Brand Valuation. May 2016

Transcription

1 Brand Valuation May 2016

2 Background As an interesting and highly relevant accompaniment to Anna s presentation on Brand Failure, it is useful also to look not just at the subject of Brand Value but Brand Valuation namely, how a well managed brand with an ambitious vision can increase it s potential sales worth. We have attached overleaf some guidance on this area as it is something we work a lot with our Clients on when they are looking to purchase or sell a brand.

3 Brand valuations why Many companies need to value their brand assets for the following reasons: 1. Audit / Balance Sheet justification eg. an impairment review for internal purposes. Such a valuation may also be used to bolster balance sheet and reduce the cost of borrowing 2. Considering selling the Brand ie. a higher value could be secured according to potential acquirers and their own market strengths 3. Brand Audit monitoring the perceived or potential value of their Brand over time, versus the competition and also aid in the ongoing assessment of royalty rates

4 Brand Valuation the process A. DATACAPTURE PHASE Questions from a number of different angles including financial, consumer focused marketing and employer brand marketing. For example from one angle the standard units/revenues/margins/market shares through awareness, FOP, WOP to identifying the major opportunities for the Brand (Goodwill) A second angle will be identifying the cost structure & margin structure through the supply chain Finally (and highly relevant to service or people businesses) will be identifying opportunities in terms of harnessing & enhancing personal relationships, specialist skill-sets and market specialism or advantage Outputs The output from this stage would be A schedule of high-value pros & cons, probably presented in a SWOT formation, for example: cash-flow, key listings / clients, major dependencies, strong contracts and so forth To understand what the expectation is in terms of valuation is there already an answer that simply needs justifying?

5 Brand Valuation the process B. VALUATION PHASE The Brand valuation will combine financial and marketing information to provide a compelling value that recognises the Brand as a marketing investment and a profit generator. An Internal valuation will be based on projected future cash-flows from the Brand and as such the financial information that is gathered will support this. For a Sale valuation the first stage will be to identify the critical gaps that exist to the next step-change of growth. This could be the need for injection into product development, new channel development or investment in raising (for example) awareness in an existing product & channel. Alternatively there could be an opportunity through sharing production, factory or overhead costs and similar synergies such as outsourcing. Identifying these gaps presents an opportunity over and above the standard internal accounting valuation and provides Brand owners with the eye-opening information, namely not so much how valuable their brand is to them, but how valuable it is to target suitors who can make light work of existing constraints to growth. A Brand Asset Optimisation Programme valuation should use much of the Sale methodology but will be in part grounded by the Brand owner s investment constraints. It will apply consistent measures on a regular basis to assess the value of the Brand against both itself & the competitive set over time.

6 Brand Valuation the process B. VALUATION PHASE (continued) Example of the potential value of a brand over time and to a potential suitor: profit growth over time status quo potential 12 profit yr 0 yr 1 yr 2 yr 3 yr 4 yr 5 yr 6 yr 7 yr 8 Status quo = prospective profit growth of the Brand in its current state. Potential = prospective profit growth of the Brand to a potential buyer if they can deliver step-change growth and/or synergy.

7 Brand Valuation the process B. VALUATION PHASE (continued) Using the example on the previous page we would expect valuations to range as follows: The Audit/balance sheet justification will stick to the status-quo curve and apply a discounted cash flow basis to the valuation. In the example above the valuation could be 10m- 20m The Sale valuation will tap into the potential value for the Buyer. This will be some version of an Internal Rate of Return (IRR) calculation. This is the commonly used model for valuing Intellectual Property. In this instance it would be based on the potential profits of the Brand under new stewardship (say 10 x potential profit after tax), but would be discounted to some level to account for up-front capex, or general risk. Taking the year 3 potential profit of 10m, for 10 years would equate to 100m. Even a heavy risk adjustment would provide a 50m+ valuation. The IRR methodology would mean that a potential acquirer will consider whether they can expect to get a better return from their 50m investment here than say keeping it in the bank. Therefore if the investment is likely to recover average profits after tax of 5m per year (i.e. 10% of investment) then that is a better rate of return than if left in the bank. The Brand Asset Optimisation Programme route will be similar to Sale but will be a continuous process that monitors results against expectation (i.e. potential) over time.

8 What do you as a business need to do? Health checklist Brand vision and clear proposition Brand Key Brand guidelines Social media guidelines Crisis management policy and strategy Internal communication and buy in from the business from the top down Asset checklist A Brand Asset Optimisation Programme could accompany the brand health workstreams on the left to workshop and devise a firm, scientific valuation of the brand which can be used for a number of purposes from justifying a royalty rise to preempting the packaging up of the brand for sale