IP Valuations

The value of intellectual property and the awareness of such value is commonly overlooked by South African corporate business. A successful company should be acutely aware of the value of the intellectual property that is held within the company as this may be one of the company´s most valuable assets. An awareness of such value is perhaps best summed up by a statement once made by the President of the Coca Cola company. He said that their company buildings, their machinery, their equipment, their vehicles and all their material assets could be destroyed, but as long as they were left with the trade mark Coca Cola, they would experience no difficulty in resurrecting and restoring their business to its former position. Who can seriously doubt the correctness of this statement?

Until recently, in many acquisitions or mergers, the intellectual property possessed by a target company were often not measured to determine their real market value but instead were either ignored or generally lumped together as an amorphous mass and labelled "goodwill". Such goodwill was generally derided as a wasteful excess payment above nett asset value.

However, there has been a global realisation in recent years amongst investors, bankers, analysts and companies on the acquisition trail, that intellectual property assets are of considerable value and importance. These intangible assets, such as strong brands and copyright in computer software, are often the prime target in acquisitions and are significant contributors to market dominance and profitability.

There are numerous reasons for valuing intellectual property. Clients may simply wish to value the intellectual property for balance sheet purposes. Alternatively, intellectual property may be used as collateral for loans and the performance of other obligations. In the United States for example, intellectual property rights have played an increasingly important role in providing security for the debt associated with mergers, acquisitions and leveraged buy-outs. Valuable intellectual property rights may be pledged as security for the enormous debts incurred in such transactions. In South Africa, significant tax advantages may be realised when acquiring a business which owns intellectual property. The South African Income Tax Act provides, subject to certain exceptions, for the deduction of expenditure incurred in acquiring patents, trade marks, copyright or other similar intellectual property, if such property is used by the tax payer in the production of income. The deduction is spread over the period which the Commissioner considers to be the probable duration of use, or 25 years, which ever is the lesser. The valuation of brands for example may also be used in the management of brands within a corporate business. The monitoring of brand values is a suitable way of tracking brand performance and profitability of a product line. In a sense, it is a way of bridging the gap between the financial department of a company on the one hand, who may see advertising as an unnecessary expense, and the marketing department of a company on the other hand, who spend money on promoting brands within the business.

Spoor & Fisher have considerable expertise in the valuation of intellectual property and, to date, have valued in excess of R2 billion worth of intellectual property. Should you have any queries with regard to the valuation of intellectual property please do not hesitate to contact Dina Biagio who runs the valuation department.

Date published: 2004/07/20
Author: Spoor & Fisher

Tags: ip valuations