Intangible asset valuation
I would very much like to get opinions on the follwing issue related to franchising or other exclusive distribution arrangements:
The circumstances:
US start-up firm inheriting “the business” of a short-lived wholly owned US subsidiary of a private German software publisher. US start-up has negotiated a three year exclusive distribution agreement for the USA and Canada with the Publisher. There was no up-front payment for the exclusive distribution agreement. The US start-up will pay a license fee to the Publisher and there are minimum license fee payment requirements for each year in the agreement.
The questions:
- Does the three year exclusive distribution agreement qualify as an intangible asset even though there was no cost to acquire it? I say it does.
- If so, how does one go about placing a value on that agreement? I have three alternative methods in mind (PV of three years required license fees, PV of three years forecast license fees, PV of three years forecast operating income).
The stakes:
The US start-up needs funding for working capital. I intend to record the three year distribution agreement as an intangible asset with the offsetting credit to equity in the balance sheet to be shown to potential investors.
Appropriately appreciative of any and all repsonses. Best regards
Roger Scott, CPA
252-525-8083 (M)
scott [dot] rogerf
gmail [dot] com
http://www.linkedin.com/in/scottrogerf
