Intangible asset valuation guidelines will bring clarity, boost Singapore’s IP standing: analysts 

NEW guidelines that Singapore is developing for the valuation of intangible assets (IAs) should bring clarity to what is currently a grey area, and boost the Republic’s status as an intellectual property (IP) hub, said industry players and analysts.

Guan Dian, co-founder of patent analytics company PatSnap, said: “(The guidelines) will encourage more companies and investors to invest in Singapore’s IP ecosystem, creating more opportunities for collaboration and growth.”

The Business Times reported on Sunday (Jun 25) that new IA valuation guidelines may be in the pipeline, based on tender documents on government portal Gebiz.

This comes as IA becomes an increasingly important driver of business value, especially with the rise of the digital economy.

“By some estimates, (IAs) represent over half of global enterprise value,” said the Intellectual Property Office of Singapore in the tender documents, where it called for contractors to identify issues with existing IA valuation practices and propose an outline for new guidelines.

Max Lewis Consultants, which specialises in business and intangible asset valuations, uses practice guidance from valuation bodies in the US. This is due to a lack of clear guidance on how to approach IA valuations in Singapore, said managing director Albert Tan. (*see amendment note)

However, differences between the US and Singapore mean that it is important to devise guidelines suitable for the context here, he added. For example, the tax treatment of IAs varies, and the cost of capital metrics are different for American companies and Singaporean ones.

New guidelines will also better serve the business community’s needs by creating professional standards to regulate valuation practices, said Tan. Many local entrepreneurs currently rely on unqualified methods to assess the value of IAs, and do not have proper advice on how to carry out IA valuations, he added.

The importance of valuing IAs

“Valuation of intangible assets is crucial in transactions such as mergers, acquisitions, joint ventures, licensing agreements, or divestitures,” said Mun Siong Yoong, founder and chief executive officer of professional services advisory firm Vallaris Deal Advisory.

“Both buyers and sellers need accurate valuations to negotiate fair deals, determine appropriate pricing, and ensure the protection of their interests.”

Accurate valuations of intangible assets also help companies in capital allocation, by giving them a better understanding of the value and potential returns of different IAs, said Mun.

Without official guidelines, it is left to the expertise and experience of the business valuer to identify IAs, leaving room for subjectivity and wildly differing judgement, he added.

Themin Suwardy, associate professor of accounting (practice) at Singapore Management University, said the current biggest issue with IA valuation is the lack of authoritative guidance. “The International Valuation Standards Council has been trying to fill this gap but adoption by valuation professional bodies, while commendable, is largely voluntary in nature,” he said.

Taking the lead

The proposed guidelines could provide a boost to Singapore’s technology-driven venture capital (VC) space, said industry players.

Such guidelines will be particularly helpful for valuing early stage companies, said Paul Lee, chief executive officer and chief investment officer at Paragon Capital Management. He is also co-general partner of Paragon Ventures (I) Fund, an early stage VC fund.

“Because everyone (will know) what the ‘rules of engagement’ are, in that sense, I think the basis of discussion around valuations will be a lot more fruitful, a lot more to the point and not just about trade-offs and these wishy-washy numbers,” Lee said.

The new guidelines will benefit businesses for which IAs are value drivers, like many in the technology, healthcare and entertainment industries, said Loh Yee Chuan, partner, corporate finance, deal advisory at KPMG in Singapore.

PatSnap’s Guan said that the guidelines will facilitate the commercialisation of IAs and provide a strong basis for companies to increase their access to financing. Calling the move “forward-looking”, she said that it will facilitate more efficient use of IP assets, spurring growth and innovation.

Andre Toh, Asean and Asia-Pacific valuation, modelling and economics leader at EY, said that the Singapore IP Strategy 2030 roadmap sends a strong signal that the government is focused on building a credible and trusted IA and IP valuation ecosystem in Singapore.

Released in 2021, the roadmap includes the development of IA and IP valuation and disclosure guidelines.

KPMG’s Loh said that Singapore will likely be the first country to develop IA valuation guidelines that are interoperable with valuation practices across various jurisdictions. By taking the lead in addressing the gaps and issues in the industry, the government will get significant buy-in from key stakeholders, he added.

*Amendment note: The article earlier wrongly stated the name of the consultancy. It is Max Lewis, not Maxwell Lewis. The article has been corrected to reflect this.