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Guest post: Is now the time for intangible assets to take the stage?

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It has now been nearly two months since Britain voted to leave the European Union. Confidence has steadily returned to the business community since the result was announced as many now look to grow during what could be a lengthy Brexit negotiation. By Paul Mitchell, Novum Global Strategies

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Paul Mitchell

Despite the initial aftermath, businesses are beginning to view the post-Brexit environment with sceptical optimism. The search for yield continues to occupy the thoughts of the most ambitious organisations as many realise savings and profits can be made from previously unexploited assets already on their balance sheet.

It is this positive mind-set which could see the way that businesses assess their intellectual property change significantly. 

Search for yield

Interest in alternative asset classes is typically driven by investors’ search for yield in challenging markets and IP has proven to be an attractive alternative asset class in the past.

For example, operators in the telecoms sectors - companies such as Nokia, Motorola and Samsung - faced a period of contracting profits coupled with strong competition in the late noughties.

Consequently, executive decisions were made to re-evaluate their intangible assets and explore ways to enter new markets, changing their direction of growth, with valuing and mapping IP taking the fore.

Today most companies have more IP than they realise as it can often be hidden in their day-to-day processes. This is because many companies are a victim of growth, with complex back office legacy systems entangled with advanced front office processes. As such, integrating the data from these disparate systems prevents many from accessing the full potential of their IP.

That said, reassessing and valuing intangible assets presents an irresistible opportunity to generate revenue, and the prominence of intangibles has certainly flourished in recent years as a result.

After all, in the 1980s intangible assets only accounted for 20% of company value, yet today they make up an incredible 80% on average.  

Two key techniques

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To maximise the opportunity presented by intangible assets, however, businesses need to better understand how to value them.

There are two key techniques a business must employ when initially valuing their IP: qualitative and quantitative approaches.

The main factors to consider when taking the qualitative approach are the historic, replication and replacement cost of the IP assets in question.

By comparison when pursuing the quantitative approach - the auction potential after a bidding process - comparable market value and comparable royalty rate must be examined. To be frank, the valuing of intangible assets is difficult, but by keeping these approaches in mind you are likely to value your IP realistically, and as such manage its future capital potential.

With the FTSE 250 having recovered to just 2.5% off its pre-referendum level, the data suggests the UK economy is faring well.

This shift, coupled with growing pressure on companies to be the first to file, has led to an upswing in investment in IP management in Europe and across the Atlantic.

By developing and adapting growth strategies to include the application of IP assets, IP-rich companies can expand their businesses in the Brexit reality where we now find ourselves.

With balance sheets becoming increasingly weighted towards intangible assets, the next few years could propel growth in institutions that value their IP.

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