Why is Malcolm Glazer willing to pay close to £800m for Manchester United, a
sum equal to five times revenue, 26 times operating profit and nearly five times
greater than the Red Devil’s book value?
On the books alone, Glazer’s bid is covered by just short of £200m net
balance sheets assets – made up by a mixture of tangibles (stadium) and
disclosed intangible assets (purchased players). Therefore £600m is attributable
to undisclosed intangible assets such as the brand, internally generated players
and commercial contracts. Using a ‘royalty relief’ valuation methodology, we
estimate the Manchester United brand is worth £225m, making it a key asset in
the takeover package.
With over 80% of Glazer’s bid explained by intangible assets, this highlights
a growing trend in M&A of companies paying premiums to acquire
Where legal, commercial and financial due diligences are performed as a
matter of course in traditional M&A activity, they often miss the critical
issue of demand and revenue growth over the forecast period.
Brand due diligence provides a detailed insight into the strength and value
of a brand. It helps sellers determine the timing and price of a disposal, and
communicate and realise the full value of the branded business. Buyers,
meanwhile, can gain an insight into the risks associated with the brand’s
earnings stream and its future revenue potential.
In Glazer’s case, he is acquiring a fundamentally sound business – one of the
few football teams to extract a profit and the market leader in producing
results, both on and off the pitch. Where recent football takeover ‘heroes’ have
been happy to pump money in, Glazer’s mission is to take money out and at the
heart of this objective resides the brand.
Here is a brand that is watched, loved and supported by an estimated 70
million fans globally. For supporters not content with paying £45 for a replica
shirt, they can watch MUTV, make purchases using their Manchester United credit
card, take out loans, car and home insurance, ISAs and even mortgages.
Couple these extensions with Glazer’s US sporting experience, contacts and a
shrewd eye for value, and the Manchester United commercial arm could be further
exploited to turn Glazer’s millions into billions.
Increased season ticket prices (in line with its Premiership competitors),
raising stadium capacity (to meet existing demand) and renegotiating TV rights
(similar to other leagues) aside – Glazer’s attention is focused on the uncapped
potential of commercial income streams. Although the brand has partially
penetrated the US and Asian markets, Glazer is fully aware of its global
Match this with Glazer’s first-hand knowledge of the lucrative US market, and
appetite for the rapidly-emerging commercial market in Asia, and the result is a
potentially explosive strategy and business model. Where increased match day
revenues will contribute to the bottom line, the brand and commercial
opportunities are reservoirs of future earnings.
Glazer’s bid mirrors the recent trend of companies acquiring heavily branded
entities at a significant premium – take Proctor & Gamble’s acquisition of
Gillette and K-Mart’s takeover of Sears. Where synergy, scale and cost savings
used to dominate takeover discussions, new words such as ‘loyalty’, ‘awareness’
and ‘stretch’ are now vogue.
The logic is simple: for consumers, brands promise consistency, quality and
reinforce a personal sense of self. In return, the loyalty of customers to a
brand gives companies secure revenue streams, allows them to charge a premium
and enables them to expand more easily into new lines of business.
In a crowded market of products and services chasing limited customer
revenues, the sources of value creation have moved from tangible assets (such as
plant and machinery), to intangible ones (such as brands, patents, customer
databases and a skilled workforce).
Today the scarce resources aren’t capital, factories and goods, but ideas,
relationships and differentiated brands. Organisations must understand the value
of the business they are buying to ensure the acquisition will work and a
sensible price is paid.
The importance of understanding the intangible assets has been reinforced by
recent changes in the accounting standards for business acquisitions – IFRS3.
Where the principals of takeover deals concentrate on the target’s earnings
stream, market share and historical performance, investors must now pay
attention to the direct assets (both intangible and tangible) driving these
metrics. Acquirers must also broaden their due diligence to capture the
intangibles and move from historical numbers to future projections.
Brand due diligence provides a snapshot of the brand’s operating environment.
This helps to determine how the brand will develop and provides insight into
areas where information and analysis can be enhanced to set objectives and
The process involves a comprehensive legal review and risk analysis of the
business, to provide a better understanding of the nature of the franchise.
Without watertight legal protection, any form of brand valuation is effectively
A market review and risk analysis of the business is also essential. All
sectors have their own idiosyncrasies but will invariably be affected by
external factors such as social, economic, political, technological and
A competitor review and risk analysis involves identifying the market leader
and understanding its strategy to allow you to identify the barriers to a new
Without strong and cohesive brand management, any company’s brand will
devalue in time and incur higher costs when reinvigorating it. A brand risk
analysis should include customer target profile, pricing strategy, the response
to environmental changes, contingency plans for product malfunction, personnel
error, ethical and environmental problems.
Finally, a branded business review and risk analysis will determine where
sustainable competitive advantages lie. The brand’s strength will also be
reflected in customer loyalty, an advantage that draws on the fact that all
brands are unique.
Despite the fact Glazer is acquiring little in the way of tangible assets,
the power, value and potential in the package of intangible assets is capable of
much more significant returns. The combination of the increasing economic value
of brands and the reform of accounting standards has put brands at the center of
M&A strategies and projects. Targets and raiders alike need to ensure they
understand both the present and future value of the intangibles they are selling
David Haigh is CEO of brand valuation consultancy Brand Finance Plc
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