valuation of intangible assets: innovation capital, human
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WIPOValuation and Commercialization of Invention, Trademarks
and Industrial Designs
Valuation of Intangible Assets: Innovation Capital, Human Capital, Customer Capital, Supplier Capital, Investor Capital, Location Capital
Tehran, October 23 and 24, 2012
Prof. Dr. Ulrich Moser
Erfurt University of Applied Sciences
2
• Understanding Intangible Assets as Business Assets
• Classifying Intangible Assets
• Identifying Intangible Assets
• Analyzing Different Types of Intangible Assets in Context of Valuation
– Technology, e.g. Patent Protected Technology, Trade Secrets, Patent Portfolios
– Trademarks and Trademark Portfolios
– Customer Relationship
– Goodwill
– Others (Software, Databases, Know How)
Agenda
Valuation of Intangible Assets
Intangible Assets in Accounting
January 1, 20xx – Book Values
Working Capital
Tangible Fixed Assets
Market Value of Equity
Market Value ofDebt
Intangible Assets
The amount of Intangible Assets shown in
balance sheets is typically (very) low
4 04.07.2008
Intangible Assets are Business Assets
Fair Values - January 1, 200X
Working Capital
Tangible Fixed Assets
E
N
T
I
T
Y
E
N
T
I
T
Y
Intangible AssesMarket Value of
Equity
Market Value of
Debt
5 04.07.2008
Looking on Intangible Assets
Fair Values - January 1, 200X
Working Capital
Tangible Fixed Assets
E
N
T
I
T
Y
E
N
T
I
T
Y
Intellectual Property AssesMarket Value of
Equity
Market Value of
Debt
Goodwill
Customer Relationship
Contracts
…
6 04.07.2008
Context of Valuation of Assets
Fair Values - January 1, 200X
Working Capital
Tangible Fixed Assets
E
N
T
I
T
Y
E
N
T
I
T
Y
Intellectual Property AssesMarket Value of
Equity
Market Value of
Debt
Goodwill
Customer Relationship
Contracts
…
Implications• A business is
a portfolio of
assets
• This portfolio
generates the
business value
7
• Understanding Intangible Assets as Business Assets
• Classifying Intangible Assets
• Identifying Intangible Assets
• Analysing Different Types of Intangible Assets in Context of Valuation
– Technology, e.g. Patent Protected Technology, Trade Secrets, Patent Portfolios
– Trademarks and Trademark Portfolios
– Customer Relationship
– Goodwill
– Others (Software, Databases, Know How)
Agenda
Valuation of Intangible Assets
8
Categories of Intangible Assets
Supplier Capital
• Favorable Contracts
Innovation Capital
• Patents
• Know How
Human Capital
• Assembled Workforce
• Sales Force
Process Capital
• Organization
• Computer Software
Customer Capital
• Customer Relationships
• Trademark
Investor Capital
• Relationships
Location Capital
9 04.07.2008
Definition of Intellectual Property
Human Capital
• Experience
• Tacit Know How
• Skills
• Creativity
Intellectual Assets• Programs
• Methodologies
• Processes
• Databases
• …
Intellectual Property• Patents
• Copyrights
• Trademarks
Value Creation Value Extraction
Sullivan/Edvinsson
Overview of Customer-related Assets
Marketing-related intangible assets Trade marks
Internet domain names Non-competition agreements
Customer-related intangible assets Customer lists Order or production backlog
Customer contracts Customer relationships
Artistic-related intangible assets Plays Books
Pictures
Contract-based intangible assets Licensing, royalty agreements
Leasing agreements Broadcasting rights
Technology-based intangible assets Patented and unpatended
technologies Software
Databases
Secret formulas, processes
Classification of IFRS 3 / ASC 805
Intangible Assets – Alternative
Classifications
Marketing-related
Customer-related
Artistic-related
Contract-based
Technology-based
Marketing-related
Customer-related
Artistic-related
Contract-related
Technology-related
Data processing-related
Engineering-related
Goodwill-related
Human Capital-related
Location-related
Customer Capital
Innovation Capital
Process Capital
Human Capital
Location Capital
Supplier Capital
Investor Capital
IFRS 3 / ASC 820 Reilly/Schweihs Schmalenbach Ges.
