Valuation for Financial Reporting : Fair Value Measurements and ...

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Appendix 2.1 51specialize in intellectual property valuation. At the time of publication, there are threeknown Internet sites that have collated or will for a fee provide information specific tothe valuer’s needs. These services are offered by:RoyaltySource (www.royaltysource.com)Consor 1 (www.consor.com)The Financial Valuation Group (www.fvginternational.com)The database developed by The Financial Valuation Group includes approximately40 fields consisting of the names of the licensor and licensee, both the SIC andNAICS numbers for the licensor and the licensee, the type of agreement (i.e.,trademark, patent, copyright), the industry name, the remuneration structure, royaltypercentages (base rate, the low end and high end of variable rates), royalty dollars(base flat fee, annual, and variable fees), a description of the product or service, andmore. The Financial Valuation Group’s database now includes information in everytwo-digit SIC number, and consists of a compilation of intellectual property transactionsfrom 1994 to 2001.Each intellectual property transaction should be compared to the target companyusing the following guidelines:The specific legal rights of intellectual property ownership conveyed in theguideline transactionThe existence of any special financing terms or other arrangementsWhether the elements of arm’s length existed for the sale or license conditionsThe economic conditions that existed in the appropriate secondary market at thetime of the sale or license transactionThe industry in which the guideline intellectual property was or will be usedThe financial and operational characteristics of the guideline properties, comparedwith the company’s intellectual propertyThe last phase of the market approach valuation analysis is the reconciliation.The strengths and weaknesses of each guideline transaction are considered; thereliability and appropriateness of the market data are examined, including theanalytical techniques applied. After considerable review, transactions selected shouldbe reasonably similar to the company and then synthesized into a mean range and amedian range.INTELLECTUAL PROPERTY TRANSACTIONS DATABASEWhat are the royalty rates paid for licensing intellectual property? Today publiclyavailable data will provide us with the best and most objective information aboutroyalty rates being paid in the marketplace. Traditional surveys can have materialweaknesses and can be unreliable for truly objective data.
52 Valuation for Financial ReportingIn researching publicly available data to date, we have identified and collected datafrom approximately 3,000 transactions. The data was compiled in a proprietarydatabase which reveals the following information.Transactions by IndustryAs shown in Exhibit 2.5, industry groups as represented by the first two digits of theU.S. government SIC codes are represented in transactions in the database.Intellectual Property Typically LicensedWhile there are approximately 90 distinctly different intangible assets, the majorityof assets licensed are intellectual property assets, which can be grouped withincategories (Exhibit 2.6). Patents tend to be the most-licensed intellectual property,with trademarks, products, and technology following respectively.Payment Structures of Intellectual Property TransactionsA comparison of the royalty payment structures disclosed in each transaction revealsthat approximately half of the licensing agreements are based on a set percentage orset dollar amount. There are a surprising number of transactions that involve high/lowIntellectual Property Transactions DatabaseTransactions by Two-digit SIC Industry13%1%4%10 - Mining, Construction20%20 - Pharmaceutical, Apparel30 - Electronics, Instruments19%40 - Transportation, Utilities50 - Wholesale, Retail60 - Finance, Real Estate70 - Services, Computer4%25%80 - Health, Research10%4%90 - Public Administration© Copyright 2006 by FVG Holdings, LC and Financial Valuation Resources, LLC. All rights reserved.Used with permission.Exhibit 2.5Transactions by Industry
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VALUATION FORFINANCIALREPORTINGFair
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VALUATION FORFINANCIALREPORTINGFair
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To our familiesnear and faryoung an
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PrefaceThe second edition of this b
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AcknowledgmentsTo Deanna Muraki, th
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xivAbout the Authorsappraiser with
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Valuation for FinancialReportingFai
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210 IndexBusiness Enterprise Analys
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212 IndexGoodwill (continued )111,
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214 IndexLong-termcapital, 71debt,
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216 IndexSecurities and Exchange Co
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