You're navigating a corporate acquisition. How do you accurately value intangible assets?

2 Legal Valuation

Once you've identified the intangible assets, the next step is to understand their legal valuation. This involves looking at the legal protections in place, such as patents or copyrights, and determining how these protections contribute to the asset's value. You must consider the duration of these protections and the potential for renewal. Legal valuation also includes examining any ongoing litigation or legal disputes that could affect the asset's value.

3 Market Approach

The market approach to valuing intangible assets involves comparing them to similar assets that have been sold recently. This method assumes that the value of your assets can be estimated based on the selling price of comparable assets in the market. It's important to find truly comparable assets and adjust for any differences between them and your assets. The market approach can be challenging for unique or highly specialized intangible assets for which there are few, if any, comparables.

4 Income Approach

The income approach estimates the value of an intangible asset based on the expected economic benefits it will generate over its useful life. This involves forecasting future revenue streams attributable to the asset and discounting them to present value using an appropriate discount rate. This method requires you to make assumptions about future economic conditions, the asset's ability to generate income, and the time value of money, which can be complex but provides a forward-looking perspective on the asset's value.

5 Cost Approach

The cost approach values an intangible asset based on the cost of creating a similar asset with the same utility. This method considers either the historical cost or the replacement cost. Historical cost refers to the actual expenses incurred in developing the asset, while replacement cost is the current expense to replace the asset with another of equivalent economic utility. This approach can be particularly useful when there is little market activity for similar assets or when forecasting future income streams is highly uncertain.

6 Synergies Evaluation

Finally, when valuing intangible assets in a corporate acquisition, it's important to consider the synergies that may arise from integrating these assets into your business. Synergies refer to the potential for increased efficiency or higher revenue that can result from combining the assets and operations of the two companies. Evaluating synergies involves analyzing how the intangible assets will interact with your existing assets and business model to create additional value that would not be realized if the companies remained separate.