IJWDORWEILER PRESENTATIONS IPVALUATION APRIL18-21 2015.V2
Transcript of IJWDORWEILER PRESENTATIONS IPVALUATION APRIL18-21 2015.V2
Management Inc.
.YRMSV�'SVTSVEXI�*MRERGIßand Valuation Analyst
1100 Bleury, Second Floor, Suite IJWMontreal, Quebec, H2Z 1N4Tel: 514.685.8047Fax: 514.685.3946Cell: 514.582.7803
Shahan Kataroyan
Management Inc.
!!!! !
DORWEILER LTD.
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© COPYRIGHT IJW DORWEILER 2015
Valuation Methodologies for Intellectual Property in China An Introduction
Management Inc.
.YRMSV�'SVTSVEXI�*MRERGIßand Valuation Analyst
1100 Bleury, Second Floor, Suite IJWMontreal, Quebec, H2Z 1N4Tel: 514.685.8047Fax: 514.685.3946Cell: 514.582.7803
Shahan Kataroyan
Management Inc.
!!!! !
DORWEILER LTD.
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• Who is IJW DORWEILER? • Technology Companies and Intellectual
Property defined • Different methodologies of valuing
Intellectual Property (with case examples) • Drivers of value to consider • Conclusion
Introduction
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Management Inc.
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The material contained in this presentation is for educational purposes only. It contains technical matters that have general applications and may not be applicable to a particular set of circumstances and facts. As well, the material and references contained herein reflect professional practices that are subject to change. For these reasons, the material contained in this presentation should not be relied upon as a substitute for professional advice in connection with any particular matter. The presenters and the preparers of this presentation accept no legal responsibility for its contents or for any consequences arising from its use.
Disclaimer
Management Inc.
.YRMSV�'SVTSVEXI�*MRERGIßand Valuation Analyst
1100 Bleury, Second Floor, Suite IJWMontreal, Quebec, H2Z 1N4Tel: 514.685.8047Fax: 514.685.3946Cell: 514.582.7803
Shahan Kataroyan
Management Inc.
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IJW DORWEILER comprises the Asian operations of IJW & Co., an award-winning corporate finance boutique, and Dartmouth Partners Limited, a internationally-recognized valuation practice of 30 years’ experience based in Montreal, Canada and Chicago, USA.
Services include:
• Valuation of companies, technology, and other intangibles
• Mergers and acquisitions advisory
• Corporate finance advisory
• Litigation support (expert witness)
Over the last three decades, members of our firm have undertaken and successfully completed hundreds of engagements in transaction advisory and business valuations
The firm focuses on providing advisory services to mid-sized companies, typically below $150M in Enterprise Value (EV)
IJW DORWEILER is industry agnostic, having worked in the technology, agriculture, consumer products, and healthcare sectors
Who is IJW DORWEILER?
FINANCE AWARDSFinancial Advisory of the Year - Canada
2013
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1100 Bleury, Second Floor, Suite IJWMontreal, Quebec, H2Z 1N4Tel: 514.685.8047Fax: 514.685.3946Cell: 514.582.7803
Shahan Kataroyan
Management Inc.
!!!! !
DORWEILER LTD.
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Technology companies defined: • Computer Hardware • Software • Electronics • Semiconductors • Internet
• Telecom Equipment • E-Commerce • Computer Services
Intellectual property (Intangible Assets) defined: • Non-physical assets such as franchises, trademarks/brands, licenses, patents,
copyrights, source code, technical “know-how”, goodwill, equities, mineral rights, securities and contracts (as distinguished from physical assets) that grant rights and privileges, are transferable, and have value for the owner.
Technology Companies and Intellectual Property defined
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Asset Approach • Total cost incurred to duplicate intellectual
property (IP)
Income Approach • Present value of all future monetary benefits
from enterprise or intellectual property
Market Approach • Identifying similar or comparable businesses/IP,
royalty rates or transactions
Valuation Approaches
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Asset Approach • What cost would be required to duplicate
utility of technology? • Consider efficiencies of development with time • What used to cost $1M now $100K • Open-source software
• Used when: • Future economic benefits not easily assessed or
forecasted • IP forms an integral part of set of assets • Other techniques not appropriate
Valuation Methodologies
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Income Approach • Appropriately captures growth of cash flows with
time • Projections of cash flows capture and depend on:
• Type of IP (i.e. patent, trademark, know-how) • How technology is exploited • Economic life • Management team • Market size and potential • Strategic alliances • Trends in industry • Uniqueness of technology • Client base and concentration • Other economic factors
Valuation Methodologies
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VALUE DELIVERED® 9
Income Approach • Discounted Cash Flow
• Future cash flows are discounted by a rate of return that considers various elements affecting risk
• Discretionary cash flows are operating cash flows after tax, working capital requirements, and capex (net of tax shield)
• Cannot forecast cash flows forever - Terminal value • Value of business or developed technology for period
beyond forecast
Valuation Methodologies
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Market Approach • Comparable Precedent Transactions
• Application of metrics from actual transactions of comparable companies or IP to subject’s financials
• Difficulty in technology industries to find “meaningful comparables”
• Differences in size, product mix, timing of transactions, form of consideration, etc.
