Finding Comparables in Niche Sectors 

Identifying comparable agreements within specialized sectors often requires overcoming data-related challenges. A systematic methodology includes evaluating agreements based on key criteria such as industry relevance, regional market dynamics, the nature of the intellectual property involved, and the established payment frameworks. When direct comparables are scarce, broadening the search to include related sectors or types of IP can be beneficial.

Aspects to consider

Intellectual property

Comparable intangibles can be beneficial when analyzing a specific Intellectual Property transaction. For instance, consider assessing trademark agreements by examining brand or trade name transactions, as they share similarities. Likewise, if you’re investigating technology agreements, they may align closely with patents or software, depending on the context.

Industry

Choosing the appropriate industry is crucial for performing a comparability analysis. Businesses in the same sector frequently face comparable market dynamics, regulatory environments, and customer demographics, which makes them suitable for comparison. 

Difficulties occur when there are too few transactions in that particular field. In such cases, it may be helpful to broaden the scope to include a broader industry or refer to OECD guidelines on intangibles, which allow searching for comparables in associated sectors. For instance, if you are looking for electric vehicles, a helpful approach could be to extend the search to a broader automotive industry.

Geographical scope

A company’s geographic presence greatly influences comparability, especially for those operating internationally versus domestically. If the number of comparable data is insufficient, a helpful solution would be to broaden the scope to global territories or choose regions with comparable market dynamics.

Agreement duration terms

A frequent issue is locating recent data. In these instances, examining agreements that were active during the relevant years may be beneficial. For example, if you seek comparables finalized in 2024, you might also consider transactions from 2022 that remained active throughout 2024.

Remuneration base

The remuneration base is also an essential factor in conducting a comparability analysis. When there is a lack of comparables covering the specific remuneration, e.g., net sales, consider broadening your search to include similar agreements focusing on overall revenue or sales for a more extensive list of comparable transactions.

Although niche sectors pose distinct challenges in finding comparable Transfer Pricing and IP valuations, a strategic approach can produce valuable outcomes. Analyzing industry trends, geographic scope, agreement conditions, and payment structures aids in improving the selection process. If direct comparables are inaccessible, broader industry insights and regulatory guidance can facilitate a strong and defensible valuation.

RoyaltyRange Royalty rates database

Our Royalty Rates Database is a valuable resource for anyone needing comparable third-party licensing or franchise agreements. It provides high-quality data that meets OECD BEPS requirements. Each agreement is evaluated based on up to 50 comparability factors, and detailed summaries are provided. The data is comprehensive, structured, and easy to review. Original agreements are available in PDF and online formats. 

Contact us for a database demo, or submit a One-Search inquiry, and we will be happy to showcase the database and discuss your needs and our solutions.

The information provided in this article is intended for general informational purposes only and should not be interpreted as legal or tax advice. It is not a substitute for consulting with a qualified legal or tax professional.