Joff Wild

As I have said before, nothing seem to get this blog's readers more animated than issues around valuation. The most recent threads we have had on the subject have been based on a summary I did of an article for the latest issue of IAM on the leading 10 intangble valuation myths, written by Pat Sullivan and Alexander Wurzer. Following my summary and a discussion of it, another thread erupted based on comments made by Nir Kossovsky. Now Pat Sullivan has got in touch with me with some comments on the comments, if you see what I mean. This is what he has to say:

The valuation of intangibles in general, and the valuation of IP in particular, are topics of wide interest. Views about valuation depend in large part on the perspective of the viewer. With that in mind, I would like to thank those who have commented for their interest in the article and for their insightful thoughts about its contents.

For Messrs Bucknell and McClure, I agree with your implied remarks about the need for IP valuation standards. Referring to my previous article in IAM, there is little debate about whether standards are desirable nor even about what could be standardised. The difficulty arises with putting together a credible process and a credible sponsor(s) for creating and enforcing standards.

For Ms. Adams, I agree with her comments about Kossovsky’s “plug". As to her point about Myth #3 and cost, although companies are capable of modifying their charts of accounts so that they could reasonably calculate the cost of creating an intangible, there has not been sufficient reason so far for them to do so. I agree with her point that board members and managers should be aware of the level of these investments. Sadly, the current “way things are done” by company accountants does not comprehend this need.

Mr. Kossovsky raises three issues. The first concerns a misunderstanding of my thoughts. I have never said, nor do I believe, that an expert can better price a deal based on the notion of “worth” than can an arm’s length negotiation. I do believe, however, that any negotiation is likely to reach a “better” conclusion when both parties have a priori good information about the worth of any intangibles in the deal. It is unfortunately the case that most negotiators have limited information on worth and proceed with the information they have. Any expert’s estimate of worth should represent a good starting point for negotiations, not suggest its result.

I don’t understand Mr. Kossovsky’s second point about Myths 3 and 6 and hope he will clarify his thoughts in the future.

Finally as to his views on “marking assets to market”, I think the recent market debacle has shown that there is a serious problem with this approach to valuing assets. This issue is an enormous one, far beyond the scope of this blog. Nevertheless, it appears I have less faith in the financial reporting system as it relates to intangibles than perhaps does Mr. Kossovsky. I hope we have the opportunity to share views on this topic some day over a glass of good wine.

Patrick H. Sullivan