IP valuation: speaking a common language
One of the major challenges to businesses looking to do deals, whether mergers and acquisitions or licensing, is gaining an accurate picture of the relevant intellectual assets. Most companies have an idea of which assets are valuable – their brands, their patents, their designs – but many might be unsure of exactly how to put a monetary figure on that value.
Because of course, a brand is worth as much as people think it’s worth, and knowing which people are qualified to make that judgment is not always easy. Similarly, patents may carry with them the costs of their development and registration, but can that really be said to amount to their worth? Or is a patent’s value dictated by its use? If so, how much of a product’s price can be attributed to the patents that contribute to it?
Pekka Valkonen, of Fortum Power Solutions in Finland, underlines the importance of building an accurate picture. “Intellectual assets are now a major part of companies’ value – about two-thirds of a typical deal. And intellectual property is one of the hardest parts of intellectual assets,” she says. “Therefore getting accurate valuations of a company’s IP is imperative.”
“INTELLECTUAL ASSETS ARE NOW A MAJOR PART OF COMPANIES’ VALUE – ABOUT TWO-THIRDS OF A TYPICAL DEAL.”
That may be easier said than done. Different parts of a company may take different views of the value of a given intellectual property asset, and in some cases, think about such matters in markedly different ways. Valkonen says that developing a common language is crucial. “Management deal with money, numbers and facts,” she says. “Lawyers and IPR professionals use specific expressions of their own discipline, and technical experts have their own meanings for words.” It is essential, she says, “to agree the language money speaks.”
There is no simple way to ensure that valuations are accurate. But building the best team for the job helps. This means including people with a sense of a business as a whole, but also those who understand the technology in question and the intellectual property rights that protect it. Getting these different people to communicate effectively and come to a communal conclusion may be a challenge, but it is crucial to ensure success.
Of course, there is a cost attached to building a team like this, but in theory it will improve the outcomes enough to be worthwhile. Inaccurate IP valuations can be costly for all sorts of reasons, and the very immeasurability of potential slip-ups renders them all the more dangerous.
And it’s not just about knowing your own company. When negotiating deals, it’s vital to have a rounded understanding of the other company’s position as well. That means due diligence, but also a smattering of common sense – thinking about the business logic of both parties for the deal will make the potential pitfalls much clearer.
Valkonen says that one of the most common mistakes companies make is to misunderstand the business logic of the other party. This can result in incorrectly divided responsibilities in contracts and one party bearing a brunt that it can’t manage. Where IP assets are concerned, that can be extremely damaging.
