Mozer Methods Of Valuation
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Transcript of Mozer Methods Of Valuation
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للتقييم غزالة أبو Talal Abu-Ghazaleh Valuationطالل
© Talal Abu-Ghazaleh Valuation
2007
Valuing your IP: What is it worth?
Methods of Valuation: Which Type is Right for You?
Amman, October 31, 2007
Prof. Dr. Ulrich Moser, TAGValuation
Khaled Sewiti, TAGValuation
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IP Valuation Methods
Agenda
• Introduction to IP Valuation
• Basic Valuation Concepts
• Application of Income Approach
• Reasonableness of Valuation Result
• Appendix: Case Study
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Introduction to IP Valuation
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Basics on IP Valuation
• Intellectual Property and Intangible Assets
• Subject Asset
• Purpose of Valuation
Agenda
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Types 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
• Distribution Network
Investor Capital• Relationships
Location Capital
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Classification of IFRS 3 / FAS 141
Examples of intangible assets to be valued separatelyExamples of intangible assets to be valued separately
For the valuation, usually an external appraisal is usedFor the valuation, usually an external appraisal is used
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
Starting point is a strict
identification process!!
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Fair Values - January 1, 200X
Goodwill
Working Capital
Tangible Fixed Assets
ENTITY
ENTITY
Portfolio
Proprietary TechnologyTM
PatentsIntellectual Property Rights
Contracts
Customer Relationship
…
Software
Market Value of
Equity
Market Value of
Debt
Assets and Liabilities of an Enterprise
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Valuation of Enterprise vs. Valuation of Assets
January 1, 200X
Goodwill
Working Capital
Tangible Fixed Assets
ENTITY
ENTITY
Portfolio
Proprietary TechnologyTM
PatentsIntellectual Property Rights
Contracts
Customer Relationship
…
Software
Market Value of
Equity
Market Value of
Debt
Implications• Asset to be valued is part
of a portfolio of assets(= Enterprise)
• The portfolio of assetsgenerates a cash flow
• Contribution of SubjectAsset has to be Identified
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Purpose of Valuation
LicensePurchase/Sale
Transactions
Debt / EquityStrategic alliance
…
Transaction Price Financial and tax purposes
IAS/IFRS-/ US GAAP-Accounting
(Purchase Price Allocation and Impairment Test)
Communication
internal
external (capitalm
arket)
Portfolio Management
Corporate Strategy
Collateral
Business Intellectual Property Finance
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Basic Valuation Concepts
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Basic Valuation Concepts
Future benefits are the driver of the value of assets
Net Present Value
Discounted
Cash-flow methods
Expected income of an alternative investment
Income Approach
Market Price
Market Transaction
Method
Judgement of others in the marketplace
Market Approach
Reproduction Cost
Replacement Cost
Amount of Expenses
Cost Approach
Real Options Approach
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Methodology of Income Approach
Time
Historical Performance
Financial Projections
Capitalizing with Cost of Capital
Future Cash Flows of the Subject Asset
DCF – MethodNet Present Value
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Market Approach – Basic Idea
Valuation of an asset using known transaction prices of
comparable assets
Example: Application of Sales Multiples
SalesComparable Asset
Transaction PriceComparable asset
SalesAsset to be valued
Market VaueAsset to be valued
Value Asset to be valued = Transaction Price Comparable
Sales Comparable
* Sales Asset to be valued
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Application of Income Approach
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Application of Income Approach
• Analysis of Subject Asset - Example Patent Protected Technology
• Analysis of Income Contribution of Subject Asset
