Académique Documents
Professionnel Documents
Culture Documents
Presentation by:
Robert F. Reilly
Pamela J. Garland
Kevin M. Zanni
Portland, Oregon
Chicago, Illinois
Washington, D.C.
Atlanta, Georgia
Presentation Outline
10
Going concern
Goodwill
Government contracts
Government programs
Governmental registrations
Historical documents
HMO enrollment lists
Insurance expirations
Insurance in force
Joint ventures
Know-how
Laboratory notebooks
Landing rights
Leasehold estates
Leasehold interests
Literary works
Litigation awards and damages
Loan portfolios
Location value
Management contracts
Manual databases
Manuscripts
Marketing and promotional materials
Masks and masters
Medical charts and records
Mineral rights
Musical compositions
Natural resources
Newspaper morgue files
Noncompete covenants
Nondiversion agreements
Open orders
Options, warrants, grants, rights
Ore deposits
Patent applications
Patentsdesign
Patentsplant
Patentsutility
Permits
Personality contracts
Possessory interest
Prescription drug files
Prizes and awards
Procedural manuals
Production backlogs
Product designs
Property use rights
Proposals outstanding
Proprietary computer software
Proprietary processes
Proprietary products
Proprietary technology
Publications
Purchase orders
Regulatory approvals
Reputation
Retail shelf space
Royalty agreements
Schematics and diagrams
Securities portfolios
Security interests
Shareholder agreements
Solicitation rights
Stock and bond instruments
Subscription lists
Supplier contracts
Technical and specialty libraries
Technical documentation
Technology
Technology sharing agreements
Title plants
Trade secrets
Trained and assembled workforce
Trademarks and trade names
Training manuals
Unpatented technology
Use rightsair, water, land
Work in process
11
12
13
14
15
16
17
18
19
20
21
22
gift/estate tax
income taxvalue of subsidiaries
condemnation/expropriation
commercial damages
23
24
25
26
27
28
29
30
Business Valuation
All operating income
Usually perpetuity
Usually lower
Assume business will adapt
Usually obvious
Usually obvious
Income, market, asset-based
Fee simple interest
31
32
33
34
35
36
37
38
39
Functional Obsolescence
Excess development costs compares the cost to create the
subject intangible asset todayversus the historical
development cost.
Excess operating costs compares the cost of
maintaining/operating the subject intangible assetversus
the cost of maintaining/operating a replacement intangible
asset.
40
Economic Obsolescence
Economic obsolescence may be identified by the question:
Can the subject intangible asset generate a fair rate of
return to the intangible asset owner/operator based
on the estimated cost measure less depreciation?
41
Valuation variables
42
43
44
Market Approach
Valuation analysts often ignore the market approach
because of the amount of research required.
Guideline sale/license transactions need to be identified and
analyzed in order to measure the following:
Relative economic income
Relative development/commercialization/competition
risk
Relative expected RUL
Market approach valuation methods include (1) guideline
sale/license method, (2) relief from royalty method, and
(3) comparative income/comparable profit margin method.
45
46
47
48
49
50
51
52
$15,000,000
10 years
$100,000,000
Revenue Projection for 2008
1%
Expected Long-term Growth Rate:
Required Rate of Return on Technology
15%
Projection Period
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Projected Revenue ($000)
100,000 101,000 102,010 103,030 104,060 105,101 106,152 107,214 108,296 109,369
Required Return on Technology ($) (A)
2,250 2,250 2,250 2,250 2,250 2,250 2,250 2,250 2,250 2,250
Capital Charge as % of Revenue
2.25% 2.23% 2.21% 2.18% 2.16% 2.14% 2.12% 2.10% 2.08% 2.06%
Average Proprietary Technology
Intangible Asset Capital Charge as %
of Revenue Over the Technology
2.15%
RUL
(A) Required annual return on the proprietary technology intangible asset = $15,000,000 value 15% required rate of return.
