QUERY Valuation of intangible assets (SD6656)

[SDMAIL Richard Stevenson]

Posted by  Richard Stevenson <rstevenson at valculus.com>

I have raised the issue of SD in corporate finance before on this forum.  
I am moved to do so again because things are now really starting to motor 
in the world of "valuation" and I think SD has a significant role to play.

Put simply, scandals such as Enron and Worldcom kicked off a revolution in 
financial regulation.  The move to new international accounting standards 
(IAS/IFRS) has been widely commentated in the business press.  One key 
change from a valuation perspective has been the introduction of IFRS3 - 
which requires the valuation of the separable "intangible assets" of a 
business.

One of the issues arising from IFRS3 is a new distinction between valuations 
of intangible assets(IA) and "goodwill" .  IA are identifiable resources such 
as patents, trade marks etc.  Goodwill, on the other hand, is simply a 
balancing number on a transaction.  The distinction is important - not least 
because it is preferable for an acquirer to demonstrate to the investment 
community that they have paid for a valuable brand or other intangibles, 
rather than that they have overpaid for goodwill.  But also because IFRS3 
requires them to be treated differently in annual reporting.  The resulting 
overload on corporate finance is extreme - as are the personal penalties on 
directors for misreporting!

Thus there is a booming new valuation industry.  Not only in M&A but also 
across the strategy spectrum.  For example many companies seek to raise new 
finance on their intangible assets - which now typically represent well over 
50% of average market capitalisation.  The identification and valuation of 
intangibles is now a "hot topic"  in corporate finance.

So where does SD come in?  It's not hard to conceptualise.  Because in most 
cases, intangible resources can only be valued in the context of a complete 
business model.  A pharmaceutical patent is of little value to a utility 
company.   An electricity distribution network has little value without the 
skills required to maintain it.  The patent, and the skills, only make sense 
in context of a complete business model.

Now, the finance profession in general, and valuation professionals in 
particular, are really struggling to make sense of this new environment.  
There is a surge of interest in methods and tools that can contribute to 
the valuation process - and lots of money to be made from methods and tools 
that can make a real difference.

Is there anybody out there in the SD community who is interested to participate 
in this fascinating new opportunity?  Because I would really like to coordinate 
an SD initiative to the valuation community.


Richard Stevenson
Valculus Ltd
Posted by  Richard Stevenson <rstevenson at valculus.com>
posting date  Wed, 26 Sep 2007 14:43:51 +0100