• Valuation Methods Based on Income Approach
• Determination of Discount Rate
• Tax Amortization Benefit
Agenda
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Examples “Packaging”/ “Insulation sleeve”
Packaging Insulation Sleeve
EP
1 3
62 7
93
A2
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Characteristics of Patents – Analysis of Value Drivers
• Strategic Alignment• Availability of Comparable
Technology• Stage of development• Innovativeness• Technology Lifecycle
• Legal status / Validity• Claim Coverage• Territorial scope• Age
Legal ProtectionTechnology
• Strategic Alignment• Product Lifecycle• Protected Coverage
Product/Process
Commercialization
Patent value
Realization
Market potential
Industry structure
ExploitationBusiness use
Potential Future UseBlocking
Competitive advantagesExclusivity
Freedom-to-Operate
Market share
Margin
Complementary Assets
Solution
Value of unprotected
technologyValue of protection
rights
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Value of a Patent
Patent Value= Value of Protected Technology
Value of protection rights
Value of Business Unit• Owning the patent• Lack of Protection
Rights
Value of not patent protected technology
Lack of ProtectionRights• Trade Secret• Availability of
Technology
+
=
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Valuation of the Protected Technology
Products
Competitor
Patent-
portfolio
PatentePa 3 Pa 5 Pa 1 Pa 7 Pa 4 Pa 6Pa 2
P 1 P 2
P 1 P 2
Improvements, Features
Fundamental Invention
P 3
Complementary Protection
Valuation of Patent Portfolio or Single Patents
KnowHow
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Overview
Time
Historical Performance
Financial Projections
Capitalizing with Cost of Capital / Return Rate on Asset
Future Cash Flows of the Subject Asset
DCF – MethodNet Present Value
Three Steps1) Analyse the Cash Flows2) Project Future Cash Flows3) Estimate Capitalization Rate
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Analysis of Free Cash Flows of Business Unit
Sales
./. Cost of Sales
./. SG&A
Operating Profit
./. Tax
NOPLAT
./. Changes WC
./. CapEx
Free Cash Flow
Marketpotential
Market Share
Incremental Income Analysis• Increased Revenues
• Decreased Costs
IndustryStructue
CompetitiveAdvantages
Business Value
Capitalization
Royalty Analysis• Relief-from-Royalty
• Profit split
• Royalty Income
Residual Value / Excess Earnings
IP Valuation ModelsFinancial Impact of (Un-) Protected Technology on Free Cash Flows
Other Approaches
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Incremental Income Analysis(Premium Prices, Cost Savings)
Sales
./. Cost of Sales
./. SG&A
Operating Profit
./. Tax
NOPLAT
./. Changes WC
./. CapEx
Free Cash Flow
Marketpotential
Market Share
Basic Assumption• Comparable business unit without
protected technology is available
IndustryStructue
CompetitiveAdvantages
Business Value
Capitalization
Approach• Comparison of FCF based on protected
technology and FCF not applying
subject asset
CommentsAnalysis Impact of (Un-) Protected Technology on Free Cash Flows
Application is limited!• e.g. cost reductions realized by process patents (?)• e.g. price premium for a product feature – caused by patent or trademark
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Residual Value Method / Excess Earnings (Formula Method)
January 1, 200X
Asset to be valued
Working Capital
Tangible Fixed Assets
ENTITY
ENTITY
Portfolio
Proprietary TechnologyTM 2
TM 1Intellectual Property Rights
Contracts
Customer Relationship
…
Software
Market Value of
Equity
Market Value of
Debt
Enity Value (Income Approach)
./. Value of all other assets (e.g. Fixed assets, trademarks, Contracts)
= Value of asset to be valued
Valuation ofCore Asset
Application is limited - Example
Contribution to a joint venture
Other interpretations of approach
Assump t i ons
Risk of overerstimating
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Approaches to Calculate Residual Value
Income of Business Unit
Entity Value of Business Unit
Capitalization
Excess Earnings ApproachResidual Value Approach
./.
Value of all Other Assets,
e.g. Tangible Fixed Assets, Working Capital, Trademarks
Residual Value
Income of Business Unit
./.