53
Value
$16.80
11.8
3.1
6.2
0.1
4.9
0.6
26.6
279.8
$349.90
Required
Rate of
RUL
Return
100
12%
40
12%
10
12%
3
12%
5
12%
10
12%
40
12%
15
15%
100
8%
1
2.016
1.416
0.372
0.744
0.007
0.582
0.077
3.99
23.086
$32.30
2
2.016
1.416
0.372
0.744
0.007
0.582
0.077
3.99
23.086
$32.30
3
2.016
1.416
0.372
0.744
0.007
0.582
0.077
3.99
23.086
$31.60
8
2.016
1.416
0.372
9
2.016
1.416
0.372
10
2.016
1.416
0.372
0.007
0.582
0.077
3.99
23.086
$31.60
0.007
0.582
0.077
3.99
23.086
$31.50
0.582
0.077
3.99
23.086
$31.50
0.582
0.582
0.077
0.077
3.99
3.99
23.086 23.2086
$31.50 $31.50
0.582
0.077
3.99
23.086
$31.50
0.582
0.077
3.99
23.086
$31.50
5%
2,782
5%
2,921
5%
3,067
5%
3,221
5%
3,382
5%
3,551
5%
3,728
5%
3,915
5%
4,110
5%
4,316
1.20%
1.10%
1.10%
1.00%
0.90%
0.90%
0.80%
0.80%
0.80%
0.70%
54
1
1 - (income tax rate) x (present value annuity factor) / (amortization period)
55
Periods to
Present
Discount Value Factor
1
0.5
0.9206
2
1.5
0.7801
3
2.5
0.6611
4
3.5
0.5603
5
4.5
0.4748
6
5.5
0.4024
7
6.5
0.3410
8
7.5
0.2890
9
8.5
0.2449
10
9.5
0.2075
11
10.5
0.1759
12
11.5
0.1491
13
12.5
0.1263
14
13.5
0.1071
15
14.5
0.0907
PV Annuity Factor
5.5308
(PVAF)
Year
36%
18%
5.5308
15
$100,000
1
1 - (income tax rate) x (present value annuity factor) / (amortization period)
ADF = 1 / (1- 0.36 x 5.5308 / 15)
ADF = 1 / (1 - 0.1327)
ADF = 1 / 0.8673
ADF = 1.153
Intangible Asset Fair Value = NCF x ADF
Intangible Asset Fair Value = $100,000 x 1.153
Intangible Asset Fair Value = $115,300
56
57
58
59
Valuation Effect
1. The market should indicate an acceptance
for the RUL of the subject intangible
asset.
2. If the subject intangible asset RUL is different
from the guideline transactions, then
adjustments are required.
3. If the subject intangible asset RUL is
substantially
different
from the guideline
transactions, then this may indicate a lack
of marketability of the subject intangible asset.
Cost
Approach
Income
Approach
60
61
62
63
64
65
O2
8
Active Customers as of
Valuation Date by Age Group
Start
Year
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
Total
# of Active
Customers
147
498
360
285
230
190
137
96
85
71
66
43
30
24
15
8
2,285
Years after
Valuation
Date
0.5
1.5
2.5
3.5
4.5
5.5
6.5
7.5
8.5
9.5
10.5
11.5
12.5
13.5
14.5
15.5
16.5
17.5
18.5
19.5
20.5
21.5
22.5
23.5
24.5
Remaining
Customer
Count
2,167
1,929
1,704
1,487
1,285
1,099
927
773
635
523
426
349
284
231
186
148
115
88
65
44
27
15
5
1
-
Remaining
Customer
Percent
94.8%
84.4%
74.6%
65.1%
56.2%
48.1%
40.6%
33.8%
27.8%
22.9%
18.6%
15.3%
12.4%
10.1%
8.1%
6.5%
5.0%
3.9%
2.8%
1.9%
1.2%
0.7%
0.2%
0.0%
0.0%
5.9
66
1,250,000
Year 3
$000
Year 4
$000
Year 5
$000
Year 6
$000
Year 7
$000
Year 8
$000
1,312,500
5.0%
1,378,125
5.0%
1,447,031
5.0%
1,519,383
5.0%
1,595,352
5.0%
1,643,213
3.0%
1,692,509
3.0%
1,743,284
3.0%
94.8%
84.4%
74.6%
65.1%
56.2%
48.1%
40.6%
33.8%
Year 2
$000
1,185,449
569,015
296,362
320,071
115,226
204,846
77,060
127,786
1,163,415
558,439
290,854
314,122
113,084
201,038
75,628
125,410
1,079,099
517,968
269,775
291,357
104,888
186,468
70,147
116,321
988,762
474,606
247,191
266,966
96,108
170,858
64,274
106,584
897,167
430,640
224,292
242,235
87,205
155,031
58,320
96,711
790,324
379,356
197,581
213,388
76,820
136,568
51,375
85,193
686,633
329,584
171,658
185,391
66,741
118,650
44,635
74,015
589,741
283,076
147,435
159,230
57,323
101,907
38,336
63,571
Periods to Discount
Present Value Factor @ 17%
Present Value of Cash Flow (without
consideration of the income tax
amortization deduction)
0.5
0.9245
118,138
1.5
0.7902
99,099
2.5
0.6754
78,563
3.5
0.5772
61,520
4.5
0.4934
