What's your approach to valuing intangible assets in a company restructuring?

Intangible assets are non-physical resources that generate value for a company, such as patents, trademarks, customer relationships, or goodwill. They can be challenging to measure and account for, especially in a company restructuring, where they may be impaired, revalued, or transferred. In this article, you'll learn some of the key principles and methods for valuing intangible assets in a company restructuring.

1 Why value intangible assets?

Valuing intangible assets is important for several reasons in a company restructuring. First, it can help assess the financial health and performance of the company and its business units, and identify potential sources of competitive advantage or risk. Second, it can inform the decision-making process for allocating resources, divesting assets, or acquiring new ones. Third, it can ensure compliance with accounting standards and tax regulations, and avoid disputes or litigation with creditors, shareholders, or regulators.

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2 What are the valuation approaches?

There are three main approaches for valuing intangible assets: the income approach, the market approach, and the cost approach. The income approach estimates the present value of the future cash flows that the intangible asset will generate or save for the company. The market approach compares the intangible asset to similar or comparable assets that have been sold or licensed in the market. The cost approach estimates the cost of creating or replacing the intangible asset.

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3 How to choose the best approach?

The choice of the best valuation approach depends on several factors, such as the nature and characteristics of the intangible asset, the availability and reliability of data and information, the purpose and context of the valuation, and the assumptions and judgments involved. Generally, the income approach is preferred for intangible assets that have a clear link to cash flows, such as patents or customer contracts. The market approach is preferred for intangible assets that have active and observable markets, such as trademarks or domain names. The cost approach is preferred for intangible assets that have no or limited cash flow potential, such as software or databases.

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Brooke Bornick

Co-Founder & Investor | AI, Proptech and LegalTech | JD & MBA
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If you need to use the intangible asset, your valuation is the cost or income approach. If you need to sell the asset, your valuation is the market approach. If you don't have a buyer in mind, you can receive an estimate of the value from an expert in turnaround management (they regularly value and sell these assets).

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4 What are the valuation challenges?

Valuing intangible assets in a company restructuring can be difficult, as it requires identifying and separating the intangible assets from the tangible assets and goodwill of the company, estimating the useful life and residual value of the intangible assets, determining an appropriate discount rate and growth rate for the cash flows, accounting for risks and synergies associated with the intangible assets, and dealing with changes or impairments due to the restructuring.

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Brooke Bornick

Co-Founder & Investor | AI, Proptech and LegalTech | JD & MBA
Report contribution
If the organization does not plan to keep the asset, it may be difficult to know what the market value is. If the asset has a specialized use case and is not a commodity, you likely need to find an expert to value the asset.

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5 What are the best practices?

To ensure reliable and credible results, you should adhere to certain best practices when it comes to the valuation process. This includes conducting a thorough due diligence and analysis of the company and its intangible assets, using multiple approaches and methods to cross-check and validate the results, applying consistent and transparent assumptions and methodologies across the intangible assets, documenting and explaining the valuation process and results clearly, and seeking external validation from independent experts or auditors.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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What's your approach to valuing intangible assets in a company restructuring?

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1 Why value intangible assets?

2 What are the valuation approaches?

3 How to choose the best approach?

4 What are the valuation challenges?

5 What are the best practices?

6 Here’s what else to consider

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