Brand Valuation

1/29/2018 How do you estimate the value of a brand? - Born2Invest
https://born2invest.com/articles/estimate-brand-valuation/ 1/9
Brand valuation is a smart and risky approach to selling a product in terms of a brand-p
match.
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How do you estimate the value of
brand?
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Published 3 days ago on January 25, 2018
By Gaurav Barick
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Brand valuation refers to the process of determining how much a brand is worth in
the nancial value perceived or money that a third party is ready to pay for.
It includes two aspects: economic value and social aspect. When businesses are in
negotiations for getting acquired, they look for leveraging some of their intangible
to spruce up their balance sheet.
Hence, business assets are categorized as tangible and intangible assets as describ
table below:

In brand valuation, companies need to consider useful life and risk more seriously
for brands that hold less than a number one to three positions in their respective m
A good indicator of brand persistence by industry is if brands are replaced post-ac
maintained by retention. For example, in case of brand licensing, a licensee takes
over a product line and focus on making a pro t by creating and selling merchand
In return, the brand-owning company charges the manufacturer a fee (Royalty Rat
its brand.
For example, tech company Apple did not get involved in the manufacturing of acc
its iPhones. The company instead encouraged vendors to build accessories around
brand, motivating the development of innovative products.
A similar case was Videocon, which sold a multitude of products like Sansui, Kelvi
Electrolux and Kenstar aside from making for Philips and Hyundai. One of the maj
advantages of licensing brand value is that it enables them to gain fees in the form
from the product of companies, for they sell every such licensed product aligned to
needs leveraging the brand of the licensor entity.
IND AS 36, 38 and 103: Goodwill and purchase price allocatio
valuation

In India, with the lack of regulatory requirements, most of the listed companies do
the brand values separately rather categorized under asset categories. In such case
researcher also nds it very dif cult to estimate the brand value of any closed tran
Now with the adoption of Ind AS, brand valuation has started gaining more signi
because Ind AS 36 & 38 speaks about impairment of goodwill, recognition of intan
determination of the carrying value and amortization.
Furthermore, under Ind AS 103, the identi cation of intangible assets during acqu
mandatory. Therefore, the importance of purchase price allocation comes. Some c
identi able intangibles in purchase price allocation include customer contracts, cu
relationships, brand, and technology. There are various factors that affect PPA for
which include nature of the acquired business and reasons for the acquisition, con
paid, remaining useful life for intangible assets, amortization methods assumed fo
intangibles, discount rates, growth rates, and tax bene ts.
Valuation of the enterprise or its brand depends upon its worthiness for an investo
be prepared to pay premiums. This exercise is carried out based on generally accep
methodologies, the results of which could vary signi cantly depending upon the b
the speci c circumstances and professional judgment of the valuer.
Different factors help in comparing brand value: a) Brand value to enterprise value
value to sale and c) Brand pro t margin to sales, or brand royalty rate. Brand valua
methodologies can be mainly categorized into market, cost and income approach.
However, inter-brand, real option, brand sale comparison and royal relief approach
most reliable. The market approach is based on the estimation of the anticipated p
to be sold in an open market. The brand sale approach estimates the value based o
differential price to sale ratio technique, which computes the brand value as the p
difference between the anticipated price to sale ratio of an unbranded rm and the
branded rm.
SEE ALSO The pits and stops of opening a craft distillery
The royalty relief approach perceives that the ownership of the brand is with a thi
determines its value based on the royalty fees gained through product sale. On the
the inter-brand approach focuses on factors like leadership, trend, internationaliz
protection.
Brand valuation methodology

Finally, the real option approach deals with the multi-stage process of brand deve
Further, the brand due diligence helps determine the real worth of any company in
brand value especially at times of its acquisition. Various aspects such as legal-ma
brand image review are the key. For example, documents related to company’s pat
copyrights and trademarks must be reviewed.
The brand valuation methodology depends on three things: market, cost, and income approach. (Source)

A number of global research companies, in ranking top global brands by evaluatin
as a marketing tool for the brands of businesses. Most of them work in conjunction
owners with the intention of bringing their brand value to light and thus infuse a s
pride and satisfaction amongst customers owning the brand. Rankings are not con
grossly vary with a wider margin.
For example, let’s take the case of Google, which was valued between $68.6 billion
billion during 2014. Similarly, Microsoft, when it acquired LinkedIn in 2016, was v
$26.9 billion. Here again, most of the brand valuation companies’ ranking failed.
Key factors: Royalty rate, remaining useful life and discount

