how, for an energy saving industrial process.
MONETIZING TECHNOLOGY IP
Companies, as well as the technology transfer offices of many universities, are looking to monetize their technology IP, including fresh and ongoing R&D projects. The activity is most pronounced in the life sciences industry, specifically in drug development. The major pharmaceutical companies are effectively outsourcing much of their R&D by relying upon the efforts of smaller biotech companies to initiate fundamental research for new drugs, and fund phase one, and often phase two, clinical trials. VRC assists dozens of emerging biotech companies.
Also, there are now more financial players in this area – a.k.a.“ royalty-stream-acquirers”– providing monetization of IP with deal structures (often partnerships) that are crafted to the circumstances unique to the assets.
These acquirers often purchase the royalty streams to movies and television series, allowing producers, actors and investors to cash out all or a portion of their back-end deals at a discount. These royalty rights are often used as collateral for financing. VRC has valued royalty streams associated with well-known Hollywood movies in support of collateral considerations.
VALUATION CONSIDERATIONS
Different standards of value may apply, depending on the purpose of the valuation. Fair market value is most common for collateral purposes. However, lenders may also ask us to determine the orderly liquidation value and/or forced liquidation value of the asset, to get an idea of value under potential downside scenarios. To value trademarks and other forms of IP, we often consider the following income approaches:
- Excess earnings approach
- Margin differential approach
- Relief from royalty approach
For more information regarding valuations of IP, contact your VRC representative. VR
