FastCap - FastCap is a company, which was able to sell a 20-year royalty on 5% of projected revenues. The amount paid for the royalty was 35% of the issuer's projected revenues for the year of the original transaction. The investor purchasing the royalty had an objective of achieving a 20% Internal Rate of Return (IRR). The investor, to be conservative, imposed a 10% discount on the issuer's projected revenues and therefore royalties. In the 6th year, assuming the projected revenues were achieved, the investor had received royalties of at least the amount paid for the royalty. However, the investor would have to wait until the 11th year to achieve a 20% IRR.

In the 6th year a Buyer for the investor's royalty proposes to pay the investor an amount sufficient to provide the investors with his objective of a 20% IRR.

The Buyer of the royalty also has a 20% minimum objective IRR and achieves it in the 6th year of royalty ownership if the projected revenues occur. The Buyer's recapture of cost occurs in the 5th year of ownership.

This is all displayed on the Summary for Seller and Buyer at the top of the Analytics.

The most logical buyer of the royalty is a tax-exempt organization as they will not be any taxes on the royalty payments. Also the performance of the issuer has been observable for 7 years and a better judgment can be made as to the probability of the projected revenues being achieved. The seasoned royalty will also be found attractive by both conservative income seeking investors and more aggressive ones having an ability to leverage the transaction.

Conservative - The investor purchasing for $8.0 million a 4% 20 year royalty from Conservative would receive cumulative royalties equal to the cost of the royalty in the 5th year and achieve the 20% IRR in the 13th year. However, if the investor sold the royalty in the 5th year for $5.9 million the 20% IRR would be achieved. The buyer would receive royalties equal to his cost in the 3rd year of ownership and his 25% IRR objective in the 5th year, having 10 more years of royalty payments. The ultimate IRR of 41.9% is achieved at the end of the period there has been a 10.4 times Cost Multiplier. Note that all calculations are made of the basis of projected revenues and users of the REX-PV Calculator can apply discounts to the projections as a means of understanding the reasonableness of the projections.

Steady - This company is in a utility-like business and has highly predictable long term contract business. The investor's costs recaptured in the 4th year and the IRR objective achieved in the 6th year. In this Sample the Buyer would appear to be getting too good a deal as the cost of acquisition is recaptured in the 2nd year of ownership and the goal of a 15% IRR is achieved in the 3rd year with there being more than 50% IRR in the final years. The Seller could negotiate for a share of royalties over an agreed amount for an agreed period or just require a higher purchase value.

 

Royalty transactions can be as simple or complex as the negotiating parties agree. Revenue sharing royalties are inherently flexible and can be shaped to meet the needs of both the issuer and the investor.

Please let us have any questions or comments regarding these sample cases, the intent of which is to demonstrate the results of the company's revenue projections being achieved. If you have any questions or queries, you can contact us at Chairman@REXRoyalties.com

Arthur Lipper, Chairman
British Far East Holdings Ltd.
Chairman@REXRoyalties.com
858 793 7100 – Skype: artlipper