Explain intellectual property valuation in mergers and acquisition

FinanceFinance ManagementBanking & Finance

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.
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Published on 19-Jul-2021 11:06:13
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