Case Study - Business Valuation
The Challenges of Intellectual Property
A medical device company was in the process of being sold, but could not produce the necessary materials to facilitate the sale. The owner engaged Lakelet Financial Forensics Group (LFFG) to perform a detailed business valuation and help answer the million-dollar question: What was the company worth?
To know the value of a business, it is essential to know the value of their intellectual property. Intellectual property derives its value from a wide range of significant parameters, such as market share, barriers to entry, legal protection, profitability, industrial and economic factors, growth projections, remaining economic life and new technologies.
In this particular instance, the intellectual property was the core of the company’s products. However, there was a lack of data surrounding it, making business valuation a challenge. In addition, the sale included the medical division only. As a result, LFFG needed to “carve out” the business units being sold from the overall company.
LFFG began by generating historical financial information, schedules, and statements from multiple systems. Our associates performed forensic work on more than 10 years of files and systems, which were all managed under multiple owners over the years. We also performed a detailed business valuation of the company, specific product lines and intellectual property. Afterward, it became obvious that our client would not be able to finance the rapid growth required to leverage their patents.
Accordingly, we prepared a strategic plan so that our client would be able to sell the rights to the specific product lines and the associated intellectual properties to a worldwide industry leader. This approach had numerous valuable benefits. It allowed our client to receive:
An up-front cash payment;
A generous royalty program; and
- Commissions for units that their prior sales channels delivered.
In the end, our client was able to reap the benefits as if they had sold millions of units, all without the financial risks of ramping up production to accommodate phenomenal demand and growth.