47,717
5.5
0.4217
35,926
6.5
0.3604
26,675
7.5
0.3080
19,580
535,057
85,814
620,871
48%
25%
6.5%
67
Year 10
$000
Year 11
$000
Year 12
$000
Year 13
$000
Year 14
$000
Year 15
$000
Year 16
$000
Year 17
$000
1,795,583
3.0%
1,849,450
3.0%
1,904,934
3.0%
1,962,082
3.0%
2,020,944
3.0%
2,081,572
3.0%
2,144,020
3.0%
2,208,340
3.0%
2,274,590
3.0%
27.8%
22.9%
18.6%
15.3%
12.4%
10.1%
8.1%
6.5%
5.0%
498,991
239,516
124,748
134,728
48,502
86,226
32,437
53,789
423,310
203,189
105,827
114,294
41,146
73,148
27,517
45,631
355,143
170,469
88,786
95,889
34,520
61,369
23,086
38,283
299,679
143,846
74,920
80,913
29,129
51,785
19,481
32,304
251,181
120,567
62,795
67,819
24,415
43,404
16,328
27,076
210,435
101,009
52,609
56,817
20,454
36,363
13,679
22,684
174,524
83,772
43,631
47,122
16,964
30,158
11,345
18,813
143,035
68,657
35,759
38,619
13,903
24,716
9,298
15,418
114,476
54,949
28,619
30,909
11,127
19,781
7,442
12,339
8.5
0.2633
14,163
9.5
0.2250
10,267
10.5
0.1923
7,362
11.5
0.1644
5,311
12.5
0.1405
3,804
13.5
0.1201
2,724
14.5
0.1026
1,930
15.5
0.0877
1,352
16.5
0.0750
925
68
69
70
COCOMO II Overview
PM = A x (KNSLOC)B x
where:
PM
A
KNSLOC
B
=
=
=
=
EM
EM
SF
= 0.91 + 0.01 x
where:
71
72
Total
Physical
Lines of Code
Physical
Executable
Lines of Code
151,000
266,000
78,000
126,000
621,000
Logical
Executable
Lines of Code
128,350
226,100
66,300
107,100
527,850
Effort in
Person
Months
96,263
169,575
49,725
80,325
395,888
$
$
904,342
209.45
384.55
103.09
172.47
869.56
10,400
9,043,424
1,266,079
$
$
11,213,846
11,200,000
73
74
75
76
77
78
79
80
81
Employee
Years of
Service
0-5
6-10
11-15
15-20
20+
Totals
Total
Direct and Indirect
Compensation
Paid
$1,875,000
5,100,000
12,700,000
35,400,000
113,500,000
Expressed as a Percent of
Total Compensation Paid
Total Cost to Recruit, Hire, and
Replacement Employees
32.5%
32.5%
37.5%
40.0%
50.0%
Replacement
Cost New
of the
Workforce
$609,375
1,657,500
4,762,500
14,160,000
56,750,000
$168,575,000
$77,939,375
9,352,725
5,845,453
93,137,553
$93,100,000
82
$93,100,000
44,900,000
48,200,000
1,446,000
46,754,000
$46,800,000
83
84
85
86
87
88
89
90
91
92
93
94
95
Illustrative Example
Guideline License Royalty Rates
Guideline
License
Patent
Licensee
Pfizer, Inc.
Wyeth-Ayerst
Patent
Licensor
Licensed
Product (drug)
Columbia U.
2007
15
$4m (a)
ED
Autogen
2007
10
$10m (b)
cardiovascular
Novel N.V.
2005
12
10
(c)
anti-obesity
10
4.5
(d)
vascular
MIT
2006
15
5.5
(e)
pulmonary hypertension
MD, LP
2006
20
8-10(f)
(d)
botanical ED
Notes:
(a) upfront payment
th
(b) payment after 5 year
(c) also settles a pending $50 million litigation
(d) physician owners/employees also receive research grants from Merck
(e) numerous relationships between licensor/licensee parties
(f) based on annual sales volume
96
Illustrative Example
Royalty Rate Adjustment Grid
6
5
10
4.5
5.5
8-10
3
2
2
3
2
3
0
++
+
+
+
++
0
++
0
0
+
0
0
Other
Consideration
+.5%(c)
+1% (c)
-2% (c)
(c)
(c)
-2% (d)
Mean
Trimmed Mean
Median
Mode
Conclusion
Adjusted
Royalty Rate
6%
7%
8%
4%
6%
7%
6.3%
6.5%
6.5%
6.5%
6.5%
Notes:
(a) on a scale of 0 to 3; 0 is less comparable; 3 is most comparable
(b) on a scale of , -, 0, +, ++; is smallest; ++ is largest
(c) analyst adjustment based on assessment of other factors (1) in license agreement or (2) between licensor and licensee
(d) analyst adjustment due to botanical product vs. pharmaceutical product
97
Year 1
Year 2
Year 3
10%
10%
10%
0%
0%
110
121
133
133
133
6.5%
6.5%
6.5%
6.5%
6.5%
0%
Year 8
Year 9
-12%
-12%
-12%
133
117
103
91
6.5%
6.5%
6.5%
6.5%
0.91
0.76
0.63
0.53
0.44
0.37
0.31
0.25
0.21
35
35
98
99