Contribution of all Other Assets to Income of Business Unit
Return on AssetsReturn of Assets
Excess Earnings
Capitalization
Residual Value!=
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Royalty Method (Relief-from-Royalty, Profit Split)
Sales
./. Cost of Sales
./. SG&A
Operating Profit
./. Tax
NOPLAT
./. Changes WC
./. CapEx
Free Cash Flow
Royalty Income
Basic Assumption• Availability of comparable licensing
transactions and detailed dataSaving ofRoyalty
Payments
Business Value
Capitalization
Approach => hybrid• Applying Market Transactions
• Applying profit split analysis
CommentsAnalysis of Royalty Savings
Application• Risk of underestimating value
Royalty Income• Analysis of market transactions• Favourable or unfavourable contract
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Project Future Cash Flows - Application of Lifecycle Analysis
Typical Life Cycle-models
DATA
Plausibility check of data
Modelling
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016Produkt I 50 70 80 100 120 120 120 120 100 90 60 30 10Produkt II 112 108 117 126 140 134 164 153 170 170 240 293 357... Price Volume1
Research Studies
Benchmarks
Analysis of Products
Analysis of Technology
2
3
4
5
Business Plan
business
industry
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Determination of Capitalization Rate
Januar 1, 200X
Goodwill
Working Capital
Tangible Fixed Assets
Market Value ofEquity
Debt
Intangible Assets
X Cost of Equity
X Cost of Debt(after Tax)
Assetspecific
Risik
high
low
Rate of Return on individual Asset Weighted Average Cost of Capital
Asset Specific Risk Premium
=
+ / -
Weighted Average Rate of Return on total Assets Weighted Average Cost of Capital=
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WACC to WARA – Example
Assets Fair Value WARA
Goodwill 31.257,79 15,81%Net Working Capital 64.670,01 3,00%Fixed Assets 6.050,00 5,00%Trademark 95.391,45 12,85%Entity Value 197.369,25 9,85%
Weighted Average Cost of Capital
to
Weighted Average Return on Assets
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Determination of Weighted Average Cost of Capital – WACC
t)(1 DebtEquity
Debtr DebtEquity
Equity rr MM
M
Debt MM
M
Equity
(1-t) = Tax shield(1-t) = Tax shield
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Definition of Cost of Equity
Application of Capital Asset Pricing Model
Risikfree Rate iRisikfree Rate i
Market Risik Premium(rm – i)
Market Risik Premium(rm – i)
ß(Measure for
Systematic Risik)
ß(Measure for
Systematic Risik)
Cost of Equity
rE
Cost of Equity
rE
++
..
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Industry Specific ß-Factors
Industry Range
Automotive 0,5 0,8
Biotechnology 1,3 1,5
Building Materials 0,6 0,7
Chemical 0,7 0,8
Entertainment > 1,2
Environmental 0,4 0,5
Financial Services 0,5
Food & Beverage 0,4 0,6
Internet > 2
Metal Fabricating 0,7 0,8
Publishing 0,6 0,7
Semiconductor > 2
Software > 2
Steel 0,7 1
Util ity 0,5 0,6
Quelle: www.Damodaran.com
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Tax Amortisation Benefit (TAB)
Maximum Amount to be Payed for an Asset
Tax Deductability of Purchased Asset:Net Present Value of future tax benefits based on
depreciation/amortisation of purchase price
IncrementalIncome
+
ResidualValue
+
Relief-from-Royalty
+
MarketApproach
-
CostApproach
(+/-)
Purchase Price AllocationAsset Deal – Share Deal?
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Tax Amortisation Benefit - Basics
Fair Value = NPV (FCF) + TAB
TAB = t * NPV (Depreciation)
Depreciation = Fair Value / n
TAB = NPV (Fair Value / n)
Fair Value = NPV (FCF)
+ NPV (Fair Value / n)
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Tax Amortisation Benefit - Calculation
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Reasonableness of Valuation Results
44
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Plausibility Check of Valuation Results
30405060
8070
90
100
80
40
115
15
Value Mio. €
Tangible fixed assets
Working Capital
Patent and Trademark Portfolio
Estimate of business value
350
Value of goodwill
Business Value Going Concern
Other Intanbible Assets
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Case Study
Packaging Solution
AppemdixAppemdix
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Basic Data
Case StudyCase Study
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Business Plan „Packaging Solution“
