19 апреля 2022

How the evaluation helped to confirm the market value of a security company's trademark portfolio

A security systems supplier required rationalization of the value of trademarks in order to conclude a sale-and-purchase deal between its affiliates in order to avoid possible claims from the tax office. The client applied to Veta expert group for a report on the market value of the trademark portfolio.

A portfolio is a separate object that is not part of a single technology or related assets. A feature of all objects of this type is that it is difficult and time-consuming to determine their cost, since there are practically no completely identical objects. Each one has its individual characteristics.

At its core, a trademark valuation is an assessment of the value of the image of a product that is produced under the trademark. The higher the image is, the more confidently the product is positioned at the market and in a competitive environment, therefore, it possesses a great demand and brings more income. In a market economy, a trademark has a direct impact on the business cash flow and the value of the business as a whole.

Stages of the appraiser’s work:

  1. Collection and studying the documents provided by the customer: company’s accounting documentation, data on financial performance, management statements.
  2. Collection and analysis of information about the company from open sources. Analysis of the market for the services provided by the company.
  3. The choice of approaches and methods within the concept of assessment of the object’s market value. On grounds of the conducted analysis, an income approach based on using the royalty exemption method was chosen.

Determination of the cost

  • Revenue forecasting
    For calculations, we were provided with actual data on the company's revenue and profit for 3 years. For more accurate estimation, we analyzed the indexes of the security services industry for the period from 2005 thru 2014. The analysis was carried out according to Rosstat data. We drew up trends for various functions, identified development trends in the view of a power function, drew up a forecast for the industry as a whole, and calculated the estimated growth rate for the industry. In accordance with the estimated revenue growth rates, we predicted the company's revenue for the forecast and terminal periods.
  • Determination of the royalty rate by three methods (for further calculations the average value was used):
    • — by adjusting the tabulated values used by specialized large foreign trade organizations, based on an analysis of the world practice of concluding licensing deals in various industries;
    • — according to the method recommended by I. S. Mukhamedshin – based on the operation profitability of the company;
    • — according to the method recommended by O. Novoseltsev – also based on the operation profitability of the company.
  • Determination of the economic life of the appraisal object
  • Calculation of costs
    The calculation of the costs associated with maintaining the rights to the appraisal portfolio of trademarks was based on data from the Federal Service for Intellectual Property, Patents and Trademarks (Rospatent).
  • Calculation of the discount rate
    The calculation was made by the cumulative construction method, which takes into account all types of risks of investments in intellectual property objects in the best way.
  • Calculation of the market value of the company's trademark portfolio
    The calculation is made by building a financial model in time.

For calculations, all areas of the company's activities were taken into account including management statements – the protection of facilities, the sale of equipment for the installation of security systems and their maintenance.

Based on the calculations and research carried out, a report on the assessment of the market value of the portfolio of trademarks was drawn up.

What is the result?

As a result, the client of Veta expert group received an appraisal report, which became the justification for the cost of the concluded sale-and-purchase deal between affiliates.

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