A valuation is necessary to determine the value of an intangible asset, which often represents either a legal rights or a competitive advantage. Intangible assets representing legal rights consist of copyrights, trade secrets, patents, trademarks, etc., while those representing a competitive advantage consist of knowledge activities and industry 'know-how'.
Hypothetical scenarios that require an expert in business valuation:
A business owner has a patent for a new manufacturing process for a growing product. He does not have the capacity to satisfy demand for the product itself, nor can he meet the demand for the machines that utilize this new manufacturing process. He wants to sell the patent but wants to make sure that he is compensated appropriately for it. In order to accomplish that he needs to obtain a valuation for the patent by a qualified, independent appraiser.
An investor is acquiring a hospital management company that has several licenses to establish blood banks in various cities in China. The investor wants to determine how much of the purchase price should be allocated to the intangible asset of the licenses. To determine an appropriate value the investor needs to obtain a valuation from a qualified, independent appraiser.
An executive that was recently fired has a non-compete agreement with his former company. To determine what taxes will be assessed on his severance package, the non-compete agreement must be allocated to a portion of the severance package's overall value. In order to have an appropriate allocation a qualified, independent appraiser should be obtained to determine the fair market value of the non-compete agreement.
Special considerations for Intangible Asset valuations:
When estimating the value of intangible assets it is important to recognize the volatility, ongoing creation, and problems with protection and enforcement. Appraisers must be aware of the useful life of an asset and the portion of the operating income that the asset generates.
Since every intangible asset is different, researching the specific circumstances surrounding the asset is critical to determining its value. Some of the areas that need to be researched would include: the type of the intangible asset, its history and development, the licensee and/or licensor, the competitive environment and comparative intangible assets.
The nature of an intangible asset including its type, associated legal rights and useful life will have a significant impact on its value. Ultimately, the value of the intangible asset will come down to its income producing ability or cost saving ability.
Documents required to complete an appraisal for intangible assets:
Profit and loss and balance sheet statements for the last three to five years
Interim profit and loss and balance sheet statements for the current year
Federal income tax returns for the last three to five years
Copies of any forecasts or projections
Operating agreement or any other shareholder agreements