Remaining Useful Life of Patent: 7 Years (2013)Remaining Useful Life of Patent: 7 Years (2013)
Mio. EUR 2007 2008 2009Sales 320 336 349Cost of Sales -214 -224 -232Gross Profit 106 112 117SG&A -54 -56 -57Operating Profit 51 56 60Tax 40% -20 -22 -24Net Operating Profit 31 34 36
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Balance Sheet „Packaging Solution“
December 31, 2006 (Mio. EUR)
Goodwill
Patents
Trademarks
Other IntangibleAssets
Working Capital 75
Tangible Fixed Assets 100
ENTITY
ENTITY
Market Value of
Equity
Market Value of
Debt
to bedetermined
Equity : Ratio ofPeer Group 60 : 40
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General Assumptions
Market ResearchAnnual Growth Rate after 2009 about 2%BackgroundMature market, very long lifecycle
Technology ResearchExpectation of new technology after 2013
Risk Free Rate 4,00%
Market Risk Premium 4,50%
ß-Factor 1,2
Cost of Debt 6,00%
Tax Rate 40,00%
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Application of Income approach
Case StudyCase Study
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Analysis of Free Cash Flows of Business Unit
Sales
./. Cost of Sales
./. SG&A
Operating Profit
./. Tax
NOPLAT
./. Changes WC
./. CapEx
Free Cash Flow
Marketpotential
Market Share
Incremental Income Analysis• Increased Revenues
• Decreased Costs
IndustryStructue
CompetitiveAdvantages
Business Value
Capitalization
Royalty Analysis• Relief-from-Royalty
• Profit split
• Royalty Income
Residual Value / Excess Earnings
IP Valuation ModelsFinancial Impact of (Un-) Protected Technology on Free Cash Flows
Other Approaches
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Calculation of Weighted Average Cost of Capital
Weighting
Cost of Equity 9,40% 60% 5,64%
Risk free rate 4,00%
Risk Premium 5,40%
Market Risk Premium 4,50%
ß-Factor 1,2
Cost of Debt 3,60% 40% 1,44%
Cost of Debt pre Tax 6,00%
Tax 40% 2,40%
Weighted Av erage Cost of Capital 7,08%
Premium Patents 2,00%Capitalization Rate 9,08%
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Calculation of Discount Factors
111,09081,0908
2007 2008 2009 2010 2011 2012 2013
0,9168 0,8404 0,7705 0,7063 0,6476 0,5936 0,5442
111,09081,0908
111,090821,09082
111,090831,09083
111,090841,09084
111,090851,09085
111,090861,09086
111,090871,09087
Weighted Average Cost of Capital 9,08% Weighted Average Cost of Capital 9,08%
Discount Factor Discount Factor
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Royalty Analysis
Sales
./. Cost of Sales
./. SG&A
Operating Profit
./. Tax
NOPLAT
./. Changes WC
./. CapEx
Free Cash Flow
Royalty Income
Basic Assumption• Availability of comparable licensing
transactions and detailed dataSaving ofRoyalty
Payments
Business Value
Capitalization
Approach => hybrid• Applying Market Transactions
• Applying profit split analysis
CommentsAnalysis of Royalty Savings
Application• Risk of underestimating value
Royalty Income• Analysis of market transactions• Favourable or unfavourable contract
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Estimation of Royalty Rates
Royalty-Rate
Royalty Source ResearchMedical Device03-Dec-03Licensee: CHLicensee Business:
Licensor:Massachusetts
TechnologyLicensor Business:
AcademiaRoyalty Rate, % (low range):
1.50Royalty Rate, % (high range):
2.00Upfront Fee:
Licensed Property:This Agreement is made and entered into this day of , 1993. The Licensor hereby grants to LICENSEE the right and license to make, have made, use, lease and sell the LICENSED PRODUCTS and to practice the LICENSED PROCESSES in the TERRITORY for the FIELD OF USE. Technology relates to Case, "". "PRODUCT AREA" shall mean:. Compensation Detail:Royalty: For LICENSED PRODUCTS and LICENSED PROCESSES which do not contain substantial technical contribution, improvement, or change developed by LICENSEE, Running Royalties in an amount equal to Two Percent (2%) of the NET SALES of the LICENSED PRODUCTS leased or sold by LICENSEE and/or its SUBLICENSEE(S). For LICENSED PRODUCTS and LICENSED PROCESSES containing a substantial technical contribution, improvement, or change developed by LICENSEE, Running Royalties in an amount equal to One and One-Half Percent (1.5%) of the NET SALES of the LICENSED PRODUCTS leased or sold by SUBLICENSEE(S), or Twelve Percent (12%) of gross revenue received by LICENSEE from SUBLICENSEE(S), whichever of the two above referenced means of calculating sublicensing revenue yields a smaller number.Source: Form S-1
