Cengage Learning, Inc. (“Cengage”), a private equity-backed education company, filed for bankruptcy protection on July 2, 2013 as part of an effort to shrink its $5.8 billion debt load.
Ocean Tomo was hired by management of Cengage to serve as its lead intellectual property financial advisor and determine the value of certain intangible assets.
Our role as intellectual property advisors included participation in all aspects of the valuation of certain unperfected copyrights, as the value of these assets was an early variable between the creditors on how to allocate value under the plan of reorganization. In the case of Cengage, new copyrighted works were being generated so often that Cengage and its creditors chose to file security liens with the U.S. Copyright Office periodically (e.g., quarterly) rather than each time a new work was created. As a result, security interests in certain copyrights owned by Cengage had not been properly perfected under the U.C.C. at the time of the bankruptcy filing. Consequently, the challenge arose as to which creditor held the rights to these unperfected copyrights and how to allocate the value of those assets.
Ocean Tomo undertook a highly quantitative and nuanced approach to valuing these IP assets. In the course of this engagement, we:
- Performed an independent valuation of the 15,000+ subject copyrights by utilizing a hybrid analysis consisting of the Excess Earning and Relief from Royalty methodologies;
- Determined the appropriate economic life of the subject copyrights;
Utilized complex content allocation factors to develop revenue projections that reflected the unique content that was created specifically for the subject copyrights;
- Developed revenue projections for future revisions of the subject copyrights to account for unique content that is carried from one textbook edition to the next;
- Analyzed and interpreted royalty rate data related to the subject copyrights, as well as data from dozens of third-party publishing license agreements.
On March 31, 2014, Cengage completed its financial restructuring and successfully emerged from its Chapter 11 reorganization.