AON: IP-Backed Lending: New Growth Opportunities for Borrowers, Lenders, Insurers, and Investors

The ability to value and package intangible assets (IP) opens the door to using intellectual property as collateral to fund growth, says Will Kier, Head of IP Solutions EMEA, Aon, and Rita Baal-Taxa, Chief Insurance Markets at Vesttoo.
December 15, 2022
Vesttoo on AON
Vesttoo on AON

Access to capital is one of the most pressing needs for any business. Traditionally, organisations have relied on their tangible assets – plant, property and equipment – to use as collateral when turning to banks and other alternative finance providers to secure that capital. In recent times, however, the growing value of intangible assets – such as intellectual property (IP), data, computer systems and other digital assets – has challenged that thinking.

A recent Aon/Ponemon Institute report, for example, valued the average value of tangible assets for businesses in the EMEA region at $1,035 million, while on the intangible asset side, the average value of information assets was greater at $1,168 million. According to Ocean Tomo, intangible assets now account for 90 percent of the value of the S&P 500 and 90 percent of the value of Fortune 500 companies.

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Despite this swing in value, the use of IP assets to help secure funding has been met with some resistance from lenders unwilling to provide such financing due to a lack of comfort and experience with IP, and the punitive capital treatment provided to intangible assets. IP value is largely not understood in the capital markets and while IP may be the most valuable asset a company owns, current accounting standards typically do not allow internally developed IP to be explicitly valued as part of a company's balance sheet. This accounting treatment, and historic lack of creditable valuation methodologies, results in most growth companies turning to dilutive equity to finance their growth.

There are signs, however, that there has been a change of tack with a recent growth in both the frequency and size of IP financing transactions. Aon has been involved in over $1 billion worth of IP deals in the last two years, working with banks globally – not just in the U.S. but also in the U.K. and throughout Europe. Insurers and capital markets insurance investors are also becoming increasingly involved, attracted to the ability to access an uncorrelated asset class with structures that are diverse in terms of geography, industry segment, and technology type. With equity markets tightening, Vesttoo has also seen growing demand to support such insurance-enhanced growth capital transactions.

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