THE VALUATION OF KNOW-HOW
Roberto Moro Visconti – Università Cattolica del Sacro Cuore, Milan, Italy
roberto.moro@unicatt.it
Abstract
The know-how expresses the concept of "know-how", straddling the organization in series and
technology, legally protected as an industrial secret.
The sharing and transferability of know-how is the basis of its economic appraisal, which is based on
complementary methodologies projecting the future usefulness of the costs incurred, the relief from
royalties by the license or the differential income from internal exploitation.
Unlike patents, the know-how is not independently negotiable and is more difficult to enforce against
third parties, but at the same time it retains some characteristics of confidentiality that with the
patenting in part must be disclosed.
Keywords: product innovation; process innovation; patent; R&D; industrial secret; intangibles;
technology.
1. The uncertain perimeter of “know-how”, between organization and technology
The know-how to do it is a concept characterized by a very broad perimeter of definition, which risks
to encroach on the indeterminacy; complex are the problems of application and interpretation, even
in the phase of drafting contracts and protection (moral and patrimonial) of rights, primarily in the
field of technology transfer or unfair competition.
"Know-how’' means a wealth of non-patented practical information, resulting from experience and
testing by the supplier, which is secret, substantial and identified; in this context, 'secret' means that
the know-how, considered as a body of knowledge or in the precise configuration and composition of
its components, is not generally known or easily accessible; substantial' means that the know-how
includes knowledge indispensable to the buyer for the use, sale or resale of the contract goods or
services; 'identified' means that the knowhow must be described in a sufficiently comprehensive
manner so as to make it possible to verify that it fulfils the criteria of secrecy and substantiality'.
Most regulations speak of "know-how” relating to products and processes and the performance of
theoretical analyses, systematic studies or experiments, including experimental production, technical
checks of products or processes, the construction of the necessary facilities and the obtaining of the
relevant intellectual property rights".
Know-how (savoir faire) consists therefore of a production and organizational method, often
embodied with technological applications as part of an industrialization process, and it consists of
practical knowledge of how to do something, e.g. a product. The know-how exploits a wealth of
knowledge and constructive artifices acquired through entrepreneurial talent, often by way of
craftsmanship and not always formally codified, not in the public domain and therefore such as to
originate exclusive information asymmetries, which often encroach on trade secrets, intrinsically
characterized by requirements of novelty and not accessibility to third parties. The work leading to
know-how, through technical and organizational progress, is typically carried out in teams. Also, in
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the legal field, for the know-how there are significant problems of identifiability, traceability,
ascertainability and identifiability (which stem from the immateriality of the res incorporales,
inapprensible and evanescent), as well as those of secrecy, substantiality, usefulness and ownership.
The know-how, which can be considered an economic asset, and which represents a relational and
knowledge heritage, can include tangible and substantial activities such as formulas, instructions and
specifications, codified procedures and archetypes, technical devices, production layouts using
technology, design, molds or models or intangible activities such as marketing and communication
strategies, quality testing techniques, production and organizational procedures and skills. The knowhow refers both to the mass production, in which the organizational and production strategies are
serially codified and standardized ("customized"), and to production by order, which represent "tailormade clothes" in which the component craftsmanship and creativity are enhanced. In any case, it is a
matter of expertise and confidential internal knowledge linked to a reproducible creativity of technical
and/or commercial proprietary information, with an indefinite and potentially infinite useful life,
which differentiates the know-how and trade secrets from patented inventions. The extension of the
concept, in its fundamental division between technical-industrial and commercial know-how (linked
to marketing), is concomitant with the growing importance of innovation as a strategic driver. Insofar
as patenting requires some form of disclosure, many inventions remain deliberately confined to the
field of industrial secrets, where knowledge, as notorious, must be inaccessible; especially in process
inventions, industrial secrecy typically offers greater guarantees, than patenting, against possible
violations by third parties. The know-how, through an orchestrated process of apprenticeship
(learning by doing), involves process and product innovations, which at the strategic level can be a
source of competitive advantage, understood by Michael Porter as cost advantage and / or
differentiation, in the context of competition between companies. The voluntary cognitive
dissemination of know-how is expressed in the know-how, as a demonstration of certain methods,
practices, procedures or processes, including in the context of technical assistance agreements. The
know-how can be properly understood as a synergistic glue of the "organized complex of goods" that
constitutes the company, to be understood also as a Coasian nexus of contracts, characterized by the
ability to create, transfer, assemble, integrate and economically exploit activities deriving (also) from
knowledge; its ambiguous perimeter does not always allow a clear demarcation with respect to other
intangible assets, represented, first of all, by goodwill (acquired for consideration and therefore
accounted for, or, more frequently, internally generated), understood as a residual category of surplus
value not otherwise allocable.
