December 8, 2022
Whenever a valuator choses to apply a market approach, he or she has to establish comparability between observable market transactions and the valuation object. First level of comparability is close proximity of the business model and customer needs.
In the valuation of intangible assets, the relief from royalty method (RFRM) is the prevalent market approach. It requires the selection of comparable transactions involving the sale and/or licensing of a comparable intangible asset. The RFRM method is often criticized for the limited selection of observable market transactions, and for the difficulties in identifying comparable transactions.
Since 1997, data vendors have been providing access to license agreements which are filed as exhibits in the SEC database as „material contracts“ according to Item 601(b)(10) of the Securities Act and Exchange Act. Various databases collect, populate and categorize such license agreement from the SEC database. It is the oldest and most popular source for market transactions and royalty rates related to intangible assets.
Since 2014, MARKABLES is an alternative data provider. MARKABLES provides access to intangible asset value data being part of corporate transactions (M&A). Such data on acquired intangible assets has to be reported in financial statements of listed companies since the adoption of IFRS / IAS back in 2004. MARKABLES claims to offer a broader selection of relevant cases, and to substantially improve comparability of observable market transactions for intangible assets.
Now, what are the differences between the traditional data sources – license agreements filed with the SEC – and the alternative data source used by MARKABLES – data on acquired intangibe assets in business combinations?
In the attached paper, we present three comparative case studies to demonstrate the difference in selection and results. All three case studies relate to the valuation of a trademark which is based on observable license agreements and peer group analysis, and which was published in the public domain. We juxtapose evidence „as if“ the same royalty rate analysis had been based on MARKABLES data.