We offer professional support in the area of the valuation of intangibles. In addition to valuations of respective categories of intangible assets we carry out the purchase price allocations in acquisition transactions, including estimations of goodwill.
Intangibles - e.g. trading names, trademarks, brand names, patents, licenses, know-how, the author's intellectual rights - can appear in all dimensions of business activity: distribution, financial services, sales and management. Usually, intangibles generate added value that exceeds the costs attributed to them and they cannot be replaced in a short time. Generally, the intangibles contribute to the growth of sales or the reduction of costs, and consequently they raise and enhance the value of the business.
The valuation of intangibles exhibits many similarities to business appraisal. Three traditional approaches are used in the valuation of intangibles: income, cost and market. Taking into account the frequent lack of market data, the valuation of intangibles is usually limited to two approaches: cost (sometimes limited by access to historical data) and income.
A general profile of the three universally accepted approaches to the appraisal of intangibles:
The market approach (comparative) - the value of intangibles is estimated on the basis of comparable market transactions. As the intangibles are rather seldom sold separately from the enterprise itself and it is hard is to find comparable assets being traded on an active market, use of this method is possible in practice only in limited cases.
The cost approach - the value of intangibles is estimated as the cost necessary to produce the asset or replace it.
The income approach - the income approach takes into consideration potential revenues, expenses, profitability and investment expenditures related to the appraised intangible asset. This approach estimates the value of an intangible asset as the present value or capitalization of future cash flows, sales or saved costs over the period of the economic life of the intangible asset.
The income approach is perceived as the basic approach in the valuation of intangibles in the majority of cases. The income approach can take various methods depending on the unique character of the appraisal process of the intangible. The main income methods are as follows:
- Relief from royalties method
- Excess rate of return method
- Postulated loss of income method
- Discounted cash flow approach