But the knowhow is also the basis of R&D that can lead to the patenting of original inventions and
sometimes can be associated with trademarks, considering their nature as distinctive signs that also
expound qualitative characteristics based largely on know-how. And the know-how can also be
contiguous to the software or, sometimes, to the rights of use of the intellectual works. The knowhow is, in the broadest sense, also the cognitive monitoring for the quality guarantee and for the repair
of the products, with the induced of the after-sales market, noting also for the reduction of defects,
with consequent limitation of the product liability.
2. Galilean replicability and industrialization of the experimental scientific method
With the invention of the Galilean scientific method, the concept of reproducibility of experiments
was introduced, which are the basis of the knowledge acquired through empirical attempts, then
systematized, both in scientific theories and - as far as herein is concerned - in a technological
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organizational context of functional and industrialized replicability, in order to make each experiment
productive and successful.
The scientific method uses an inductive and deductive approach and is aimed at achieving an
objective - not arbitrary - knowledge of empirical reality, in a reliable, verifiable, shareable and
universally valid way. All this is based on heuristic analysis, i.e. on empirical intuition based on
experience, including artisan experience, to be replicated on an industrial basis if necessary. Empirical
observations, hypotheses and deductions are used to draw replicable conclusions, through
experiments inspired by know-why.
Everything is linked to the concepts of industrialization (mass production), replicability, scalability
and transferability which, as will be seen below, are of fundamental importance to fill the know-how
with practical-application contents and to allow it to be exploited, shared and negotiated.
The application of a scientifically replicable method Cartesianly delimits the subjectivity and
irrationality of the know-how, favoring its industrialization, even if with the risk of weakening the
creative vein, in favor of a replicating technicality. The know-how stems from the experience and the
maieutic - Socratic - effort to bring out new industrial ideas, from the custom applied to making,
inventing a method, codifying and replicating it, using the technical archetype for mass production
and the systematic organization of the business model. All with iterative procedures based on often
unsuccessful attempts, with progressive refinement of knowledge and skills. The know-how,
understood as an engineered development of the technique, is a two-bladed scissor: deductive because
it applies the first principles and inductive using the scientific method.
The formation of know-how is usually a slow and gradual process, based on small steps and empirical
feedback often unsuccessful, with attempts and errors in constant evolution, which continuously
redirect the strategies of incremental enhancement of the company.
The incremental training of know-how, even in the context of a process of co-creation of value, can
be inspired by reverse engineering processes, which is based on a detailed examination of the
operation, design and development of an invention applied by others, in order to produce a similar
one, improving its efficiency and quality. Respect for the rights of others, especially in the case of
patented inventions, turns out to be essential to avoid litigation.
3. Protection, sharing and transfer of know-how
The protection of industrial secrets, even in the absence of patenting, is possible through instruments
of protection and safeguarding as an inhibitory and compensatory measure, for example against unfair
competition and its inherent abuses. The vulnerability of the know-how is also connected to the
technological innovations that allow to record images, forms, processes - all with elements of
sophistication once unknown (through photocopies, scans, films, digital photographs, recordings,
computer duplications ...) - operating more and more through tools of technological piracy to
unlawfully steal of data and sensitive information, with a possibility to store data and transfer them
via the web that allows a real-time migration of the wealth of differential knowledge stolen.
