Numi is right… But you mentioned that now you want to find out the value of the licesning deal right? Before we though it was the overall MV of company with the deal in place… This is actually now simpler as you will take your intiial payment add to it the yearly payments (discounted at company’s current cost of capital) and then the yearly roaylties (when they exist). Simply you will get a value of the licensing fee… layman’s term…If this was not a licensing agreement but instead an investment opportunity, this is the price the company would be willing to pay (at the most) to get their required rate of return every year As far as the discount rate…I suggest taking an unorthodox approach…for the cash payments which ARE certain discount at the current rate of return, for the future royalties which are uncertain you can do one of 2 things…take a conservative approach (lower yearly cash flows) and discount at the current rate of return, OR model them as they are BUT discount at a higher discount rate than currently… Hope that helps, I might be confused as well, but not sure ahha
just curious - are any of you guys in the private business valuation area? or done any intangible asset appraisals? just curious.
i work for an M&A firm who concentrates on private businesses…counts? no intanigble asset experience though… Either way I think we are all trying to help, rohufish…annonymous can either follow our advice or come to conclusion on his own. No one is trying to be a big swinging d*ck, just doing our best to help an AFer
Yeah, I pretty much agree with miker2800. As far as weighting the probabilities of different cash flows, there’s no need to complicate matters, rohufish – any way you cut it, you have to make an assumption about the probability of a cash flow occurring – and you can do this by either making a probability weight on each cash flow itself, or do a weighted average across different DCF scenarios based on their likelihood of occurrence to give you your probability-weighted DCF. Either way, it’s not so complicated. rohufish – As far as working in “private business valuation,” well I work in private equity doing leveraged buyouts, so I guess you could say that private business valuation is what I do every day.
ok fair enough - to each his own as they say. i just asked because i wanted to understand the perspective you were bringing to the table. an accountant, an M&A professional, a private business appraiser, VC/PE analyst and a public co financial analyst all bring their own prefs to the table. good discussion
allright…lunch is on me!!!
rohufish, that’s a good point and we have had a good discussion here. what is your background? are you from the business valuation side too?
i’m in corporate development right now - and previously was in early stage high tech VC. i’ve actually taken the 4 ASA courses - BV201-204 just out of interest, to see how that world sees things differently from the CFA world. there are interesting peculiarities, which is why i was asking if you guys are in BV. actually i felt that they go into some pretty hairy detail when they do these private co. valuations - key man discounts, security specific control premiums, 3 approaches to value reconciliation, etc. its stuff we normally gloss over when doing a quick model in the CFA world. but God forbid, if you end up in litigation, an ASA is the ultimate arbiter for private co. valuations according to the courts. so they tend to really get their rationale and model watertight - just in case Judge Judas decides to skewer them.