12
• Understanding Intangible Assets as Business Assets
• Classifying Intangible Assets
• Identifying Intangible Assets
• Analysing Different Types of Intangible Assets in Context of Valuation
– Technology, e.g. Patent Protected Technology, Trade Secrets, Patent Portfolios
– Trademarks and Trademark Portfolios
– Customer Relationship
– Goodwill
– Others (Software, Databases, Know How)
Agenda
Valuation of Intangible Assets
Identifying Intangible Assets – Basic Idea
Sales & Marketing
Manufacturing
Procurement
R & D
Human Ressources
Management & Organization
Information Systems
Analysis of Business Model
Sales
./. Cost of Sales
./. SG&A
Operating Profit
./. Tax
NOPLAT
./. Changes WC
./. CapEx
Free Cash Flow
Business Value
Capitalization
Free Cash FlowAnalysis
Business Analysis, e.g. Porter‘s Value Chain
Intangible
Asset
Competitive
Advantage
Margin
IP Assets in Context of Business – Examples
Product feature is based on patent protected technology
Higher PricesIncreased
Volumes
Cost savings in manufacturing are based on trade secrets
Lower Costs (Higher
Profit Margins)
Selling of products under famous trademarks
Higher PricesIncreased
Volumes
Cost agvantage
Differentiation
Differentiation
Identifying Intangible Assets – Conducting the Analysis
Sales & Marketing
Manufacturing
Procurement
R & D
Human Ressources
Management & Organization
Information Systems
Analysis of Business Model
Sales
./. Cost of Sales
./. SG&A
Operating Profit
./. Tax
NOPLAT
./. Changes WC
./. CapEx
Free Cash Flow
Business Value
Capitalization
Free Cash FlowAnalysis
Business Analysis, e.g. Porter‘s Value Chain
Competitve
Advantages
Margin
Basic Analysis Tools for Identifying
Intangible Assets
Market Attractiveness
Market PotentialMarket Volume
Market Growth
P E S T Analysis
New
Competitors
Competitors
Intensity of Rivality
Substitutes
Supplier CustomerNegotiation
Power
Threats
NegotiationPower
Threats
Industry StructurePorters Five Forces
Sales & Marketing
Manufacturing
Procurement
R & D
Human Ressources
Management & Organization
Information Systems
Competitive
Advantages
Value Chain
Analysis
17
• Understanding Intangible Assets as Business Assets
• Classifying Intangible Assets
• Identifying Intangible Assets
• Analysing Different Types of Intangible Assets in Context of Valuation
– Technology, e.g. Patent Protected Technology, Trade Secrets, Patent Portfolios
– Trademarks and Trademark Portfolios
– Customer Relationship
– Goodwill
– Others (Software, Databases, Know How)
Agenda
Valuation of Intangible Assets
Technology and Technology
Portfolios
1.
20 04.07.2008
Examples “Packaging”/
“Insulation sleeve”
Packaging Insulation Sleeve
EP
1 3
62 7
93 A
2
21
Patents – Analysis of Value Drivers
• Strategic Alignment
• Stage of development
• Innovativeness
• Technology Lifecycle
• Legal status / Validity
• Extent of protection
• Territorial scope
• Age
Legal ProtectionTechnology
• Strategic Alignment
• Product Lifecycle
• Protected Coverage
Product/Process
Commercialization
Patent value
Realization
Market potential
Industry structure
ExploitationBusiness use
Blocking
Competitive advantagesExclusivity
Freedom-to-Operate
Market share
Margin
Complementary Assets
Solution
Value of unprotected
technology
Value of protection rights
Products
Components
Business units
Technologies
Patents
Structure of a patent portfolio
Pa 1 Pa 5 Pa 3 Pa 7 Pa 4 Pa 6Pa 2
TRADEMARKS
P 1 P 2 P 3 P 5
BU 1 BU 2
Technology 1 Technology 2
P 4
Technology 3
Typical patent portfolios
Number of patent families
Startup SME Global playerZeit
20 - 50
10.000+
300 - 800
Distribution of the patent values in
the portfolio
0
500.000
1.000.000
1.500.000
2.000.000
2.500.000
3.000.000
3.500.000
4.000.0001998 P07951
2002 P18962
1995 P07533
2001 P19637
1997 P07898
2000 P07450
1997 P07954
2000 P07459
1999 P07575
2001 P05880
1996 P07602
1994 P07452
1994 P07459
1996 P07430
2002 P12455
2000 P07801/
2000 P07802 - 1a)
2002 P13057
1996 P07593
2002 P01898
2001 P24588
1992 P07404
1992 P07501-2
1992 P07501-4
1992 P07502
1991 P07470Patents
Valu
es
Trademarks
2.