The damages deriving from the subtraction of know-how are potentially very significant and this
imposes the adoption of particular cautions also in the occasion of the more and more frequent
moments of sharing of technologies (knowledge sharing), made necessary by increasingly
interdependent value chains, in the ambit of which tacit knowledge becomes at least partially explicit.
In sharing know-how, strategic decisions to make or buy are marked by increasing specialization,
which expands the scope of cooperation with other external parties, including in the context of
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agreements of business networks or technology parks and in an increasingly global perspective. From
the immateriality of the know-how comes the characteristic of an unrivalled good, in which the
transfer to another subject involves the possibility of use by the assignor, with the consequent creation
of a duopoly.
The transfer of technology, by way of sharing also through licensing contracts, or with final sales,
often occurs in the context of extraordinary operations, now robbed of ordinary because of their
frequency, such as transfers, contributions or demergers of companies or their branches, mergers,
exchanges, etc.
Moreover, the transfer of know-how requires its prior identifiability, at the perimeter level, and often
entails the need to associate it with other tangible or intangible assets (machinery, patents, qualified
personnel ...), to which it appears synergistically and ontologically connected. Key managers
represent a critical aspect of know-how and the transfer of qualified personnel is the indispensable
"software" governing the transfer of technologies; it must be accompanied by adequate training of
new staff and, once again, the codification of procedures and knowledge, to preserve and
depersonalize its use, making them fungible and interchangeable with knowledge management tools.
Contracts for the assignment or licensing of know-how may lead to unfair competition, even with
criminal relevance, in the event of unlawful disclosure of industrial secrets.
The codification of tacit and routine procedures, mainly with advanced Enterprise Resource Planning
management software, is an increasingly essential prerequisite for the preservation and transferability
of know-how. The storage of sensitive and strategic data is increasingly using outsourcing and back
up tools, such as cloud computing, with outsourcing of security that solves some problems, but creates
others, also in terms of responsibility.
The dissemination of know-how is also based on the know-how of social networks, blogs and chats,
which allow exchanges of opinion and, more generally, the sharing of ideas within discussion forums;
the libertarian nature of the network also clashes with the entrepreneurial need to segregate
knowledge, unlike what happens in academia, where free dissemination is a key principle of the
dissemination of scientific thought, also for the purpose of its validation and refutability.
The diffusion of the know-how is also stimulated by its frequent horizontal scalability (expanding its
use in more companies with similar corporate purpose) and vertical scalability (with synergic
crossings of know-how in functionally integrated companies); the extension of the value chain to more
synergistically interconnected subjects and the assembly of the surplus value around a shared
knowhow, are at the origin of more refined competitive structures, also in a view of an industrial
district, which raise the competitive barriers to entry towards potential new competitors, preserving
the incumbents' incomes. In this sense, know-how is the source of the competitive advantages,
sometimes even prodromal to the achievement of monopolistic rents (which tend to be increasingly
ephemeral, as a result of increasing competitive pressure or antitrust provisions).
The implementation of a codified system of knowledge is particularly important for large companies
that typically repeatedly face the same problems, of which there is often little awareness, and that
have a high turnover of staff, resulting in "skills traps". The critical mass of continuous investment
in skills is an increasingly essential strategic element, to the benefit of larger companies and/or those
capable of doing systemic work. Investments in basic and applied research are made based on market
opportunities, the funding that can be obtained, including public funding, and the degree of legal
protection with which it can be protected.
The networking of know-how is an increasingly valuable driver for the creation of value, especially
through the strategic sharing of economies of experience and scale (with a minimization of fixed costs
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shared, first of all at the production level); the case in point is particularly relevant in intangible
intensive sectors intrinsically characterized by a high scalability of economic margins (and the
consequent financial flows).
