www.FITT-for-Innovation.eu

Valuation Tool

FITT

(Fostering Interregional Exchange in ICT Technology Transfer)

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Practice in general

The objective of this case is to expose an excel-based worksheet (the Tool)

designed to support valuation processes

This Tool aims at assisting “quantitative” valuation methods

• Facilitates valuation processes

• Helps choosing among a quantitative valuation method

• Cost Approach

• Market Approach

• Income Approach

Tool was designed for internal use at Tudor

• Tool is a work in progress, aimed at being optimized through further use experience

Tool needs adaptation on a case-by case basis

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Valuation methods used in Tool

Cost Approach

Measures the value of an intangible asset by taking into account all relevant costs

invested or related to the appraised asset

Historic costs : accounting all costs (effective and sunk) directly related to the

appraised asset (such as securing, research, development, and licensing-in

costs)

Replacement costs : valuing the costs for buying an asset bringing the same utility

than the appraised one

Reproduction costs : valuing the costs induced in creating, at the time of the

appraisal, a similar asset based on actual knowledge

Cost approach is generally favored under high uncertainty and limited information

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Valuation methods used in Tool

Market Approach

Value consists in the price of a comparable asset in a similar market transaction. Market

approach relates to the quantification and adjustment of pricing multiples in order to create

theoretical comparable conditions

Lack of active and transparent market for IP transactions and market dynamics have to be taken

into account in the process

Income Approach

Measures the value of an intangible asset by reference to the expected and actualized

benefits, incomes or saved costs over the remaining life of the asset. Such prospective-

based quantification of financial flows needs to take into account various risk-related factors

such as

Endogenous : Extend of IP protection, nature of competition, …

Exogenous : Substitute product development risks, maturity of market, …

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The Tool – Part 1 (Choosing a valuation method)

Various parameters help choosing among valuation methods

Maturity of technology

Based on the notion of the technology life cycle. The maturity of a technology impacts the amount

of products based on such technology available on markets at the time of valuation.

Strong maturity is needed for market approaches.

Level of novelty

Is to be considered strictly for the considered market . An asset under valuation can be old from a

technological standpoint, but new for a given market.

High level of novelty favor cost and income approaches.

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Nature of technology

Either discrete (asset usable solely) or complex, meaning that the use of such technology

relies on the necessity to use other dependant technologies.

Complex technologies favor cost and income approaches.

Substitutable technologies

Availability of other technologies that can be use in order to replace an existing one with no or

minimal loss of utility

For replacement costs, technologies need to be substituable.

Sustainaible technologies

Implies that they have a potential for a long life cycle remaining

Sustainability favors income approaches.

The Tool – Part 1 (Choosing a valuation method)

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The Tool – Part 1 (factors impacting royalty and risks)

Impacting factors (which need to be analyzed prior to valuation activity)

• Legal-focused criterias

Freedom to operate (based on third party IP)

Level of Protection granted by IPR (level of appropriability)

• Internal and organisational-focused criterias

Nature of the value proposal (understanding of how value will be

created)

Accounting rules and reporting methods (if important)

• External and market-related criterias

Market risks (strong or weak – known or unclear)

Comparable markets (existing or not)

Consumer behaviour (understood and “rationnal” or not)

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Historic Cost Approach

Inflation and

depreciation should

be managed

externally

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Market Approach

Market price for comparable technology/asset

(known price)

Example : 1 M€

Advantage induced by this comparable

technology/asset

Example : 20% productivity gain

Number of years of technology/asset exploitation on

market + inflation rate

Current value of comparable technology

1M€ x (1- 0,03)^5

Valuated technology

Gain for the valuated technology

Example : valuated technology permits a 30%

productivity gain

Value of technology

20% gain = 858k€

30% gain = 1,288k€ (50% increase)

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Income Approach

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Income Approach

Discount Rates calculation

Need WACC info (specific for market/technology IT = +/-8%)

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Income Approach

Initial need for income Approach = Sales Plan

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Income Approach

Calculation of actualized net present value

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Income Approach

Value range +/- 20% of NPV