Since Yahoo launched the sale of its core business and patent portfolio in February, questions have been raised regarding the value of non-operating assets. With estimates ranging from $1B to $4B for the patents alone, many are left to wonder how to value a portfolio of roughly 6,000 patents encompassing a wide variety of technologies.
The last two quarters have been a bumpy ride for Yahoo investors as pressure to sell increased. The Yahoo patent portfolio has been built organically and via acquisitions. Its IP rights span messaging, website design, data mining, and ad targetting. In the context of valuation, who specifically will derive economic benefit from these assets and why/how?
It’s no surprise that the spotlight has been cast on Yahoo’s mobile advertising assets. The method of monetizing internet services with targeted ads is largely dominated by tech companies like Google and Facebook, but that may soon change. Verizon recently acquired AOL for $4.4B and is expected to be a front-runner in Yahoo’s first-round auction scheduled later this month. If successful, the telecom may become a major player in mobile ads. But how does Verizon value (perceive) the wide-ranging Yahoo patent portfolio?
Would another buyer or buyers gain more benefit from the patents? For some buyers, the value may lie in the potential to license or litigate, e.g. a non-practicing entity. Other buyers might use that same portfolio defensively, e.g. for counter-assertion or cross-licensing or to facilitate partnerships in a supply chain. Another might use the assets as a platform for introducing innovative products with a market entry barrier for competitors.
An income-based/DCF model with expert IP monetization and risk analyses can yield one perspective of intrinsic value. But the difficulty of valuation is apparent when considering comparable transactions.
One case study is AOL’s 2012 patent deal with Microsoft, after which AOL saw their implied market capitalization jump $700M. That jump was almost exactly the difference between the deal price ($1.06B) and the previous expectations of the portfolio’s value ($300M).
Another case study is the discrepancy in expected results from the Nortel and Kodak bankruptcy auctions. On the heels of Nortel’s successful auction, headlines trumpeted valuations upwards of $3B for Kodak’s patent portfolio. However, Kodak ultimately realized only a fraction of that expectation due to the external climate plus fundamental differences in its IP in comparison to Nortel’s. Both of these factors were largely ignored in the pre-auction hype.
The variance between expectations and results becomes much smaller when applying our approach: a combination of classic valuation approaches, specifc IP risk adjustment, and experienced judgments.
Over the years, ipCapital Group has seen a dramatic increase in requests to value IP portfolios. The engagements range from advising on high-profile deals to supporting capital raises for small, private companies who have few assets other than IP. We continue to use these experiences and lessons to enhance our approach and help our clients achieve accuarate IP valuation. Contact us