finance


Jason Mitchell and Chris Denning of MHA McIntyre Hudson’s specialist technology sector business advisory team invited John Burbedge to their Reading office to learn about the under-appreciated value of intangible assets (IA) and intellectual property (IP), and …


The tricky task of valuing business ‘crown jewels’


Although up to 80% of a company’s value can be tied up in its IA and IP, some businesses spend less than 5% of their time and resources in understanding, evaluating and protecting these ‘crown jewels’ of their very existence.


IA and IP underpin many technology companies, but too few recognise the true scope of their dependence on these assets or their business continuity risk. Businesses in other sectors may not even realise they own valuable but hidden IA and IP.


“Awareness has been improving over the past decade, particularly in the tech sector, but typical small businesses may be doing nothing at all to secure their IA/IP,” specialist Dr Jackie Maguire of Coller IP, told me as we discussed the topic with audit and financial due diligence partner Jason Mitchell and corporate tax partner Chris Denning.


As a founding director of her Wallingford- based company and a founder of the International IP Strategists Association, Maguire’s opinion is respected – one reason she frequently gets involved in assisting MHA McIntyre’s dedicated technology client team.


“Marrying the strategic direction of a company to its IA and IP has never been more important and will be increasingly so with greater globalisation,” states Maguire.


Understanding and knowing the true value of IA and IP is vital at every stage of a business, particularly in the fast-changing technology sector, all three advisers agreed.


Maguire explained that a company’s intangibles broadly comprised three areas:


• Tangible intangibles – IP that has been legally protected with patent, trademark or design, for example


• People knowledge – Staff skills and technical know-how, data processes and management systems


• Commercial credibility – Existing contracts, product/service quality, branding, customer reputation and other routes to market


“It’s important to have assets in each of the categories to be sustainable,” she noted.


Traditional funding is often an early obstacle for fledgling technology businesses, which usually have scant proven trading history or future contracts. Thus management team quality and


THE BUSINESS MAGAZINE – THAMES VALLEY – SEPTEMBER 2016 businessmag.co.uk 35


Jason Mitchell and Chris Denning with Dr Jackie Maquire of Collier IP


market knowledge are integral factors in any IA/IP product or service valuation.


Fortunately, alternative insurance-based and asset-transfer funding products were now coming to market, Mitchell highlighted. Even so, IP valuation and indeed verified IP ownership and provenance, remain key.


IP that is not written down and protected can walk out of the door, the advising trio noted.


Registering IP (patents, trademarks, designs, etc) was an early strategic essential, Maguire mentioned, and cost-effective when compared to the potential loss of business ‘crown jewels.’ (Maguire believes that current European patents will be upheld post Brexit).


“I am always perplexed as to why businesses will buy all sorts of insurance, but they won’t insure their most valuable asset,” added Maguire.


Along with operational and financial risk management, accredited business processes and business continuity planning, staff cultures that secure the ‘crown jewels’ are important.


Establishing an IA/IP aware and protective working environment would assist valuation, noted Maguire. With confidence highly prized in valuation, PR and reputational risks also need to be carefully controlled.


For growing companies, Denning highlighted how IP today is strategically integrated by international groups within tax-efficient structures to secure benefits, such as R&D credit and Patent Box, across the phases of development, enhancement, management, protection, exploitation (DEMPE).


Knowing a tech company’s true IA/IP valuation was vital for both buyers and sellers. Deals might be missed by over-pricing, bargains gained from the ill-informed. “The hidden values are often the assets that buyers are really seeking to acquire,” said Mitchell.


Valuations can also quickly change as technology advances or entrepreneurs spot alternative uses for IP.


Mitchell and Maguire advise maintaining regular valuation awareness and always gaining specialist IA/IP due diligence in a prospective deal.


With the average lifespan of tech companies from start-up to potential M&A involvement arguably shortening every year, the message is clear. Don’t delay. Get your IA/IP properly recorded and valued now, and link it steadfastly to your ongoing business strategy.


0118 9503895 readingofficeInfo@mhllp.co.uk


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