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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.
Updated on: 19-Jul-2021
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