The preservation of know-how is also based on the preparation of remunerated non-competition
agreements, also to limit the brain drain and, more generally, to retain the knowledge acquired within
the company perimeter.
Technology transfer refers to knowledge, technology, production methods, prototypes, patented
inventions or, more rarely, know-how on the part of governments, universities, public and private
companies, research bodies, individual inventors.
4. Know-how Transferability
Given the fact that trademarks and patents (which are characterized by particular problems of
economic evaluation) can be conferred, since they can legally be configured as real assets, since their
transfer methods are regulated and they can therefore be acquired instantaneously and definitively by
the company's capital, there are those who believe that know-how and unpatented inventions cannot
be conferred, because they lack the legal protection in favor of the owner, which the legal system, on
the other hand, recognizes to registered intangible assets. Other authors discuss between the need for
confidentiality, typical of know-how, and the need to adequately describe the branch by conferring.
The risk surrounding the right of ownership of such assets would in fact be transferred to the
transferee company, with consequent risks regarding the effectiveness of the capital and potential
harm to third party creditors (including those of the transferor company, whose participation in the
transferee company could be overvalued). The inventor could transfer the same asset to other parties,
both before and after the transfer, with the consequent devaluation of the value transferred. The
sharing and, above all, the transfer of know-how, involve the emergence of tax issues, first for income
tax purposes, in which the identification of an appropriate tax base, also in relation to the normal
value of what is being transferred, plays a central role. Even more delicate are the frequent
international intragroup transfers of know-how, which postulate the occurrence of transfer pricing
problems, based on a comparison with comparable transactions between independent counterparties.
This is clearly a case that many times goes beyond a mission impossible, especially when the
specificity and peculiarity of the know-how, which is the distinctive aspect, also in terms of reputation
and consequent enhancement, prevent any possible comparison.
5. Economic and financial evaluation
The estimate of the market value of the know-how must typically be placed in an evaluation context
that considers not only the company or the branch as a whole subject to evaluation, but also - in
particular - its intangible resources, starting with those ontologically most contiguous to the knowhow (i.e. patents and, residually, goodwill).
The exploitation of know-how also stems from the value chain of which it forms part and from
external sources of evaluation, as shown in Figure 1.
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Figure 1. - Links between know-how, value chains and external evaluation sources
Accounting principles IAS/IFRS
OCSE Guidelines
(transfer price)
Economic/Financial/Marke
t valuations/
transfer/ sharing
External
transactions
intercompany
transactions
KNOW-HOW
license
Value chain
(income statement)
incremental
income
patents
KNOW
HOW
start up
value added
exchange value >
value in use
Gross
margin
(EBITDA)
scalable
trademarks
other intangibles
5.1. Applicability of empirical and analytical assessment methods
With reference to intangible assets not registered or specifically protected, such as know-how, the
valuation is subject to high inter-temporal variability, being anchored to provisions aimed at drawing
up the "strategic, industrial and financial plans" applicable to the joint-stock companies. Variability
is incorporated in the risk to be considered in the estimates and for this purpose the information
contained in the report on operations can provide valuable insights. The extreme breadth of the
possible evaluation interval is demarcated, in its extremes, by upper and lower limits, in the
hypothesis of (full) going concern (full business continuity) or in liquidation break up scenarios, in
which traditionally intangible resources lose most of their value, especially if they are not
independently negotiable or synergistically connected to other assets; in the hypothesis of
discontinuity, the "organized complex of assets" is completely eliminated. The different value
gradations also reflect the possibilities for growth and, with them, the possible scenarios to which the
estimates can be associated.
The choice of methods to be used depends on the type of intangible resource and the purpose and
context of the evaluation, but also on the ease with which reliable and meaningful information on the
resource and the market in which it is strategically positioned can be found.
