When talking about valuation, most people think of property valuations. Your home, your office block, or your land. Equally common is the valuation of companies: weighing up of assets.

While most of these reports are straightforward, making use of comparison, market trends and current numbers – there are some that are very tricky.

What about the value of intellectual property (IP)? With the advent of the web, a single thought or idea can traverse the globe in a matter of hours. Devious people are willing – and able – to snatch ideas out of cyberspace and pass them off as their own. Anything for money. In business, a great method or plan can be stolen by the competition. Client lists, marketing plans – these all hold a value.

Valuation is thought of as one of the key areas in finance. It affects the buy / sell numbers, mergers, and solvency. IP valuation is one of the most important management strategic issues. IP gets its value from so many areas – such as market share, legal protection, profit, growth projections and new technologies. It still remains an intangible asset, though.

Some of the methods used to value IP

The Cost approach: Based on the principle of substitution. How much would it cost to replace this exact thing?

The Market approach: Based on competition. What has similar data – or royalties – sold for in the open market.

The Income approach: An estimate of the fair value of IP when looking at the future economic benefits of ownership.

As you can imagine, when placing a value on an idea, or on data, your valuator will need to do a great deal of research.

A second complex task raises its head when doing a valuation on a “trophy asset.”

A trophy asset can include property (both residential and commercial), sports franchises, art, and businesses. The idea behind these trophy assets is that they are something special – and that a buyer is willing to pay a premium price for them.

A Trophy Asset:

  • Is unique, or rare
  • Has a recognised name
  • Generates good cash flow

Applying the normal valuation rules to an asset like this may not give a true result. For example, when valuing a rare piece of art, one could not use replacement as a factor for a correct valuation figure.

Our skilled valuators have dealt with a wide variety of assets over the years. If you have questions on an asset that is a little out of the norm, please give us a call. Our qualified team are standing by to assist. Call us on 0860 999 440 or visit www.property-partnership.co.za.