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Valuation of Brands and Intangibles: Keys to Measure and Create Value

1 de October de 2020

Brand valuation represents a key point for decision-making for a company and for investors. It is one of the essential values in the negotiation of merger, acquisition, spin-off and investment search processes. For a brand to develop its full potential, it is necessary to create a strategy that takes advantage of critical value drivers.

Valuation of Brands and Intangibles: Keys to Measure and Create Value

Brand valuation represents a key point for decision-making for a company and for investors. It is one of the essential values in the negotiation of merger, acquisition, spin-off and investment search processes. For a brand to develop its full potential, it is necessary to create a strategy that takes advantage of critical value drivers.
Brands evolve and so do their values. Indicators such as financial results, consumer response, competitive advantages, intangible assets or even the emotional connection with their customers are essential parameters in the brand value.

Why brands have value

  • They are the most important commercial and institutional asset in many industries.
  • They attract clients through knowledge, familiarity, sense of belonging, associated image, etc.
  • They allow to stabilize demand levels.
  • They transfer values, associated to the brand, to new categories of products and services.
  • The cost for the customer to find the company is less than the cost for the company to find the client.
  • Robust brands can afford higher prices, thanks to higher sales and margins.
  • Generation of economies of scale.
  • Associated legal rights.
  • They allow to differentiate the product or service.
  • They make it easier to recognise a product or service, helping understand what it represents.
  • They reduce the customer abandonment rate.
  • They facilitate the customer’s decision-making process.
  • They increase the loyalty of employees, suppliers and distributors.

Reasons to value a brand

Accounting requirements

  • Operations in business combinations (Mergers and Acquisitions): Allocation of the purchase price among tangible assets, intangible assets and goodwill is required.
  • Impairment test: IAS 36 includes the impairment of goodwill and other indefinite-life assets.

Tax & legal requirements
Taxes: Sales of assets between companies and tax planning.
Litigation: Compensation for damage, infringement of rights, anti-competition practices.
Franchises, royalties, license agreements.
Financial requirements
Financing: Loans secured with a brand as collateral.
Insolvencies and liquidation: divestment processes.
Transparency and information to stakeholders and shareholders.
Strategic requirements
Performance Management.
Allocation of resources, planning and control of the strategic line.
They help in defining the corporate mission and vision.
Identify and determine the value of value drivers.
One of the supports in purchase and sale transactions.

How to create brand value

  • Value drivers: Brand factors acting as levers in the creation of value for the company
  • Brands with a longer useful life (greater number of years generating cash flows)
  • Duration of the competitive advantage.
  • Regulatory framework and legislation.
  • Use of differential assets.
  • Entry barriers. Likelihood of entry of new competitors.
  • Competition structure of the industry.
  • Technology used.
  • Weight of the importance of the brand in respect of other assets in cash flow generation.
  • Size and liquidity.
  • Brands are more valuable when there is no company-customer relationship, but product-customer. si no -> sino (revisar español)
  • The brand usually has less importance in companies dependent on technology ownership (software, patents, etc.). The customer usually buys technology, not the brand.
  • Brands linked to personal reputation.
  • Brands carry a higher risk than tangible assets, but lower than technology and goodwill. Therefore, their discount rate must be in accordance with the rest of the assets.

What challenges does a brand valuation entail?

  • Definition of the brand.
  • Definition of sales, costs, investments and margins attributable to the brand.
  • Diversity of approaches, disparity in results obtained and lack of consensus
  • Subjectivity in the determination of variables.
  • Application of the most suitable methodology to the purpose of the valuation.
  • The diverse profile of professionals involved in brand valuation.

Considerations on Interbrand’s 2017 ranking

Interbrand is one of the main references in brand value analysis. The international branding consultancy draws up a ranking with the most valuable brands, which has already become one of the most anticipated events in the business world.
In preparing its list, Interbrand considers three main variables when making an economic value proposal: financial projections, intangible assets, and brand strength.
Particularities of the last edition ranking include:

  • US monopoly power, occupying the first four positions in the ranking. However, European brands account for one third of the total.
  • Leadership of the technology industry, followed by the automotive industry.
  • Amazon and Facebook represent the largest rises in the Top 10 brands.
  • Ferrari is back in the Top 100 after 4 years of absence.
  • Netflix and Salesforce appear on the list for the first time.
  • The retail industry sees the highest growth rate (+18.7%), followed by the sports goods industry (+10.1%).
  • The total value of the 100 most valuable brands is close to $ 2 trillion. 42% of the global value is concentrated in the Top 10.

The valuation of brands that, due to their characteristics (technological, aimed at emerging markets, startups, etc.), do not have close references is a challenge.
The work of Gesvalt’s experts weighs all the elements involved and implies the valuation of the potential embedded in the brand’s intangible value.
Consult our brand valuation services and contact us.

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