When conducting buy-side due diligence and valuing a potential acquisition target company, encumberments to the deal might include contractual change of control provisions affecting partnered products, changes in governance, and the value of active alliance revenues and liabilities in the form of milestone payments and royalties that the target is party to.

Deloitte Recap's VALUATION analyzer™ and DEAL builder™ provide data and insight on alliance contract structures and payment terms that a target company might be subject to. Deloitte Recap's Effective Royalty Rate (EFR) benchmark within VALUATION analyzer provides access to post-launch payment details based upon a unique collection of over 2,600 alliances with fully disclosed SEC-filed contracts primarily obtained through Freedom of Information Act (FOIA) requests.

This case study illustrates how milestone payments and post-launch EFRs may factor into a company's value among its diverse alliance revenue and payment liability structures, assuming successful product outcome.

Deloitte Recap Case Study:
Buy-Side Due Diligence - Potential Deal Encumberments

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Buy-Side Due Diligence - Potential Deal Encumberments:

Deloitte Recap's EFR Benchmark

An Effective Royalty Rate (EFR) is Deloitte Recap's calculated and normalized post-launch compensation payment paid to the licensor, expressed as a percentage of annual net sales of the licensed product.

The tiered royalty rates, profit splits, and transfer price payments provided in licensing contracts are normalized to net sales-based payments at three standarized sales levels: $200 million, $500 million, and $1 billion.

This approach allows for a direct comparison of post-launch payments across various deal structures.


Alliance Revenues and Liabilities of a Potential Acquisition Target

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