Valuation of Trademarks – Examples
26
Charakteristics of Trademarks
Function of Trademarks• authentication of the origin of
goods or services
• buyer can select products seen
in advertisement or previously
purchased
Valuable Trademarks
• Recognizability
• Versatility – applicability to a
wide range of products
• Identification with positive
attributes
„Guarantee“of a certain level of quality or
performance
04.07.200827
Trademarks – Analysis of Value Drivers
• Strategic Alignment
• Types of Marks
• Recognition
• Lifecycle
• Potential for Extension
• Range of Protection
• Validity
• Territorial scope
Legal ProtectionAuthentication
• Strategic Alignment
• Price relative to other
Products in industry
• Product Lifecycle
Product/Service
Commercialization
Trademark Value
Realization
Market potential
Industry structure
ExploitationCompetitive advantages
Market share
Margin
Complementary Assets
28
Customer Relationship
3.
Customer Relationship – Characteristics
Information
Inertia
CustomerBase
CustomerRelationship Product
Critical location
Brand names
Critical Skills
Necessity of
Advertising
Cost of new
Customer
Substitution of
Supplier (Cost)
Commodity – diff.
(+) (-)
(+)*) (-)
(+) (-)
High Low
Low High
Low High
*) not property of business
Inertia low high
Information – Customer records• Useful in selling efforts
• History or other useful information
about customer business association,credit information, previous purchases,
preferences …
Newsstand in large city
Mobile phone provider
Relationship between Enterprise and Customer
– Examples
Manufacturer
B-2-B
Wholesaler
= Customer
Consumer
ManufacturerConsumer
= Customer
ManufacturerConsumer
= Customer
B-2-C
Distribution Network
Agent etc.
Customer Relationship – Characteristics
time
Sales
CR
IFRS 3 IE 28
time
Sales
Contracts
IFRS 3 IE 26, 27
Customer Relationship IFRS 3 IE 28
the entity has information about the
customer and has regular contact with the
customer
the customer has the ability to make direct
contact with the entity
Contractual-Legal Criterion IFRS 3 IE 26 / 27
If an entity establishes relationships with its
customers through contracts …
A customer contract and related customer
relationship may represent two
distinguished assets
Customer Relationship – Criteria of IFRS 3 IE 28
Manufacturer
Customer Relationship
Consumer
Manufacturer
Wholesaler
= Customer
Consumer
= Customer
Information about customer regular contact with customer
Ability to make direct contact with entity
Customer Base
?
Customer Relationship – Characteristics
time
Sales
CR
IFRS 3 IE 28
time
Sales
Contracts
IFRS 3 IE 26, 27
Customer relationships may also arise
through means other than contracts, such
as through regular contact by sales or
service representatives
Order Backlog – IFRS 3 IE 25, 29
If an entity has relationships with its
customers through these types of contracts,
the customer relationship also arises from
contractual rights …
Contractual-Legal Criterion IFRS 3 IE 28
an entity has a practice of establishing
contracts with its customers, regardsless of
whether a contract exists at the acquisition
date.
Goodwill
4.