External Sources EY SourcesAnhaltspunkte für die Bestimmung des Lizenzsatzes in den einzelnen Industriezweigen können daraus entnommen werden, daß z. B. im allgemeinen
• in der Elektroindustrie ein Lizenzsatz von 1/2 - 5% • in der Maschinen- und Werkzeugindustrie ein Lizenzsatz von 1/3 - 10% • in der chemischen Industrie ein Lizenzsatz von 2 - 5% • auf pharmazeutischem Gebiet ein Lizenzsatz von 2 - 10%
vom Umsatz üblich ist. (11) Für den Fall besonders hoher Umsätze kann die nachfolgende, bei Umsätzen über 3 Millionen M einsetzende Staffel als Anhalt für eine Ermäßigung des Lizenzsatzes dienen, wobei jedoch im Einzelfall zu berücksichtigen ist, ob und in welcher Höhe in den verschiedenen Industriezweigen solche Ermäßigungen des Lizenzsatzes bei freien Erfindungen üblich sind. Bei einem Gesamtumsatz [Nach Rückfrage zur Euroumstellung beim Bundesministerium für Wirtschaft und Arbeit wurde am 14. November 2002 folgende Antwort gegeben: "Die Vergütungsrichtlinie ist nicht auf Euro-Beträge umgestellt worden. Insoweit ist darauf hinzuweisen, dass es sich bei dieser Richtlinie nicht um ein Gesetz handelt. DM-Beträge müssen daher entsprechend dem offiziellen Umrechnungskurs auf Euro-Beträge umgerechnet werden."]
• von 0-3 Millionen DMkeine Ermäßigung des Lizenzsatzes,
• von 3-5 Millionen DM10% ige Ermäßigung des Lizenzsatzes für den 3 Millionen DM übersteigenden Umsatz,
• von 5-10 Millionen DM 20% ige Ermäßigung des Lizenzsatzes für den 5 Millionen DM übersteigenden Umsatz,
• von 10-20 Millionen DM30% ige Ermäßigung des Lizenzsatzes für den 10 Millionen DM übersteigenden Umsatz,
• von 20-30 Millionen DM…..
Benchmarks
Literature
Examples
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Projection of Future Revenues
AssumptionsSales Projection Annual Growth Rate after 2009 2%Background Mature market, very long lifecycle, expectation
of new technology after 2013
Business Plan Extrapolation
actual proj. proj. proj.Mio. EUR 2006 2007 2008 2009 2010 2011 2012 2013Sales 300 320 336 349 356 364 371 378Sales Growth Rate 6,7% 5,0% 4,0% 2,0% 2,0% 2,0% 2,0%
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Relief-from-Royalty
TAB = Tax Amortisation Benefit
Mio. EUR 2007 2008 2009 2010 2011 2012 2013Sales 320 336 349 356 364 371 378Royalty Savings 5% 16 17 17 18 18 19 19Tax 40% -6 -7 -7 -7 -7 -7 -8Royalty Savings after Tax 10 10 10 11 11 11 11Discount Factor 0,9168 0,8404 0,7705 0,7063 0,6476 0,5936 0,5442Present Value 9 8 8 8 7 7 6Net Present Value 53TAB 1,4022 21Fair Value 74
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Projection of Future Cash Flows
Sales Projection• Annual Growth Rate 2%
Operating Profit Margin• Average of Profit Margin
2006 – 2008 = 16,6%
Business Plan
Mio. EUR 2007 2008 2009 2010 2011 2012 2013Sales 320 336 349 356 364 371 378Cost of Sales -214 -224 -232Gross Profit 106 112 117SG&A -54 -56 -57Operating Profit 51 56 60 59 60 62 63Tax 40% -20 -22 -24 -24 -24 -25 -25Net Operating Profit 31 34 36 36 36 37 38
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Relief-from-Royalty – Profit Split Analysis
TAB = Tax Amortisation Benefit
Mio. EUR 2007 2008 2009 2010 2011 2012 2013Sales 320 336 349 356 364 371 378Cost of Sales -214 -224 -232Gross Profit 106 112 117SG&A -54 -56 -57Operating Profit 51 56 60 59 60 62 63Profit Split 25% 13 14 15 15 15 15 16Tax 40% -5 -6 -6 -6 -6 -6 -6Net Cash Flow 8 8 9 9 9 9 9Discount Factor 0,9168 0,8404 0,7705 0,7063 0,6476 0,5936 0,5442Present Value 7 7 7 6 6 5 5Net Present Value 44TAB 1,402184 18Fair Value 61
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Incremental Income Analysis
Sales
./. Cost of Sales
./. SG&A
Operating Profit
./. Tax
NOPLAT
./. Changes WC
./. CapEx
Free Cash Flow
Marketpotential
Market Share
Basic Assumption• Comparable business unit without
protected technology is available
IndustryStructue
CompetitiveAdvantages
Business Value
Capitalization
Approach• Comparison of FCF based on protected
technology and FCF not applying
subject asset
CommentsAnalysis Impact of (Un-) Protected Technology on Free Cash Flows
Application is limited!• e.g. cost reductions realized by process patents (?)• e.g. price premium for a product feature – caused by patent or trademark
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Incremental Income Analysis
TAB = Tax Amortisation Benefit
Application of incremental income analysis is critical!
