1 bridging the gap between marketing and finance™ ‘brand valuations: why, when and how’ by:...
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Bridging the gap betweenmarketing and finance™
‘Brand Valuations: Why, When and How’
By: Mary-Ellen Field, IP and Licensing Director
Brand Finance plc
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sectionone
About Brand Finance
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• We are the world’s leading independent brand valuation and strategy consultancy
• We advise organisations on how to maximise shareholder value through effective brand management
• We are specialists with a unique combination of marketing, research, management and finance expertise
• We have extensive global experience of brand valuation, analytics, strategy and transactions
What makes us different?
Valuation I Analytics I Strategy I Transactions
Bridging the gap between marketing and finance
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Canada
USA
Brazil
South Africa
Spain
Portugal
Turkey
Germany
Holland
U.K. (HQ)
Russia
Dubai
Sri Lanka
India
Singapore
Hong Kong
Australia
Our global footprint
South Korea
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Our blue chip clients
Brand Finance works for a wide range of clients conducting national and international brand valuation and brand strategy assignments. Here is a small selection of the clients we have worked with.
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Global recognition
Global press coverage:
Publications:
Media commentators:
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sectiontwo
Intellectual Property
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What are Intellectual Property Rights?
• Registered
1. Patents
2. Trademarks
3. Designs
• Unregistered1. Confidential Information
2. Copyright
3. Unregistered Designs
4. Unregistered Trade Marks
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sectionthree
Patents
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Patents10
• The technical and functional aspects of products and processes
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Patents
• Grant a monopoly for a period of time (20 years)
• Give the owner a legally enforceable right to prevent others using his invention
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Securing Patent Protection
• Patents must:– Be novel– Be inventive, not obvious– Have an industrial application
– N.B. Must be kept confidential before filing application
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sectionfour
Trademarks
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Trade Marks
• Used to distinguish goods or services from those of another• Brands, domain names, logos, sounds, shapes, smells• Brand loyalty – a valuable commodity
v
• Provides reassurance for consumers as to quality• Provides value to the brand owner
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RANK 2012
RANK 2011
BRANDBRAND VALUE
2012BRAND VALUE
2011ENTERPRISE VALUE 2012
ENTERPRISE VALUE 2011
RATING 2012
RATING 2011
1 8 70,605 29,543 350,257 244,382 AAA+ AAA
2 1 47,463 44,294 155,895 143,016 AAA+ AAA+
3 2 45,812 42,805 165,151 165,725 AAA+ AAA+
4 4 39,135 36,157 241,208 189,718 AA+ AA+
5 3 38,319 36,220 155,189 154,325 AA AA
6 18 38,197 21,511 199,331 113,327 AAA- AA+
7 7 33,214 30,504 468,287 475,066 AA+ AA+
8 16 31,082 25,807 83,696 69,508 AAA+ AAA+
9 5 30,044 30,674 189,232 192,456 AAA+ AAA+
10 32 28,665 17,780 94,398 64,132 AA+ AA
Top 10 Most Valuable Global Brands 2012
Source: 2012 BrandFinance® Global 500
Figures in US$ million
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Rank 2012
Rank 2011
Brand Brand Value 2012Brand Value
2011Market Cap
2012Market Cap
2011
Brand Value/Market
Cap 2012
Brand Value/Market
Cap 2011
Brand Rating2012
Brand Rating2011
1 3 27,597 27,632 122,741 171,163 22% 16% AAA AAA
2 2 23,229 28,944 133,473 136,069 17% 21% AA+ AA+
3 1 22,910 34,076 50,527 133,551 45% 26% AA+ AAA-
4 4 19,969 26,150 59,551 100,281 34% 26% AAA- AAA
5 5 18,964 19,150 67,064 90,089 28% 21% AA+ AA-
6 9 18,639 17,133 63,133 105,323 30% 16% AA+ AA
7 13 18,231 15,529 53,475 45,505 34% 34% AAA- AA
8 12 16,809 16,643 42,347 64,882 40% 26% AA+ AAA-
9 6 15,692 18,678 55,368 69,604 28% 27% AAA- AAA
10 10 15,464 17,092 174,952 205,564 9% 8% AA AA
Top 10 Most Valuable Banking Brands
Source: 2012 BrandFinance® Banking 500
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Rank 2012 Rank 2011 Brand Domicile Brand Value 2012 Brand Rating 2012% Change in Brand Value
1 1 United States $11.8 billion AA 6%
2 2 United States $7.9 billion AA+ -22%
3 4 France $7.7 billion AAA 1%
4 6 United States $6.2 billion AAA- -2%
5 5 Germany $5.6 billion AA+ -15%
6 7 France $5.1 billion AAA- -10%
7 8 Britain $5.0 billion AA 12%
8 9 United States $3.7 billion AA 22%
9 10 Japan $3.3 billion AA- 11%
10 11 Japan $2.9 billion AA+ -2%
Top 10 Best Beauty Brands 2012
Source: 2012 BrandFinance® Best Beauty Brands 2012
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Brands Can Co-exist Where Confusion is Unlikely
• PEDIGREE dog foods• BOUNCE dog food• BOUNTY confectionery• LOTUS cars• GALAXY confectionery
• PEDIGREE beer• BOUNCE dryer sheets• BOUNTY kitchen towels• LOTUS tissues/LOTUS shoes• GALAXY tights/GALAXY cars
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Registration of Trade Marks
• Trade Mark Registry• 2 tier test
1. Graphic representation 2. Distinguishing goods or services from others 3. Absolute and relative grounds for refusal
• Initial registration – 10 years duration • Renew for further 10 year periods• Community Trade Marks• International registration of trade marks – Madrid
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Registration of Trade Marks
Why register a trademark?