Hence, one can say that brand valuation is a subjective thing, which highly depend
royalty rate, brand equity, useful life, discount rate and valuation ratios like Brand
Customer/EV, and Goodwill/EV. These are key factors determining the brand value
company.
Professional service sector companies like Deloitte, PWC, Grant Thornton etc. hav
kinds of client based on a) ongoing or recurring basis, i.e., audit, tax and accountin
outsourced services etc. and b) onetime or project-based i.e., transaction advisory
and advisory. In case of recurring basis, client size is more important compared to
whereas for advisory-based services brand plays an important role because here th
also high. During brand valuation, understanding the revenue model and the targe
an important factor, and consulting industry breakdown of ratios like brand/EV, cu
and price/revenue is thus essential.
Royalty fees depend on Intellectual Property (IP) rights, the cost-revenue structur
licensee and resulting pro tability. Differences between royalty rates of Adidas an
perfect examples of brand equity. The expected remaining life is a key determinan
asset’s value. Most of IPs have a nite life. For example, in case of patents, the rem
lifetime is determined by its expiry date. Copyrighted works depreciate faster, whi
secrets cannot be updated anymore and lose value over time. Another challenging
brand valuation is the determination of discount rates. Most often, a brand valuer
weighted average cost of capital (WACC) to arrive at a required return on intangibl
However, if the risk of the intangible assets is higher or lower compared to the ove
the company, the WACC overestimates or underestimates the required return on in
Since most of the intangible assets are funded with equity, the unlevered cost of e
therefore, can be used. However, for valuation of intangibles, the weighted averag
assets approach is the best, which divides company assets into four different categ
working capital, tangible assets, intangible assets and tax shield. Few in uential f
to be considered as key factors, and these include the product lifecycle, brand spec
its architecture, strength attained by the brand and the current market cycle in wh
industry is operating.
The best example showing the importance of royalty rate, remaining useful life an
discount rate is the brand valuation of King sher Airlines, which started its operat
2005, ve years prior to the valuation. The airline came from United Breweries Gro
parent company of the famous King sher beer. Insights into the beer brand suppo
faster penetration and growth of King sher Airlines, paving the way for the rise of
company and its entrepreneur. The airline’s brand valuer, Grant Thornton, expect

RELATED TOPICS:
future pro ts generated by King sher to come from its brand. Some leading banks
to lend King sher unsecured loans because of its brand alone.
SEE ALSO Gearing is where the real money is made
Here, the question about the valuation parameters (royalty rate, use life & discoun
by the valuer to arrive at such a high valuation arises.
Finally, one should understand that brands are extremely dif cult to sell without
understanding the underlying state of the business. Lenders accepting brand value
collateral ought to rethink their current lending patterns.
—
DISCLAIMER: This article expresses my own ideas and opinions. Any information
shared are from sources that I believe to be reliable and accurate. I did not receive
nancial compensation in writing this post, nor do I own any shares in any compa
mentioned. I encourage any reader to do their own diligent research rst before m
investment decisions.
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ASSET ALLOCATION# ECONOMIC GROWTH# FEATURED# IMPORTANCE OF BRAND#
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Gaurav Barick

Mr. Gaurav Barick is a proud alumnus of Indian Institute of Foreign Trade, New Delhi & an Investment B
specialized in Valuation, Private Equity, FDI, Equity Research, Portfolio Management and M&A. He ear
Finance from Indian Institute of Foreign Trade & currently he is pursuing his Ph.D. -International Financ
same Institute. Mr. Barick has almost 10 years of Investment Banking & Policy Making experience with
Private sector organizations. Emerging Economies are one of its core strategic areas for conducting Res

Investment, Cross-border acquisitions, FDI & Valuation. Currently, Gaurav is working on many initiative
UK, Russia, India, Brazil, Singapore & South Africa. During the 10- year tenure as an Investment Banker
completed more than 700 Valuation & more than 30 Merger & Acquisitions across different Context &
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