CONSOR has developed several proprietary valuation techniques over the last two decades that allow us to provide more accurate assessments of the value of our clients’ intellectual property. These techniques have proven useful across a broad spectrum of intellectual property valuation issues, from tax planning and use as collateral, to merger analysis and bankruptcy due diligence.
In addition, these techniques have been tested and readily accepted by courts in litigation and bankruptcy matters, arbitration panels, merger and acquisition analysts and financial institutions.
The VALMATRIX analytical technique is an integral part of the royalty rate, competitive environment and comparable transaction analyses we perform in many of our valuation projects. Essentially a relative strength analysis, this technique objectively measures 20 different attributes associated with the intellectual property being valued, the owner of the intellectual property, and the past, intended and potential usage of the asset. The attributes cover factors such as financial performance, legal strength, marketing activities and competition, among others.
The attributes included in each customized VALMATRIX analysis are specific to the type of intellectual property being analyzed and the focus of the project, which provides a great deal of flexibility. While there is some overlap in key factors, VALMATRIX analyses for trademarks, patents and copyrights are appropriately different to incorporate the differences in these various asset types. Similarly, a VALMATRIX analysis that measures factors related to litigation matters, such as confusion and damages, varies somewhat from those performed in other valuation contexts. The flexibility of this tool and the clarity of its conclusions are elements that have contributed to its popularity and success.
The ValCALCMethodology, developed by CONSORin the early 1990s, is useful in measuring the economic benefits provided by the intellectual property of an organization in terms of a market-oriented return. It reflects the fact that a company’s management requires every asset within a corporation to meet a minimum fair market return. This is true of assets such as working capital, investment assets, plants and equipment, and inventory. As with these tangible assets, intangible assets require an appropriate level of return. Once adequate internal rates of return have been allocated to net working capital, property, inventory and other tangible assets, the remaining income and return is therefore attributable to the intangible assets.
The ValCALC method begins with an analysis of the fair market value of all the company’s invested capital and the calculation of adequate returns for each class of assets. Earnings before interest and taxes are allocated to each group of assets of a company based on their weighted contribution. Finally, the earnings attributable to the intangible assets are stated as a percentage of net sales. This last calculation provides an indication of the internal cash flow generated by those intangible assets – – and the capitalization value of that cash flow, which represents a minimum level of corporate brand value. The ValCALC approach provides a way to precisely indicate the maximum return or income that is being economically supported by the intangible assets in a company. The approach is most useful when similar types of intangible assets predominate in the company’s intellectual property portfolio.
Brand Value Equation (BVEQTM)
This proprietary technique measures the incremental value of each component contained within a related bundle of intangible assets. To illustrate, the value of a bundle of marketing intangibles is made up of a core brand value (CBV) and one or more incremental brand value components (IBV). Core brand value is defined as the value of the trademark and/or brand name standing alone, and the incremental brand value components are defined as the marketing efficiencies or the value of the marketing intangibles that travel with the brand. Examples of these incremental efficiencies include the following:
- Distribution efficiencies
- Sales and marketing efficiencies
- Advertising/promotional efficiencies
- Regional consolidation or regional management efficiencies
Another way to think of these incremental brand value elements is as the incremental cash flows or cash savings associated with these other marketing intangibles. BVEQ provides a way to measure these incremental cash flows and therefore determine the actual real world benefits achieved.
As with the VALMATRIX and ValCALC techniques outlined above, BVEQ is widely applicable to many valuation situations. This technique has proven to be especially useful when analyzing potential acquisitions or brand extensions.