Ingentium was founded in 2015 by Josef Geoola, M.Sc. and Certified Licensing Professional, who has over 12 years of experience in the field, and who has served both as chief IP officer in-house, as well as a consultant and advisor to SMEs and financial institutions. He is further joined by associates Tomas Riepsas, BA (Hons) Finance, and Prof. Andrew Peters, DVetMed, DSc, FRCVS, FRSB both of whom have extensive financial and technical expertise with respect to innovation and IP/IA matters.
Long gone are the days when value hinged on the property, plant and equipment owned by a certain business. Modern start-ups and young businesses are leaner, less dependent on fixed assets, and cache value in a mix of intangible assets (IAs) they develop or acquire, whether these are patents, source code, processes, brands or even databases (and this is not an exhaustive list). In fact, this shift in the distribution of value from tangibles to intangibles has been happening for some time now (see OceanTomo’s 2015 Annual Study of Intangible Asset Market Value).
This brings us to the question at hand – how can the value of these intangibles be maximised so they can demand the best premium? We discuss below a number of simple principles businesses can adopt in order to increase the value of their intangibles and help boost overall business valuation.
Most will know that certain forms of IAs can be formally protected – for example, a novel invention through a patent, and a logo through a trade mark. It’s important however to understand that not all patents or trade marks are equal; some are more valuable than others. The filing of patents and trade marks should be closely aligned with where a business is likely to head both commercially (for example territories the business is likely to operate in) and strategically (areas where the business would want to curb competition and/or enter). This sort of forethought (particularly in the case of patents) is needed to help a business carve out a sufficient part of the relevant landscape in which it can comfortably operate beyond a prospective acquisition or investment. Filing without a strategy (which does happen often) can lead to a running liability with little or no value ever to be seen.
Identify and Secure
With the above in mind, taking a broader approach when identifying IAs may unlock a lot more value than solely focusing on patents and trade marks (this is why we use the term “intangible asset” instead of “intellectual property” or “IP”). Other IAs, such as trade secrets or databases, can possess significant value and can be more easily managed by a start-up or young business where budgetary constraints may exist. More often than not, businesses are unaware of the full breadth of their portfolio of intangibles. An audit of a business’s IAs can help identify the entirety of its IA portfolio, which when viewed collectively, can reflect a more comprehensive value during a valuation exercise for mergers and acquisitions (M&A), licensing, fund-raising, etc. Bear in mind that the UK Intellectual Property Office operate a grant scheme specifically for carrying out this sort of audit – so this can be a very good starting point for SMEs and young businesses.
Poor or neglectful management of IAs will lead to holes and inconsistencies in the integrity of these assets and drive down value. These flaws are one of the first things a potential buyer, investor or lender will try to identify in order to determine the economic terms of the transaction, where the greater the flaws, the less favourable those terms will be to the business owning the assets.
Key issues to consider here include:
- title and ownership – particularly where the business collaborates with third parties, or where IAs had been developed by the business’s directors (it’s not all uncommon that during the valuation of intangibles, it transpires that key IAs are owned by the directors of the business and not the business itself);
- confidentiality – especially where the business is relying on IAs, such as trade secrets, which have not or cannot be formally registered for protection. Executing appropriate confidentiality and other agreements, whilst acknowledging the existence of these assets in these legal documents is key to deterring misappropriation and leakage;
- Responsible sharing and licensing – so that the business does not commit access to its IAs under conditions which would prevent it from exploiting the same, on better terms, in the future.
Most of these issues (as well as others) can be addressed by setting up internal systems and policies for managing IAs from conception to exploitation, creating standardised legal templates to use for day-to-day transactions, and educating staff. The overarching principle here is that there is no value to maximise in an IA where the business is not its owner, or where its proprietary attributes have diminished through uncontrolled dissemination or use.
Understanding the context
Depending on the transaction at hand, the value in a business’s IAs will vary. For example, an institutional lender will likely be interested in the liquidation value of a business’s IAs, whilst a strategic equity investor may have a longer-term view and be more interested in the growth value of the same assets. Understanding the context of how a business’s IAs are likely to generate value for another party is key, above and beyond any financial figure which is borne through a plug and play valuation model. Understanding the context and having that crucial insight can both improve the business’s leveraging position when negotiating a price for access to its IAs, whilst allowing a competent valuation practitioner to carry out a valuation which also take this very crucial factor into consideration.
For most modern businesses, IAs serve to secure market advantage and help drive value. It’s therefore no surprise that in a 2014 survey conducted by KPMG, 85% of the M&A professionals surveyed stated that they saw IAs as having a significant to moderate impact on the economic terms of any M&A transaction. Likewise, IAs can have a similar impact where a business is looking to raise funding, restructure, licence or enter into a collaboration. Taking proactive steps to ensure that these assets are correctly identified, secured, managed and exploited are all sound steps toward maximising the value of IAs within a business.