IP securitization in Europe

Intellectual property securitization has had a promising history- from the initial excitement over Bowie Bonds, which securitized David Bowie’s song catalog, and other early deals, followed by a recent lull, during which it was thought the idea was dead. Recently IP securitization has been revived and the heros are the financial institutions and IP merchant bankers. They are basically retail products and franchises, nowadays mostly patents and trademarks rather than copyrights. Goldman Sachs closed a $200 million IP securitization for IHOP backed by its intellectual property and franchising assets. Lehman Brothers leads an IP deal for Domino’s Pizza; it aims to raise $1.85 billion. Dunkin Donuts really got the IPO ball rolling last May with its well-received deal. All of this being fueled in part by hedge funds and the liquidity they bring. We’ll likely see a lot more deals. With the marketplace shifting to a more knowledge-based, or “IP-centric,” economy and major investment banks testing the waters, IP securitizations are quickly changing the financing landscape and are reviving the possibility that this type of arrangement will become mainstream. Securitization normally refers to the pooling of different financial assets and the issuance of new securities backed by those assets. In principle, these assets can be any claims that have reasonably predictable cash flows, or even future receivables that are exclusive. Thus securitization is possible for future royalty payments from licensing patents or trademarks (or compositions or recording rights of a musician). At present, the markets for intellectual property asset-based securities are still rather small, as the universe of buyers and sellers is limited. But if the recent proliferation of IP as the new asset class (auctions, IP merchant bankers, and so on) then it is only a matter of time before all concerned will develop greater interest and capacity to use IP assets for financing business start-ups and expansions. As more cash flows are generated by intellectual property, more opportunities will be created for securitization. New player in the field is IPEG, Europe’s first IP merchant banking. They are in the process of developing their own IP securitization product, to be launched soon.

All images and illustrations used in our posts are licensed and have been legally acquired through official sources such as Adobe Stock