Of the different methods, the complementarity in identifying - from different angles - the multifaceted
aspects of the intangible object of evaluation, suitable to allow an integrated evaluation, must be
grasped: for example, the relief from royalties are also in function of the incomes or incremental cash
flows that derive from the exploitation of the intangible resource and that interact also with the market
surplus value or the multipliers of comparable companies; the incremental patrimony derives from an
accumulation in the years of differential income; the costs of reproduction estimate the future benefits
and the independent estimate of the average differential goodwill between patrimonial methods and
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incomes. The different methods should in theory lead to similar results, although the relief from
royalties and reproduction cost method sometimes tend to provide lower valuations than the
differential income method or market comparisons.
The applicability to know-how of the different evaluation methods requires an adaptation that takes
into account their intrinsic characteristics, if necessary, also in a stand-alone perspective, in which
the know-how is considered and is therefore "extractable" from the company and distinctly
assessable.
The evaluation can be carried out for different purposes, even in litigation, in case of unfair
competition with appropriation, replication and/or undue imitation and usurpation of know-how.
The value of experimentation - with its practical implications - is also a fundamental element of
knowhow. Know-how creates value if it is unconventional, if it is unsettling, the result of an
engineered creative rationality that allows a mastering of complexity. In the evaluation, they note
considerations of a sectoral and/or commodity nature, which in some areas make it easier to identify
know-how.
The risk of duplication in the valuation must always be borne in mind, where there is a lack of
exclusivity (which in the abstract is not limited by the intangibility of the know-how and its
consequent multiple reproducibility and transferability) and a clear segmentation and specificity of
loyalty compared to other similar assets, represented above all by goodwill, patents, trademarks and
other intangible assets.
The evaluation time horizon must take into account the nature of the know-how, which has a
potentially indefinite duration, but also forcibly ephemeral and subject to a tendential unpredictability
of the life cycle, which depends on the interaction, often capricious, of competitive pressures and
external competitive reactions with "entropic" defensive barriers that inhibit appropriateness, based
on secrecy, intrinsic complexity and other instruments, including contractual ones, of protection
against imitations.
The deterioration and erosion of value, in the case of intangibles and know-how in particular, derives
from its potential obsolescence and technological successions, which eliminate its exclusive
connotations, and not from a physical deterioration related to the use, which indeed increases the
value, even in view of economies of experience, as well as visibility and synergistic sharing with
other inventions or processes. The strategic value of the know-how must also be appreciated in terms
of uniqueness, specificity, non-permeability and exclusivity, which are the basis of killer applications
that disorient the market, which must be associated with a flexible versatility, even in terms of
applications to multiple sectors, with customized adaptations.
A) The relief-from-royalty method
An easily applicable empirical method is based on the determination of the "presumed royalties" that
the owner of an intangible resource would have required in order to authorize third parties to exploit
it (we also speak of the "consent price" method). The relief-from-royalties method is particularly
indicated where one wants to arrive at the determination of an exchange value of the immaterial
resource.
The presumed market value of an intangible resource can be estimated as the discounted sum of the
relief royalties (which the company would pay as licensee if the intangible resource were not owned)
discounted over a time horizon of at least 3-5 years.
The concept of reasonable royalty can also be relevant in the field of litigation in the quantification
of patent damages for unlawful use of know-how.
In the evaluation of a company with a know-how to be evaluated, the presence of license agreements
is particularly appreciated by investors, also because it generates revenues typically not occasional
and is a signal to the outside of the technological heritage and innovative capacity of the company.
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B) The incremental income method
The value of an intangible resource is the greater the higher the expected economic and operational
results that can be associated with it. Therefore, if a going concern is considered, the contribution of
an intangible asset in terms of price and/or volume increases (and therefore of economic margin) to
the profitability of the business can be measured by the differential income method, which determines
the value of the intangible resource to an extent equal to the present value of the sum of the above
defined differential income that it is likely to produce in the future. The know-how can therefore be
evaluated if and in so far as it gives rise to tangible differential economic benefits and potential future
benefits, which are expressed in a premium price, understood as the price differential of the product
characterized by know-how.
