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Valuing Connected Assets

Concept of connected assets is critical to the intellectual property valuation. This is where other tangible or intangible assets act together with the IP to give the most effective and efficient value generation. There is often a marriage value in that the combined value is much higher than the value of the components, but still the relative contribution to value is often a useful and illuminating analysis. From a buyer’s perspective in a business transaction, connected assets include any assets which would normally need to be included in order to maximise the value of IP acquired or licensed. This can give rise to the need to value a bundle of assets, which is consistent with the way market transactions often work in practice.

The diagram below represents an illustration of connected assets within a business.

As this diagram indicates, intellectual property is at the core of many businesses, particularly patents, trademarks, copyright and designs. In addition to IP rights, a business will also have connected intangible and tangible assets. Profits and cash flows of a business are generated by these assets being used and working together.

As an example of connected assets, consider the Scotch whisky industry. A company within this industry will have a number of tangible assets, including a distillery, inventory, and a brand. While each of these assets can be assessed and valued separately, the value of the assets would be maximised when taken together as a group of connected assets. Scotch whisky inventory, for example, can generally be sold more readily and at a higher price if it has a strong brand name attached.

There are a number of benefits in identifying connected assets. From a valuation perspective, the identification of connected assets will:

  • Allow for comparability with published data for other businesses with comparable assets.
  • Allow for sub analysis and rationalisation of the relative importance of value components.

Where financing IP is being considered, identifying connected assets is important as it:

  • Reduces perceived risk for the financier by identifying all related assets, so that they can be made available as collateral together with the IP to maximise the recoverable value in the event of default.
  • Can reduce the timeframe required to dispose of the assets and reduce deterioration in value that can occur over time.

Intangible Business realises the importance of connected assets for IP valuation and assesses this on a case by case basis. In order to realize the full potential of an IP asset, it is imperative that the identification of connected assets is done well and early in the valuation process.

Example Cases