Components of Goodwill
E
n
t
i
t
y
V
a
l
u
e
Synergies
Going Concern Element
Not identifyable assets
Assets to be developed (future technology, future trademarks, future customers)
Identifyable Assets
P
u
r
c
h
a
s
e
P
r
i
c
e
= Goodwill-Komponenten
Komponenten des Goodwill am
Beispiel der SPFair Purchase Entity Future Components Total
Value Price Value Assets of Goodwill Assets
Mio. EUR (1) (2) (3) (4) (5) (6)=(1)+(4)
Entity Value 650,00
Purchase Price 700,0
Customer Relationship
acquired 160,60 160,60
after acquisition date 118,1 118,1 118,10
Core Technology
acquired 161,50 161,50
after acquisition date 7,9 7,9 7,90
Process Technology 20,40 20,40
Assembled Workforce 6,50 6,50
Working Capital 75,00 75,00
Tangible Fixed Assets 100,00 -524,0 -524,0 100,00
Total 176,0 126,0 126,0
Workforce 6,5 6,5 6,5
Goodwill
originär 132,5 132,5
Synergies 50,0 50,0
derivativ 182,5 182,5 182,5
Entity Value 650
Software, Databases,
Know How
5.
Software
Data Processing Assets IP Protection
Software Copyright, Patent, Trade Secret
Electronic Databases Copyright, Trademark, Service Mark
Mask Works Semiconductor Chip Protection Act
Computer Screen Displays Part of Software
Multimedia Work Copyright
Software Valuation Approach
Product Software Income – Market - Cost
Operational Software Cost – Market – Income
Software – Application of Valuation
Methods
Basic approaches
Reproduction Cost
TrendedHistorical
Cost Method
Hybrid Income and Market Approach
Hybrid Cost and Market Approach
Replacement Cost Residual Value
SoftwareEngineering
Model Method
Relief from Royalty
(Cost Savings)
Excess EarningsMethod
MarketReplacementCost Method
Functional Obsolescence
Technical Obsolescence
Economical Obsolescence
Cost Approach: Software Engineering
Model
Stages of Software Development
Planning Analysis Design Implementation Time
Steps
Project coordination
Development of an operating
system
design of specific program
Writing specific
program codes
Program testing
Installation and debugging
Preparation of operating manuals
...
Software Development Corp. – Product
Software
Revenues
Cost of
Sales
SoftwareLicense
Main-tenance
Customi-zing
Different
Modules,
Price 4.5
Mio.EUR
1.5 to 8.0 of
license
revenues per
customer
Excess Earnings MethodRoyalty
Income
Consul-ting
Applying
softwareUpdates,
hotline
CustomerRelationship
DatabaseTest Data
Assembled Workforce
ChargesCharges
Value of
Software= +
Analysis of P & Land Value Chain
Workflow Management Software for a specific service industry
Customer: Leading companies all over the world
Databases – Examples
Customer lists, mailing lists, credit information, financial studies or compilation, scientific data
Directly used togenerate income
Outlicensing,sale
Type Valuation Approach
Sometime dataavailable
e.g. price/rentper name
EUR 2,5/0,5
ReplacementCost / TrendedHistorical Cost
IncomeDifferent Industries Market Cost
Drawings
Trial runs of jet engines
Typically noexternal use
Expected futurecost savings
Not availableReplacement
Cost (?)
Mechanical Engineering, Aircraft Industry
Know How - Manufacturing
Assembled
Workforce
WorkingProcesses
Foundry, Steel
Production
Experience of
Production
Specialist
Production of
Paper, Choclate,
Chip board
Recipe, Trial Runs,
Factory Layout
Competitors do
more or less the
same
e.g. time from
order to delivery
is critical in some
Industries
Significant
reduction of
production time
Proprietary Know
How
(Trade Secret)
IncrementalImprovement
ProcessOptimization
CompetitiveAdvantage
Tacit Know How Documentation
45
• Understanding Intangible Assets as Business Assets
• Classifying Intangible Assets
• Identifying Intangible Assets
• Analysing Different Types of Intangible Assets in Context of Valuation
– Technology, e.g. Patent Protected Technology, Trade Secrets, Patent Portfolios
– Trademarks and Trademark Portfolios
– Customer Relationship
– Goodwill
– Others (Software, Databases, Know How)
Agenda
Valuation of Intangible Assets
Contact
Prof. Dr. Ulrich MoserWP/StB/CVA
Wilhelm-Kuelz-Str. 12
99048 Erfurt
Germany
Tel.: +49 172 73 69 962
Fax: +49 361 6531 646
E-Mail: u.c.moser@t-online.de
04.07.200846
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