The number of years of discounting the income from the exploitation of the intangible resource
depends on its life cycle (useful life). A possible variant is based on the estimate of the incremental
gross operating margin or other partial economic margins that the intangible resource makes it
possible to obtain, to which a reasonable multiplier derived from negotiations of comparable
intangibles is applied. In addition to or as an alternative to the incremental income, the additional
cash flow generated by the intangible resource can be considered.
The use of the intangible resource acts on the economic margins expressed by the differential between
revenues and operating costs as it ideally allows both to increase revenues (with higher direct sales
or with royalties receivable from licenses) and to reduce costs, producing with less labor intensive
techniques and suitable to allow savings of other costs (production, organizational, energy ...).
The stratification of differential incomes thanks to the know-how generates an incremental patrimony,
which expresses the differential between market value and book value of the company; it is a suitable
element to express - in a rather coarse but often effective way - the surplus value of intangible assets
that very rarely find "satisfaction" in their book value and that have led the doctrine to speak of
differential "ghost". The lack of or symbolic recognition and capitalization of know-how costs has an
impact, on the one hand, on the lack of depreciation and, on the other hand, on the potential
undervaluation of shareholders' equity, with a book value lower than the market value.
Both the method considered here, and that under A) of the relief from royalties, can be traced, in a
broad sense, to the income methods, based on a projection of normalized future income, to be
discounted over a predefined (or unlimited) time horizon, consistent with the expected useful life of
the know-how, at a reasonable rate, which also incorporates the risk associated with the expected
future manifestation of income, in terms of both an, and quantum.
C) The estimate of the cost incurred (or of reproduction)
In the absence of available data on income capacity, a possible alternative is that of the cost incurred
in the past to create the intangible resource and to occupy in the market the positions reached by the
same at the valuation date.
The identification of a historical cost of production, based on an analytical accounting that allows to
functionally separate the costs for the know-how from the others, is preparatory to the estimate of a
current cost of reproduction, having the nature of investment and therefore oriented to the expected
future benefits and the potential for economic return.
However, this procedure is limited in relation to the differential income method.
A limit derives from the known unfitness, due to the change in the purchasing power of the currency
and the change in economic conditions, of the historical costs to measure values later. The second
limit is since the value of an asset is not only due to the costs necessary to obtain it, but also and
mainly to the future benefits that can be derived from it.
A step forward with respect to the previous method is the process of reproducing an immaterial
resource that is functionally equivalent, which replaces the historical costs with the costs of
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reproducing the asset ex novo, i.e. the costs that would have to be incurred at the time of valuation to
reconstruct the same value that the immaterial resource reached at that time.
However, in the procedure now examined, there is still the limit of not considering the profitability
of the investment and also the opportunity cost deriving from the immediate non-use of the intangible
resource. The existence of high and uncertain fixed costs related to the reconstruction of know-how,
represents a barrier to entry that segregates the market and distances competitors.
D) The complex capital method
The equity methods traditionally used in continental Europe are based on an analytical valuation of
individual assets and liabilities, with a comparison with their book value, in order to adjust the book
value of equity to arrive at a market value of equity. In this method, in the so-called "second-degree
complex" variant, there are also peculiar hotel activities, such as know-how, which are not normally
accounted for and do not typically have an independent market value. The capital gain should then
be expressed net of potential tax liabilities, taking into account a tax profile that will only be applied
when there is a need to move from an abstractly estimated value to a value-added price, monetarily
negotiated.
E) The mixed capital-income method, with independent estimate of goodwill.
The main method for estimating goodwill, at least according to the doctrine and practice of
continental Europe, is based on the comparison between the extra-yield that the company is able to
generate for a limited period (or, more rarely, unlimited) and the normal return on capital of
comparable companies, within the product sector of reference.
To the extent that the goodwill is attributable to the know-how, the method can be used to estimate
this intangible resource; a critical point derives from the not always easy separability of the knowhow
with respect to other intangible resources, which in the goodwill find, in a residual way, their natural
fund of values. The extra income due to know-how is comparable to differential income and therefore
the two methods can find useful elements of convergence or, at least, complementarity.
