Saturday, May 30, 2009

IP Valuations - a tricky issue

My prediction is that buying and selling IPs is an area where America may still lead the world. We live in a new America where there is price pressures on everything from private jets and yachts to a bar of soap. So, we need to ask ourselves, in which sector would there be better price discovery, a good real return and a marketplace where smart investors can make money. I am not so sure about trading in the green energy certificates as I still dont know where the spread would come from, but I am more optimistic on buying and selling intellectual property (IP). IP is a tricky area - unlike commodities, it does not have a form or a shape - it is an idea and essentially we are looking at how much an idea is worth now and how much will it be worth a few years from now. We trade on those premises. While IP trading is not exactly new, valuation methods that help value these intangible assets are subject to plenty of government and legal interference -  a trend that should be avoided but nevertheless exists. In an IP world, a new IP that is patentable is always substantially different from anything existing right now. Ergo, by its very nature, the new IP poses a valuation issue. In the absence of public and financially deep trading markets, there is no market pricing to use. We, at Accuserve, think a lot on how to use various techniques to narrow in on a range but we've seen that calculation methods return a wide range of results. How does one determine that an IP right now will be useful, say, 10 years down the line? That is the tricky question. 

Monday, May 4, 2009

Small business M&A transactions drop precipitously

According to the State of the M&A Markets, First Quarter 2009 Update, compared to 4Q08, transaction levels decreased in all valuation segments except deals with values above $250 million. The most dramatic decrease was in the $50 to $100 million-valuation range, which dropped 52.1%. When 1Q09 is compared to 1Q08, deal activity is down at all levels, with the most significant decrease [again] taking place in the $50 to $100 million-valuation segment. During this period, the number of transactions dropped by 70.4%.