Mio. EUR 2007 2008 2009 2010 2011 2012 2013Increase of Revenues 32 34 35 36 36 37 38Increase of Expenses 14 15 16 16 16 17 17Incremental Income 18 18 19 20 20 20 21Tax 40% -7 -7 -8 -8 -8 -8 -8Incremental Income after Tax 11 11 12 12 12 12 12Discount Factor 0,9168 0,8404 0,7705 0,7063 0,6476 0,5936 0,5442Present Value 10 9 9 8 8 7 7Net Present Value 58TAB 1,4022 23Fair Value 81 The key issue is to identify the
Incremental Income.
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Residual Value Method / Excess Earnings (Formula Method)
January 1, 200X
Asset to be valued
Working Capital
Tangible Fixed Assets
ENTITY
ENTITY
Portfolio
Proprietary TechnologyTM 2
TM 1Intellectual Property Rights
Contracts
Customer Relationship
…
Software
Market Value of
Equity
Market Value of
Debt
Enity Value (Income Approach)
./. Value of all other assets (e.g. Fixed assets, trademarks, Contracts)
= Value of asset to be valued
Valuation ofCore Asset
Application is limited - Example
Contribution to a joint venture
Other interpretations of approach
Assump t i ons
Risk of overerstimating
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Intellectual Property Valuation Talal Abu-Ghazaleh Valuation
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Residual Value & Excess Earnings Approach
Income of Business Unit
Entity Value of Business Unit
Capitalization
Excess Earnings ApproachResidual Value Approach
./.
Value of all Other Assets,
e.g. Tangible Fixed Assets, Working Capital, Trademarks
Residual Value
Income of Business Unit
./.
Contribution of all Other Assets to Income of Business Unit
Return on AssetsReturn of Assets
Excess Earnings
Capitalization
Residual Value!=
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Calculation of Residual Valueproj. proj. proj. LC LC LC LC
Mio. EUR 2007 2008 2009 2010 2011 2012 2013Sales 320 336 349 356 364 371 378Cost of Sales -214 -224 -232Gross Profit 106 112 117SG&A -54 -56 -57Operating Profit 51 56 60 59 60 62 63Tax 40% -20 -22 -24 -24 -24 -25 -25Net Operating Profit 31 34 36 36 36 37 38Changes WC -15 -5 -2 -2 -2 -2 103Net Capital Expenditure 11,0 1,0 13,0 1,0 15,0 15,0 44,0Net Cash Flow 26,7 29,4 47,2 34,6 49,3 49,9 184,7Discount Factor 7,08% 0,9339 0,8721 0,8145 0,7606 0,7103 0,6634 0,6195Present Value 25,0 25,6 38,4 26,3 35,0 33,1 114,4Net Present Value 297,83 Business Unit "Packaging Solution"Fair Value
Fixes Assets -100,00 Cost ApproachWorking Capital -80,00 Cost ApproachOther Intangible Assets -29,57 Trademark, Other Patents, Others: Relief from Royalty
Residual Value 88,26TAB 1,4022 35,50Fair Value 123,76
TAB = Tax Amortisation Benefit
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Intellectual Property Valuation Talal Abu-Ghazaleh Valuation
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Residual Value & Excess Earnings Approach
Income of Business Unit
Entity Value of Business Unit
Capitalization
Excess Earnings ApproachResidual Value Approach
./.