• EV/Revenues common multiple for Technology industries: (Early-stage companies have negative earnings)
• Other industry metrics often considered (number of users, downloads, website visits, etc.)
Valuation Methodologies
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WeChat (Weixin) - IP value Free tool: Mobile App Our Understanding:
• Generates revenue through additional features and transactions
• Must establish cash flows related to application • Value of application influenced by:
• # of Downloads and demographics of user base • Usage and time spent running application • User growth trends • Current and anticipated revenue • User acquisition costs and revenue per user • Costs to maintain and update technology • Application of overhead related to technology
Valuation Case Study
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Case Study • WeChat - IP value • Projections (3 to 5 years)
• Revenues • Direct costs associated with the application • Allocation of overhead related to application
• Operating cash flows net of taxes • Deduct: Increases of Working Capital to support sales
growth • Deduct: Capex (net of present value of tax shield) • Equals: Discretionary Cash Flow
Valuation Case Study
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Valuation Case Study Hypothetical DCF of Tech Co. (thousands) Terminal
Year*1 Year*2 Year*3 Value*
Discretionary,Cash,Flow 500,000$,,,,,,,,,,,, 700,000$,,, 980,000$,,, 5,480,000$,,,
Discount,Factor,@,30% 0.77,,,,,,,,,,,,,,,,,,,, 0.59,,,,,,,,,,, 0.46,,,,,,,,,,, 0.46,,,,,,,,,,,,,,(1/1+30%)^n
PV,of,Cash,Flow 384,615$,,,,,,,,,,,, 414,201$,,, 446,063$,,, 2,494,310$,,,
Total,PV,of,Cash,FlowsRounded (Sum%of%all%PV's) 3,740,000$*********
*,,Terminal,Value
Cash,Flow,in,Terminal,Period 1,370,000$,,,,,,,,,,
Capitalized,@,25% 5,480,000$,,,,,,,,,,
NOTE:%%This%is%a%simplified%analysis%that%does%not%consider%all%elements%of%performing%a%DCF%analysis.
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Management Inc.
!!!! !
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In most cases… • More unique and disruptive the technology/IP = Higher
value (so long as there is a market and a use) • The better the legal protection = Higher value • Higher barriers to entry, difficulty of duplication = Higher
value • The greater the validation of the technology/IP = Higher
value • Ease of use and automated client adoption = Higher value • Longer operating history, more advanced stage of product
life-cycle = Higher value • More recurring revenues, lengthy sales contracts = Higher
value • Higher switching costs = Higher value
Salient Drivers of Value –Technology Businesses
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• Degree of patent or trademark protection
• Exclusive vs. non-exclusive rights and development
• Strategic attraction to notional purchaser
• Ability to increase royalty rates
• Market strength (patent or trademark)
• Industry and competition
• Perspective re: value-to-owner or user
• Special Interest Purchaser considerations (value to competitor)
Salient Drivers of Value –Technology Businesses
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One important note about notional valuations: • Price is what is paid. Value is what an asset is
worth. They might not be the same due to: • Differing negotiation abilities • Non-cash consideration • Information asymmetries • Compulsion to act • Asset vs. share transaction • Synergies or strategic advantages
• Knowing your value provides the ability to negotiate more effectively while being better informed
Conclusion
Management Inc.
.YRMSV�'SVTSVEXI�*MRERGIßand Valuation Analyst
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Shahan Kataroyan
Management Inc.
!!!! !
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IJW DORWEILER - Contact Information
Ian Wooden, CBV
1100 Bleury, Second Floor, Suite IJW Montréal (Québec) CANADA H2Z 1N4 Whitegate Cottages Complexes, Carlisle Estate Airport Road, P.O. Box W1200 St Georges, Antigua 1 (514) 685 8047
Drew Dorweiler, FRICS, CVA, CBA, ASA, CPA•ABV, CBV, MBA, CFE
308 Square Saint-Louis Montréal (Québec) CANADA H2X 1A5 528 Old Barn Road Lake Barrington, Illinois USA 60010 1 (514) 962 6896
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