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Alamo National Corporation: When Solvency Matters

This brief case study illustrates that issues external to the actual value or sale of intangible assets can sometimes have substantial impact on the value of those same assets. In the case of ANC Corporation, the contextual issue was solvency. Overall there were three broad issues affecting the intangible asset/intellectual property portfolio:

  • From a marketing and corporate value point of view, whether two brands are better than one, and whether both the Alamo and National brands should continue to exist side by side.
  • What other valuable intellectual property supported the brands within the combined corporation supported the brands?
  • Most importantly, were the market values of the brands and intangible assets enough to keep the company solvent?

A solvency analysis of the corporation was they key issue, and the intellectual property was the asset valuation needed to complete that puzzle. It was, in fact, the key factor in whether the company would be judged solvent or not. The overall solvency analysis was being done by financial advisors, and a specialist intangible asset team was called in to identify and value the intangibles. If the company was judged to not be solvent, the unsecured creditors would have immediate access to a pool of funds being held in reserve; and, if not, these creditors would face the possibility of not getting anything. The professionals that were called to identify and value the assets were retained by the unsecured creditors committee of ANC Corporation.

The objective of the engagement was to value the intellectual property on two bases: An orderly disposal scenario and a going-concern basis. Additionally, the valuation exercise and report was to be retrospective. That is, the date of the valuation was to be two years earlier than the date of the engagement, as this was a critical date in the reorganization of the company. The results of the study to establish market value parameters were necessary in order for management and the various creditors committees to make well reasoned judgments as to ANC’s future operations. The assets valued included:

  • Alamo trademarks in North America
  • National Car Rental trademarks in North America
  • Associated franchise rights in North America
  • Reservation systems, customer databases and other related assets

Prior to Alamo National Corporation deciding to re-organize, an investment banking house had performed an estimate of market value for these assets. This valuation took place in 2003, and the investment bankers concluded a value of $468 million. However, this value had been substantially reduced because of the current context in which the company found itself. In contrast, the team’s valuation conclusions were as follows:


These values represented the value to the company as a going concern of its intangible assets and intellectual property. To that valuation must be applied a substantial discount for the second valuation premise – value in an orderly disposal. An orderly disposal in bankruptcy typically causes a discount from market value of as much as 20 – 90% of value as so-called “vulture investors” seek bargains. Using a discount of 70% from going concern value resulted in orderly disposal values of between $60 million and $82 million. Based on these orderly disposal values, the various creditor committees and the trustees were able to determine whether Alamo National Corporation had been solvent as of the date of valuation; and, they were not. However, in a happy conclusion, the company was able to retain its liquidity and successfully reorganize the company. The lesson to take away from this case study is quite simple: Context has a critical impact on intellectual property values as does the timing of that valuation.