Explain intellectual property valuation in mergers and acquisition

Intellectual property is a type of intangible asset owned by a company and it is legally protected from outside use without company consent.

In other words, intellectual property is an asset, which has the same protective rights just like a physical asset. It includes patents, copyrights, trademarks, trade secrets etc.

Intellectual property valuation matters due to the following

• Time and amount spent for intellectual property registration.
• It involves legal costs and other costs.
• Amount spent for advertising brands etc.

Areas that require intellectual property valuation are as follows −

• Licensing.
• Transfer pricing.
• Purchase/sale of assets.
• Financial reporting.
• Corporate financing.
• Litigations.

Methods of intellectual property valuation are as follows −

Factors to be considered for Intellectual property are explained below −

• Both qualitative and quantitative characteristics.
• Legal rights, restrictions, competitions, risk associated etc.
• Past growth and future prospects.
• Title of asset.
• Profitability and earning capacity.
• Market share.
• Position and Product life cycle.

Limitations

The limitations in intellectual property valuation are as follows −

• It is still in the development stage.
• Value depends on estimations, assumptions and judgement.
• Need more expertise.

Risk transfer for Intellectual property includes the following −

• Infringement/liability coverage.
• Enforcement coverage.
• Representations and warranties.
• Value insurance.