6. Product and process innovation
Innovation is one of the key elements of a company's differentiation strategies, which allow it to
become unique, acquiring a competitive advantage that can result in monopoly rents. The innovations
can be product and/or process and are divided into main or derived: the former have an absolute
degree of creativity and originality compared to the previous knowledge, while the latter have a
relative character and may consist in a progress or improvement of techniques; the derived inventions
may be of improvement (resolution in different and more convenient forms of technical problems
previously solved in another way), of translation (transposition of a known principle or of a previous
invention in a different sector and with a different final result) or of combination (ingenious and
original coordination of elements and means already known with a technically new and economically
useful result).
In addition, "chain-linked" inventions, which result in dependent patents or patent families along the
same supply chain, are of particularly important.
There may be cases of dependent and derived inventions, of selection, improvement, combination,
translation, whereby the original patent takes on greater value as a result of other patents or inventions
that depend on it, giving rise to significant synergies.
Differentiation helps to create barriers to entry into the market in which the company operates,
limiting competition and the substitutability or comparability of the company's assets; this can allow
it to achieve and maintain high economic margins, even in the presence of an external demand that
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struggles to find satisfaction elsewhere and that may suffer the temporary monopolistic force of the
company holding the patent and can afford the luxury of activating price-maker strategies (with a
clientele specularly price-taker).
At a strategic level, the differential nature of inventions, which contribute to making the company
"unique", sheltering it from comparison and allowing it not to undertake the onerous path of cost
differentiation, is associated with their scalability, which allows its use - through industry and
reproducibility in series - where costs are marginally decreasing as volumes increase. Low marginal
costs and economies of scale are positive aspects of patents, which are also the result of often very
costly initial investments and uncertain outcomes.
The wealth (portfolio) of differential knowledge - and, as such, unique and innovative - is at the basis
of the evaluation not only of the existing intellectual property, but also of the inventive propensity,
fundamental to preserve and increase the strategic value, especially in companies that operate in
developed countries and that can hardly leverage on cost differentiation, also because of the high
incidence of labor costs.
7. Know-how and creditworthiness
The presence of know-how within the company tends to have a limited direct impact on the
creditworthiness of the company to be entrusted, considering first of all the limited recoverable value
of the know-how and it’s not always easy identifiability, measurability and separability with respect
to other assets that make up the "organized complex of assets" that defines the company. This is
particularly true in crisis situations, where business may not be guaranteed, and the company is
destined to progressively lose its synergistic value.
The residual value of the know-how changes according to its destination to minimize the effects of a
crisis: if it is transferred with other healthy branches or associated with intangibles with independent
collateral value (such as, for example, certain patents, or the human capital expressed by employees
and collaborators subject to enucleation by the bad company) then there will evidently be a more
limited loss of value.
The know-how does not typically enter into the calculation of the rating and transfers to the processes
responsible for the evaluation of the creditworthiness its well-known criticalities, first of all in terms
of failure to account, resulting from the prohibition to record the internally generated goodwill (of
which the know-how is a close, tending in many cases to converge in the bed of the definition of
goodwill itself) and the growing distrust towards the capitalization of costs, which tends to be not
allowed by international accounting standards. That said, it should be noted that the know-how,
especially in situations of going concern, retains a fundamental role in allowing and facilitating the
proper functioning of the company, on which depend the economic and income flows and the
stratification of assets, the basis of the ability of the company to repay debts and to preserve the
creditworthiness.
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REFERENCES
CASSIMAN, B., PÉREZ CASTRILLO, D., VEUGELERS, R., (2000), Endogenizing Know-How
Flows through the Nature of R&D Investments, August, UPF Working Paper No. 512.,
http://ssrn.com/abstract=248683.
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Electronic copy available at: https://ssrn.com/abstract=3533878