Intellectual Property Services
Intellectual property (IP), the exclusive rights held by an inventor or a producer of creative work, can be among the most valuable assets of a corporation. IP can include patents, trademarks, trade secrets, copyrights and other assets such as rights of publicity. The need for an independent valuation of IP can be driven by a variety of transactions and other situations:
- Mergers & acquisitions
- Negotiations of licenses
- Divestitures, spin-offs
- Bankruptcies and restructurings
- Collateral for financing
- Transfer pricing
- Financial reporting, tax planning and other compliance needs
Companies that effectively manage, protect and leverage their intellectual property often finish far ahead of their competitors in creating new revenue streams and enhancing returns to shareholders.
We have completed thousands of IP engagements for accounting and finance teams, corporate boards, managers, shareholders, creditors and advisers.
Our professionals are leaders in valuing a wide variety of intangible assets including but not limited to:
- Patents, Trade Secrets & Product Technology. Diagnostic tests, drug compounds, medical devices, production/industrial processes, scientific equipment, semiconductors, and semiconductor equipment, and telecommunications equipment.
- Copyrights & Content. Literary, film, musical, and other works and libraries.
- Franchise Agreements.
- Licenses & Royalty Agreements.
- Non-Competition Agreements.
- Product Brands, Trademarks, and Trade Names. Consumer product brands, publishing mastheads, retailer trade names.
- Software. Patented, unpatented, and copyrighted.
VRC has helped define accounting standards around the valuation of customer-related assets.
VRC is frequently engaged to value IP and other intangible assets in connection with mergers or acquisition business combinations under the provisions of Accounting Standards Codification 805 (ASC 805) and asset acquisitions under ASC 350. Acquired intangible assets can be broadly categorized as:
Clients rely on our deep industry and practice area expertise to navigate the complexities of intangible asset valuation. Selection and application of appropriate valuation methodologies require an understanding of the constantly evolving best practices in intangible valuations and increasing regulatory scrutiny corporations and boards face in supporting these valuation measurements.
VRC senior professionals are instrumental in developing best practices for the valuation of intangible assets and IP through participation in valuation professional organizations and working groups.
Increasingly, valuation of IP and other intangible assets is necessary for pre-transaction due diligence for companies evaluating the impact of intangible asset amortization on earnings, structuring deals or determining the value of a target. VRC provides numerous pre-acquisition valuations of IP and other acquired assets to assist management, deal teams and corporate boards.
In-Process Research & Development (IPR&D)
Accounting guidance requires companies to capitalize assets acquired in a business combination that will be used in research & development (R&D) activities. IPR&D assets are treated as indefinite-lived until completion or abandonment of the R&D efforts. During this time, the assets are subject to impairment testing requirements under Accounting Standards Codification 350 (ASC 350).
Intangible assets that may involve R&D activities include:
- R&D efforts to be continued by the acquirer
- Defensive assets
- Licensed-out intangible assets with active involvement
- Temporarily idled assets
For the R&D activity to be deemed an asset, the project must meet the ASC 805 asset recognition criteria. Additionally, the R&D activity should exhibit persuasive evidence of having “substance” and being “incomplete” as of the valuation date.
Further, separately identifiable IPR&D assets that share similar characteristics may be segregated into a single unit of account. When determining the unit of account, the following characteristics of R&D assets may be considered:
- Phase of development
- Nature of activities and costs necessary to further develop the related IPR&D project
- Risks associated with further development
- Amount and timing of benefits expected
- Expected economic life of the developed assets
- Intention to manage costs for developed assets separately or on a combined basis
- Expectation for the asset to be transferred by itself or with other separately identifiable assets
While there are three primary approaches for valuing IPR&D assets including cost, market and income approaches, the cost and income approaches are most widely used.
Long-lived intangible assets are expected to provide economic benefits over a period typically greater than a year. These assets can include:
- Unpatented technology
- Proprietary software
- Copyrights and trademarks
- Customer-related intangible assets such as customer relationships, customer contracts, and customer lists
Long-lived intangible assets are recognized separately from goodwill in a business combination under Accounting Standards Codification 805 (ASC 805) if they meet either the separability or the contractual-legal criterion. If an acquisition of assets does not meet the definition of a business under ASC 805, the purchase cost of that asset group is allocated on a relative fair value basis pursuant to ASC 350, and the transaction does not give rise to goodwill.
After initial measurement, the accounting for acquired long-lived intangible assets depends on the assigned useful lives. Intangible assets with finite lives are amortized according to their useful lives. In a taxable deal structure most acquired intangible assets, including indefinite-lived assets such as goodwill, are amortized over a 15-year period on a straight-line basis. Often, the useful lives and amortization of intangible assets can diverge on a tax versus book basis.
Post-acquisition, it may be necessary to determine whether acquired long-lived intangible and tangible assets are impaired, a condition that exists when the carrying value of an asset or of an asset group exceeds its fair value.
Accounting Standards Codification 360 (ASC 360) presents the framework for testing long-lived assets for impairment under U.S. Generally Accepted Accounting Principles (US GAAP). This is a complex, multi-step process completed to identify the relevant asset group, test the assets for recoverability, determine the fair value of the asset group and re-measure each asset at fair value. It is important to have an understanding of the proper order of testing under ASC 360, as indefinite-lived intangible assets and goodwill often will need testing for impairment concurrently with long-lived assets, resulting in an iterative process with interdependent steps.
VRC has considerable experience in the valuation of long-lived assets for financial reporting. We assist numerous financial teams in performing impairment assessments of long-lived intangible assets under ASC 360, and have a thorough understanding of the best practices and financial reporting guidance required to perform these analyses consistent with current standards, resulting in values that withstand audit and regulatory scrutiny.
Co-CEO and Senior Managing Director
Tel. No. (609) 243-7030
Edward Hamilton, CFA
Tel. No. (609) 883-7651