Asset-Based Lending

Traditional asset-based lending relies on current assets such as accounts receivable and inventory, and tangible assets such as real estate and machinery and equipment as collateral. In today’s marketplace, some lenders are now accepting certain intellectual property (IP) assets as collateral. IP assets such as trademarks, trade names, patents, and copyrights are being used to secure loans issued by banks and other lenders. In most situations, IP assets tend to act as “credit enhancers” and are included in a portfolio of assets that serves as collateral. However, we are also seeing patents and trademarks that generate significant royalty and licensing income used as the primary loan collateral. The rise of technology companies and the importance of intangible assets in today’s economy are reshaping the lending environment and the lending standards that govern asset-based loans.

Some situations where IP assets are being used as collateral are:

• Debt financing when main sources of revenue are licensing income or royalty streams coming from patents, trademarks, trade names, copyrights, or other intangible assets
• Mezzanine financing
• Dividend recapitalizations
• Subordinate loans offered by junior lenders with a primary lien on IP assets and a secondary lien on tangible assets (“bifurcated collateral” financing transactions)
• High-yield term loans offered by hedge funds and investor groups
• Debt financing immediately following an equity financing round, often in cooperation with venture capital and private equity firms

MMC has extensive experience valuing IP assets. Some of the industries in which we valued IP assets include: (i) biotech, pharmaceuticals, and medical devices, especially companies with planned or ongoing clinical trials; (ii) software; (iii) semiconductors; (iv) internet technology, content, and advertising companies; (v) alternative energy and green technology; (vi) specialty chemicals and renewable materials; and (vii) manufacturing, among others.

We work with traditional lenders such as commercial banks and middle market financing firms. Our client base also includes non-traditional lenders such as hedge funds, investment banks, and investor groups. We also value IP assets as potential collateral for borrowers, venture capital, and private equity firms.

MMC provides IP asset values under value-in-use and liquidation scenarios using the three primary approaches to determine value: market, income, and cost. We use multiple approaches to support our value conclusions. For example, our expertise in IP assets, especially patents, allows us to use both income and market approaches in many cases, as we are experienced in examining transactions in the secondary markets to arrive at fair market values undergoing-concern and liquidation scenarios. Our valuation approach is not simply limited to altering the discount rate to account for the contingency of liquidation. We prepare our analyses in the context of the immediate industry in which the IP assets are immersed, considering the level of competition, industry trends, prior liquidations in similar industries, mergers and acquisitions, patent generating activity, the patent portfolios owned by competitors, and the behaviors of patent aggregators in the marketplace.

Tangible Assets

Accurate, defensible tangible asset valuation services play a critical role in many business situations, ranging from the mundane to the esoteric. Real and personal property tangible asset valuations are important for tax and financial reporting, asset monitoring, property insurance, ad valorem taxes and replacement budgeting. At the other end of the spectrum, valuation of tangible assets can be an indispensable tool in establishing prices, justifying positions to stockholders and satisfying governmental concerns in the course of corporate mergers, acquisitions, refinancing and restructuring.

Real property includes industrial, commercial and municipal land, building improvements, and easements. Personal property refers to machinery, equipment, inventory, motor vehicles, trade fixtures, furniture, computer equipment, wiring, piping and the like.

At MMC, we have the personnel, expertise and resources to provide detailed property analyses and tangible asset valuations using several perspectives, including comparable sales, replacement cost and income approaches. Also, we maintain a comprehensive system of personal property class coding that we use to provide a more detailed valuation for specific types of assets –a more detailed and accurate process than simple gross trending for all machinery and equipment. Our depth and experience make it possible for us to deliver these services in a timely fashion, even under tight deadline pressure.

Along with a tangible asset valuation’s important function in specific applications such as insurance claims and taxes, maintaining an accurate property record increases control over major investments in facilities and equipment. In order to optimize cash flow and secure the most favorable tax treatment, property owners must be able to distinguish between costs associated with real property and personal property. Our tangible asset valuations have stood up to review by local, state and federal regulatory agencies, and it is MMC’ policy to support our tangible asset valuations whenever they are challenged.

Intangible Assets

Because businesses are often worth far more than the sum of their hard assets and working capital, a crucial aspect of MMC’ valuation services involves IP valuation, also known as Intellectual Property valuation. These assets must be valued for purchase price allocation purposes when a business is acquired. This allocation is required under ASC 805 (formerly SFAS 141), “Business Combinations.” In addition to real estate and machinery/equipment valuations, MMC has extensive experience in intangible asset valuation, and establishing the useful lives of such assets.

Among the various types of intellectual property and intangible assets to which MMC has assigned value are:

• Trademarks and trade names
• Patents and licenses
• Unpatented proprietary technology
• Copyrights
• Customer lists and relationships
• Non-compete agreements
• In-process R&D
• Contracts
• Software
• Trained and assembled workforces
• Databases
• Favorable financing
• Leasehold interests

Intangible assets such as brands, intellectual property and licenses now comprise a greater percentage of the economic value of successful businesses than ever before. Some economists argue that intangibles represent the main performance drivers in the current transition from a traditional financial economic structure to a new knowledge-based economy.

The value of identifiable intangible assets is important to:

Shareholders and their advisers, for use in assessing the true worth of their companies

Management, as a useful tool for measuring performance, for taxation purposes and in the event of an acquisition or disposal under ASC 805 (formerly SFAS 141)

Financiers, for use in assessing the borrowing capacity of a company when arranging funding facilities. Sophisticated lending institutions now recognize the value of certain intangible assets as security for loans.

Determining the true value of a company requires an accurate, defensible assessment of both types of assets –tangible and intangible property. At MMC, we have the skill, expertise, experience and resources to provide meaningful IP valuations. As importantly, we stay current with all emerging trends in this rapidly changing area and adapt our own processes to reflect the current state of the art and provide our clients with the best IP valuation and intangible asset valuation services available anywhere.

Machinery and Equipment

MMC provides a broad range of machinery and equipment valuation services throughout the United States. We have performed valuations of individual pieces of equipment, production lines, and complete operating facilities. We have worked with these industries on a worldwide basis:

• Aerospace, Defense
• Agribusiness and Biological Assets
• Automotive
• Biotech
• Chemicals
• Construction
• Food and beverage
• Electricity transmission and distribution
• Healthcare
• Hospitality
• Metals and Mining
• Oil and Gas
• Pet products
• Pharmaceutical
• Power plants (coal, natural gas, hydroelectric, nuclear, wind, solar, and waste-to-energy)
• Printing equipment
• Pulp and Paper
• Quarries
• Semiconductor
• Technology
• Telecom
• Water Utilities

We also perform stand-alone valuations for larger, more expensive equipment such as natural gas turbines. Our work has been used for purchase price allocations, financing, insurance, inventory, leasing, property tax disputes, liquidation and bankruptcy, and management planning. Some of the concepts used in our valuations have included:

• Fair Market Value In Continued Use
• Fair Market Value Installed
• Orderly Liquidation Value
• Forced Liquidation/Auction Value
• Salvage/Scrap Value