Brand Values and Valuation in the

Current Economic Downturn

IP Business Congress
Chicago, Illinois
June 21-23, 2009

Presented by:
Weston Anson, Chairman
CONSOR Intellectual Asset Management
wanson@consor.com
www.consor.com

© 2009 CONSOR 1

Market Trends: IP Specific

‰ Increasingly, valuable IP assets used as a financing

vehicle
‰ Mergers and strategic alliances based on IP assets
‰ Leveraging the full bundle of IP rights
‰ Unused brand value as a source of working capital
‰ Accurate valuation of brands and IP grows in
importance
‰ Global awareness of market value of IP / IT
‰ Financial reorganization impacts brand values

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 Brand Value Issues

‰ Deteriorating economic conditions

‰ Retail turmoil and consolidation
‰ Consumer indifference
‰ WalMart-ism
‰ Manufacturer consolidation
‰ Shifting social values
‰ Quicker cycles, shorter lives
‰ House brands and other constraints
‰ Private label / store label growth

© 2009 CONSOR 3

New Issue: Bankruptcy

‰ Mervyns ‰ Linens ‘N Things

‰ Goody’s ‰ Fortunoff
‰ Gottschalk ‰ GM
‰ KB Toys ‰ Chrysler
‰ Circuit City ‰ Tower

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 Bundles of Intangible Assets
Brand / Marketing Bundle IT Bundle Technical Bundle

Primary trademark Enterprise solutions Key patents

Corporate name and logo Custom applications Trade secrets

Marketing umbrella Data warehouses Formulae

Sub-brand names Master licenses Packaging technology and sources

Core brand Source code Shapes and sizes

Worldwide trademark registration Databases Process technology

Copyrights Data mining Design technology
Secondary trademarks Domain names / URLs Proprietary test results

Packaging design and copyrights e-Commerce sites Plant and production design

Trade dress Third party software Product specifications

tools
Characters Credit/payment systems Operating platforms

© 2009 CONSOR 5

Case Study – Tower Records

‰ Inventory and investigative audit

¾ Logical groupings
¾ Triage
‰ Benchmark valuation
¾ Context specific
¾ Going concern value v. liquidation discount
‰ Identify potential buyers / influencers
¾ Domestic
¾ International
‰ Market assets / close transactions
¾ Brokers
¾ E-commerce listings
¾ End users

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 Who Cares About Maximizing IP Value?

‰ Merger and Acquisition ‰ Other Stakeholders

Interests ‰ Internal Asset Managers

‰ Shareholders ‰ Partners

‰ Tax Authorities ‰ International Affiliates

‰ Auditors ‰ The Media

‰ Wall Street Analysts ‰ Finders of Fact

© 2009 CONSOR 7

Value Maximization Alternatives

‰ Licensing
‰ Auction
‰ Sale
‰ Collateralization
‰ Securitization
‰ Competitive Disposition
‰ IP Holding Companies
‰ Joint Venture

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 Value is Context Specific

‰ Valuation is context specific and time critical

¾ Going concern
¾ Reorganization
¾ Orderly disposal
¾ Liquidation

CONTEXT + TIME = VALUE

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Context Continuum™

A simple graph that illustrates what the CONSOR “Context Continuum” is. In the most basic of terms, it is a projection of
relative values of a piece of intellectual property, measured along two dimensions:
1. The vertical scale establishes the conditions under which the asset is being disposed, such as liquidation, fire sale,
orderly disposal, reorganization or going concern.
2. The horizontal scale measures time in monthly increments.

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 Traditional Valuation Methods

‰ Market Approach
¾ Sales of comparable assets
‰ Cost Approach
¾ Cost to develop to current status
‰ Income Approach
¾ Projection of revenue / income attributable to
the IP
ƒ Price Premium
ƒ Relief from Royalty
ƒ Technology Factor

© 2009 CONSOR 11

Going Concern v. Disposal or

Liquidation
Going Concern Disposal or
Case Value Liquidation Proportion
Polaroid 400MM+ 60 MM 15.0%
Boston Market 210MM 31MM 14.7%
Circuit City 100MM 14MM 14%
Linens ‘N Things 60MM 1.0MM 1.7%
Tower Records 40MM 2.6MM 6.5%
Marvel 1.0B 232MM 23.2%
Amherst Fiber Optics 5.0+MM >250K 5.0%
Average 11.4%

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 Case Study - Budget Group, Inc.

Company: Budget Group, Inc.

Context: Bankruptcy

Components: Core trademark

Franchise rights
Reservation system
Customer databases
Airport concession rights
Cause: Loan Securitization / Sale of company

Approach: Comparable sales

Discounted royalty rates
Concept of Value: Relief from Royalty

© 2009 CONSOR 13

Case Study - Budget Group, Inc.

IP Valuation Summary
Description Going-Concern Value Liquidation Value
Budget Trademark (North America) $ 268,975,000 $ 48,416,000 – 60,519,000

Franchise Rights (North America) 38,166,000 6,870,000 – 8,587,000

Budget Trademark (International) 56,571,000 6,789,000 – 10,183,000

Franchise Rights (International) 44,002,000 5,280,000 – 7,920,000

Ryder Truck License 9,377,000 938,000 – 1,407,000

Reservation System (Global) 38,535,000 1,927,000 – 5,780,000

Airport Concession Rights 7,177,000 – 17,943,000 0

Mailing List and Database 3,645,000 – 5,823,000 729,000 – 2,912,000

TOTAL VALUE $ 466,488,000 – 479,392,000 $ 70,949,000 – 97,308,000

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 Value Extraction Strategies

‰ Disposition

‰ Liquefaction

‰ Leverage

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Disposition

‰ Auction

‰ Sale

‰ Competitive Disposition

‰ Merger & Acquisition

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 Liquefaction

‰ Collateralization

‰ Securitization

‰ IP Holding Company

© 2009 CONSOR 17

Leverage

‰ Traditional Licensing

‰ Other Licensing Models

‰ Joint Venture

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 Licensing Issues

‰ Lower RRs
‰ Smaller guarantees
‰ Less upfront
‰ More renegotiations
‰ Much wider range of RRs (TMs = 2-12%)
‰ More flexibility in marketing contributions
‰ Shorter term

© 2009 CONSOR 19

Licensing Royalty Rates

Royalty Rate Distribution
‰ There is no typical
royalty rate. 20
18
‰ The most frequent rate 16
% of agreements

is 5% 14
12
‰ 39% of agreements are 10
for less 8
6
‰ 42% of agreements are 4
for more. 2
0
Source: RoyaltyStat.com
1% 3 5 7 9 11 13 15 >
Annual Rate
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 Value Maximization Case Studies
‰ Licensing IBM, Kmart
Collins & Aikman,
‰ Sale
Jenny Craig
‰ Collateralization Polaroid, Delphi
Dunkin Brands,
‰ Securitization
Gloria Vanderbilt
Circuit City,
‰ Auction
Tower Records
‰ Holding Company Chiquita Brands
© 2009 CONSOR 21

Five Critical Elements of Value

Maximization

1. Know where maximum strategic and realizable value is

to be found in the asset portfolio

2. Establish a realistic current market value for the assets

3. Understand how to extract maximum value from the

assets

4. Select the best possible intellectual property / intangible

asset strategy for the situation

5. Manage the process

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 Brand Valhalla

Pan Am Dodge

Oldsmobile Cellophane

Blatz Escalator

Chesterfield Elevator

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