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					                Valuation Tool




                             FITT
(Fostering Interregional Exchange in ICT Technology Transfer)




                    www.FITT-for-Innovation.eu
                              Practice in general


 The objective of this case is to expose an excel-based worksheet (the Tool)
  designed to support valuation processes

 This Tool aims at assisting “quantitative” valuation methods
     • Facilitates valuation processes
     • Helps choosing among a quantitative valuation method
            • Cost Approach
            • Market Approach
            • Income Approach


 Tool was designed for internal use at Tudor
     • Tool is a work in progress, aimed at being optimized through further use experience
 Tool needs adaptation on a case-by case basis


2 | February 2010                         Valuation Tool
                            Valuation methods used in Tool


 Cost Approach
      Measures the value of an intangible asset by taking into account all relevant costs
       invested or related to the appraised asset

            Historic costs : accounting all costs (effective and sunk) directly related to the
               appraised asset (such as securing, research, development, and licensing-in
               costs)

            Replacement costs : valuing the costs for buying an asset bringing the same utility
              than the appraised one

            Reproduction costs : valuing the costs induced in creating, at the time of the
              appraisal, a similar asset based on actual knowledge



Cost approach is generally favored under high uncertainty and limited information



3 | February 2010                         Valuation Tool
                               Valuation methods used in Tool


 Market Approach
      Value consists in the price of a comparable asset in a similar market transaction. Market
       approach relates to the quantification and adjustment of pricing multiples in order to create
       theoretical comparable conditions

     Lack of active and transparent market for IP transactions and market dynamics have to be taken
       into account in the process

 Income Approach
      Measures the value of an intangible asset by reference to the expected and actualized
       benefits, incomes or saved costs over the remaining life of the asset. Such prospective-
       based quantification of financial flows needs to take into account various risk-related factors
       such as
            Endogenous : Extend of IP protection, nature of competition, …

            Exogenous : Substitute product development risks, maturity of market, …


4 | February 2010                             Valuation Tool
                             The Tool – Part 1 (Choosing a valuation
                             method)

Various parameters help choosing among valuation methods

Maturity of technology
      Based on the notion of the technology life cycle. The maturity of a technology impacts the amount
         of products based on such technology available on markets at the time of valuation.

      Strong maturity is needed for market approaches.
Level of novelty
      Is to be considered strictly for the considered market . An asset under valuation can be old from a
         technological standpoint, but new for a given market.

      High level of novelty favor cost and income approaches.




5 | February 2010                           Valuation Tool
                               The Tool – Part 1 (Choosing a valuation
                               method)


 Nature of technology
         Either discrete (asset usable solely) or complex, meaning that the use of such technology
            relies on the necessity to use other dependant technologies.

         Complex technologies favor cost and income approaches.
 Substitutable technologies
         Availability of other technologies that can be use in order to replace an existing one with no or
            minimal loss of utility

         For replacement costs, technologies need to be substituable.
 Sustainaible technologies
         Implies that they have a potential for a long life cycle remaining
         Sustainability favors income approaches.


6 | February 2010                            Valuation Tool
                          The Tool – Part 1 (factors impacting royalty
                          and risks)
 Impacting factors (which need to be analyzed prior to valuation activity)
     •   Legal-focused criterias

            Freedom to operate (based on third party IP)

            Level of Protection granted by IPR (level of appropriability)

     •   Internal and organisational-focused criterias

            Nature of the value proposal (understanding of how value will be created)

            Accounting rules and reporting methods (if important)

     •   External and market-related criterias

            Market risks (strong or weak – known or unclear)

            Comparable markets (existing or not)

            Consumer behaviour (understood and “rationnal” or not)

7 | February 2010                     Valuation Tool
                    Historic Cost Approach

                                              Inflation and
                                               depreciation should
                                               be managed
                                               externally




8 | February 2010           Valuation Tool
                    Market Approach

                                             Market price for comparable technology/asset (known
                                              price)
                                                 Example : 1 M€

                                             Advantage induced by this comparable
                                              technology/asset
                                                 Example : 20% productivity gain

                                             Number of years of technology/asset exploitation on
                                              market + inflation rate

                                             Current value of comparable technology

                                                 1M€ x (1- 0,03)^5



                                             Valuated technology

                                             Gain for the valuated technology
                                                 Example : valuated technology permits a 30%
                                                    productivity gain

                                             Value of technology
                                                 20% gain = 858k€

                                                 30% gain = 1,288k€ (50% increase)


9 | February 2010          Valuation Tool
                     Income Approach




10 | February 2010          Valuation Tool
                           Income Approach




 Discount Rates calculation

      Need WACC info (specific for market/technology  IT = +/-8%)




11 | February 2010                       Valuation Tool
                     Income Approach




 Initial need for income Approach = Sales Plan




12 | February 2010            Valuation Tool
                     Income Approach




 Calculation of actualized net present value



13 | February 2010             Valuation Tool
                     Income Approach




 Value range +/- 20% of NPV




14 | February 2010             Valuation Tool

				
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posted:9/30/2012
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