Valuation FITT (Fostering Interregional Exchange in ICT Technology Transfer)

2 | February 2010Valuation Process “Valuation” in general  Valuation is an essential process in order to achieve the optimal exploitation of protected IP assets.  Valuation, as a process, consists in choosing one or several dedicated methods in order to assess the value of an asset.  A value is not a price. Value is subjective, in the sense that value can differ depending on the direct environment, whereas a price is an objective information.

3 | February 2010Valuation Process “Valuation” in general  In the activity of IP Management, valuation is perceived as a technology and business focused activity. (see activity “IP Management” for more details about this triangulation) VALUATIONEXPLOITATION PROTECTION Business LegalTechnology IP Management

4 | February 2010Valuation TTOs and valuation – Why? Reasons to conduct valuation activities are diverse : Company valuationTaxation planningExternal reporting IP sale & licenceAccounting IP exploitation & management Capital Raise Dispute resolution/Litigation support Internal management & Strategy

5 | February 2010Valuation Quantitative Valuation Approaches There are 3 major types of valuation approaches Market Approach  Mesures the value of an intangible asset based on what purchasers on the market would have paid for a reasonnably similar asset Cost Approach  Mesures the value of an intangible asset by taking into account all of the costs invested in the intangible asset (building, replacement and/or reproduction costs) Income Approach  Mesures the value of an intangible asset by reference to the Net Present Value (NPV) of the expected benefits over the remaining life of the asset

6 | February 2010Valuation Market Approach Value is determined using market-observable multiples Parametrization is based on recent market transactions for comparable assets Multiples are based on  Sales, Profit Margins, … Historic purchase price Observed sales x3 Price are converted into multiples of earning Forecasted sales Derived purchased price x3 From price (observed) tovalue (estimated) Value

7 | February 2010Valuation Cost Approach Cost Approach can be based on historic and/or replacement costs Historic costs t Inflation-ajusted costs/periods Value

8 | February 2010Valuation Income Approach Based on the actualized net present value of future cash-flows Period 1Period 2Period 3 Period 4 t Present ValueSum of future Cash Flows = Value

9 | February 2010Valuation Parts of the process  In the framework of the FITT project, valuation process is apprehended through practices and cases  « Valuation Methods » exposes the nature of the various quantitative valuation approaches within a global practice  « Cost Approach » details a case dedicated to a trended historical cost approach to valuation  « A valuation tool » exposes a specific tool developped internally at Tudor which simplifies quantitative valuation procedures

10 | February 2010Valuation Practice « Valuation methods »  Quantitative valuation methods can be regouped in 3 categories  Cost approaches  Income approaches  Market approaches  Each have their own benefits and drawbacks, which are detailed in the practice

11 | February 2010Valuation Case « Cost Approach »  This case is based on a real-world experience dedicated to estimate the value of an IP asset composed of a patent portfolio  Methodology exposed in the case details how to conduct a trended historical cost approach, based on a 6 steps procedure

12 | February 2010Valuation Case « Valuation Tool »  A valuation tool was developped internally at Tudor in order to facilitate valuation excercises  This tool assists not only the valuation activity for all quantitative valuation approaches exposed in previous practice, but also helps the TT officer choosing among valuation methods based on the nature of available information  The tool is presented in this case, alongside the major hypothesis that were used in order to develop it

13 | February 2010Valuation Suggested Readings  Link to code book: intellectual property, intellectual property protection, intellectual property rights, valuation, licensing