What's in a name: The value of a brand

by Stuart Whitwell

More from this author

20 Jun 2012

  • Comments
trusted-brand

VERY RARELY does a barman hear a request for a bourbon and coke - it'll be a Jack Daniels and coke please, or even a JD. Instantly, the barman knows what to pour. Brands are arguably invaluable and establishing a successful one can take years - 146 in Jack Daniels' case.

For accountants, factoring this brand value into their calculations when advising on deals isn't one of the highest priorities but increasingly, it is vital that this intangible worth is brought to the fore during negotiations.

The £300 million buy and build acquisition of Ypióca by drinks giant Diageo recently, highlights the importance of brand value. A handful of industry analysts have commented this price tag is too high - arguably because they just don't understand how a brand like this is valued.

However, scratch beneath the surface, and you'll find that Brazilian brand Ypióca leads the, alcohol distilled from sugarcane, cachaça market. With the upcoming World Cup in 2014 and the next Olympics both to be hosted in Brazil, the demand for the sugarcane liquor is expected to rocket at this time, making Diageo's deal a sweet one.

The number of buy and build acquisitions is expected to increase, especially given the comparatively low risk for bigger companies looking to invest in a solid proposition, the quick returns and in-roads into new markets these types of deals can provide. It is therefore important accountants get to grips with the role brand value has to play in these deals, allowing parties on both sides of the table to accurately value both the tangible and intangible assets on offer.

Brand valuation can be a complex process, and it is advisable to take on a brand valuation expert to help accountants and other advisors to broker the best possible deal. This process will take into account a company's trademark, copyright and design rights, recipes, and formulations and evaluate the value earned purely from these assets, among other factors.

It is also important to appreciate the prominence of the brand in the overall portfolio, as other synergies such as brand muscle and volume scale can add significantly to the overall bottom line.

Brand valuation is usually conducted in accordance with both International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles (US GAAP) accounting standards. Like other assets, brands are valued according to income, market and cost. Calculating the income involves a deep understanding of how brands drive value and discounting future revenue to a current day value. To evaluate the market, its participants and transactions are taken into account and assesses costs by considering the price of replacing or recreating the brand.

Last year, the Financial Reporting Council noted that insufficient information was often provided about intangible assets during the acquisition process, so it is vital this is taken into account. But, even if accountants are not advising clients on potential acquisitions, there are still plenty of benefits from undertaking a valuation of the client's own brand - exposing strengths and weaknesses and helping the business to capitalise on opportunities in their market.

Mergers and acquisition activity may currently be muted, but a gradual return to higher levels is expected. It is therefore essential accountants take into consideration intangible assets into the equation, raise a glass to brands and the extra value they can provide.

Stuart Whitwell is joint managing director Intangible Business

Visitor comments

blog comments powered by Disqus
display:none

Add your comment

We won't publish your address


By submitting a comment you agree to abide by our Terms & Conditions

Your comment will be moderated before publication

Submit
  • Send

Appointments to University Committees

University of Glasgow 120x60University of Glasgow - Glasgow - unremunerated positions

 

 

Newsletters

Get the latest financial news sent directly to your inbox

  • Best Practice
  • Business
  • Daily Newsletter
  • Essentials

Careers

Search for jobs
Click to search our database of all the latest accountancy roles

Create a profile
Click to set up your profile and let the best recruiters find you

Jobs by email
Sign up to receive regular updates with the latest roles suitable for you

Briefings

budget-management

Why budgeting fails: One management system is not enough

If budgeting is to have any value at all, it needs a radical overhaul. In today's dynamic marketplace, budgeting can no longer serve as a company's only management system; it must integrate with and support dedicated strategy management systems, process improvement systems, and the like. In this paper, Professor Peter Horvath and Dr Ralf Sauter present what's wrong with the current approach to budgeting and how to fix it.

cchcover

iXBRL: Taking stock. Looking forward

In this white paper CCH provide checklists to help accountants and finance professionals both in practice and in business examine these issues and make plans. Also includes a case study of a large commercial organisation working through the first year of mandatory iXBRL filing.