Value of all Other Assets,
e.g. Tangible Fixed Assets, Working Capital, Trademarks
Residual Value
Income of Business Unit
./.
Contribution of all Other Assets to Income of Business Unit
Return on AssetsReturn of Assets
Excess Earnings
Capitalization
Residual Value!=
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Calculation of Excess Earnings Approach
Mio. EUR 2006 2007 2008 2009 2010 2011 2012Sales 320 336 349 356 364 371 378Cost of Sales -214 -224 -232Gross Profit 106 112 117SG&A -54 -56 -57Operating Profit 51 56 60 59 60 62 63Tax 40% -20 -22 -24 -24 -24 -25 -25Net Operating Profit 31 34 36 36 36 37 38Charges 4.94% -16 -17 -17 -18 -18 -18 -19Net Cash Flow 15 17 19 18 18 19 19Discount Factor 0.9168 0.8404 0.7705 0.7063 0.6476 0.5936 0.5442Present Value 14 14 14 13 12 11 10Net Present Value 88TAB 1.402184 35Fair Value 124
AssumptionsSales Growth after 2008 2.0%Operating Profit Margin after 2008 16.6%Contributory Asset Charges after Tax 4.94%
TAB = Tax Amortisation Benefit
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Intellectual Property Valuation Talal Abu-Ghazaleh Valuation
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Calculation of Income Contribution of Other Assets: Contributory Asset Charges
Deduction of Other Assets Using Contributory Asset Charges
Fair Value Return of Asset Percent of Salespre Tax after Tax
Sales 2006 320Tax 40,00%
Tangible Assets 100 9% 9,0 2,8%Working Capital 80 3% 2,4 0,8%Trademark *) 0,50% 0,3%Other Patents *) 0,80% 0,5%Other Intangible Assets *) 1,00% 0,6%Contributory Asset Charges After Tax 4,9%*) Application of Relief-from-Royalty
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Interpretation of Valuation Results
Patent Value (Mio. EUR)Net Present Value 88 53 44Residual Value Charge 4.9% 7.0% 7.5%Relief from Royalty Royalty Rate 8.4% 5.0% 4.1%Profit Split Ratio 50.4% 30.1% 25.0%
Patent Value (Mio. EUR)Fair Value (including TAB) 1.4022 124 74 61Residual Value Charge 4.9% 7.0% 7.5%Relief from Royalty Royalty Rate 8.4% 5.0% 4.1%Profit Split Ratio 50.4% 30.1% 25.0%
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Tax Amortisation Benefit - Modelling
Depreciation Method linear
Calculation of tax amortizaton benefit Tax amortization period 7Trademark Cost of Capital 9,08%
Year MonthPresent
value factor Amortizatio
n factor
Present value
amortization factor
1 12 0,9168 0,1429 0,1310 Total sum of present value amortization factors 0,7171
2 24 0,8404 0,1429 0,1201
3 36 0,7705 0,1429 0,1101 Total corporate tax rate 40,0%
4 48 0,7063 0,1429 0,1009
5 60 0,6476 0,1429 0,0925 Total tax savings percentage 0,2868
6 72 0,5936 0,1429 0,0848
7 84 0,5442 0,1429 0,0777 Converted into a step up (1/1-total tax savings %) 1,4022
8 96 0,4989 0,0000 0,0000
9 108 0,4574 0,0000 0,0000
10 120 0,4193 0,0000 0,0000
11 132 0,3844 0,0000 0,0000
12 144 0,3524 0,0000 0,0000
13 156 0,3231 0,0000 0,0000
14 168 0,2962 0,0000 0,0000
15 180 0,2715 0,0000 0,0000
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Intellectual Property Valuation Talal Abu-Ghazaleh Valuation
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Contact
Prof. Dr. Ulrich MoserTAGValuation
Erfurt University of Applied Sciences (Germany)
WP/StB/CVATel.: +962 6 5100600 Fax: +962 6 510-0601
E-Mail: [email protected]
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Intellectual Property Valuation Talal Abu-Ghazaleh Valuation
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Contact
Khalid SweitiTAGValuation Manager
CPAAmman-Jordan
Tel.: +962 6 5100600 Fax: +962 6 510-0601
E-Mail: [email protected]