Leveraging value with intangibles: more guarantees with less collateral?
Open Access
- 1 January 2015
- journal article
- Published by Virtus Interpress in Corporate Ownership and Control
- Vol. 13 (1), 241-253
- https://doi.org/10.22495/cocv13i1c2p3
Abstract
This paper shows how intangibles can create scalable value, levered by debt and serviced by intangible-driven incremental EBITDA and cash flows. Intangibles intrinsically incorporate information asymmetries and may so discourage debt, but are also a vital component of cash generating value, so representing a key factor for debt servicing, with paradoxical effects (more guarantees with less collateral?). Operating leverage is enhanced by scalability, an intrinsic characteristic of many intangibles, with a positive impact on cash generation and consequent debt servicing. Ability to improve cash flows emerges as a key feature of value enhancing intangibles, bypassing their lack of collateral value.Keywords
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