Commercial Exploitation of the
Mark
Monopoly right to use the mark for particular goods
or services
Easier to protect and enforce
registered rights
Renewable for an indefinite period
Authorised use via licensing
agreements
Right to sue third parties for
infringement
Only IP right which increases in value with age if
looked after
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Trademarks - Risks
• Trademark rights are national – others may have secured rights in other territories• Trademarks that have not been used correctly can become generic so that anyone
can use them e.g. aspirin, elevator, corn flakes• Trademarks that have not been policed may have reduced value
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sectionfive
Trade Mark Dispute: Fish 4 Dogs
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Turning a catastrophe into an opportunity23
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Background24
• Fish 4 Dogs is an innovative British company that produces premium pet food and treats made of fish from sustainable sources
• It has grown rapidly over the last five years and exports to over 40 countries.
The owners were led to believe that they could depend on domain names and their European TMs to protect their rights throughout the world
This is a very common misconception. Trade marks will always trump a domain name
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• Fish 4 Dogs launched their product via a distributor in Australia in July and sales took off immediately, F4D’s website was inundated with flattering testimonials and photos of happy dogs.
• In November, a range of canned dog food, “Fish for Dogs” was launched in Australia’s major supermarkets supported by a very substantial advertising campaign, not surprisingly the exclusive distributor was on the phone that day.
• F4Ds called us and said “we have to stop this”
• We carried out a TM search immediately and discovered that the Australian company had filed applications for the mark 18 months before. We had a very serious problem
Managing a crisis
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• Rigorous planning and ruthless execution• Very courageous client who trusted us to make the
right calls• Section 52 of the Australian Trade Practices Act• Good choice of lawyers and trade mark attorney• Excellent record keeping by client, it was all in the
emails• Fear of reputation damage by parent of Australian
company• After the event litigation insurance• Extremely experienced counsel for the other side• No lawyers allowed in to the negotiation room• It made very good future commercial sense for the
other side to work with us not against us
How did we win?
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IP Protection is no guarantee of a quiet life27
• The best innovations are simple, distinctive and useful and unfortunately are the most copied
• This client owns the patents, trade marks and registered designs globally. • The product retails for under £50 and sells extremely well
• This client has to fight a constant battle against large UK retailers and giant corporations who copy his product
• For the last four years he has spent more than each year’s profit on lawyers
• Last year we negotiated a settlement with a US multi national corporation and a UK retailer, who paid damages and agreed not to use the TM again.
• 10 months later it is back in the same retailer with not only our TM but with the registered symbol for good measure
• The retailer agreed to remove it immediately, our client has been threatened with a super injunction to prevent him from speaking to the retailer
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IP AUDITS
An IP Health Check
Tailor Enforcement Strategy
Maximise Value of your brand
Portfolio Management
Review Enforcement Policy
Registration of Rights
Review structure of licenses
Counterfeiting – Customs watch
Licensing IP for financial gain
Records Management
Parallel Imports – Quality Control
Incentives IP creation
Ensure core IP is owned
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sectionsix
Licensing
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What is Licensing?
“A license is a grant of specified rights, for a specified term in a stated territory by the owner of the rights (licensor) to the user (licensee). A license is not a permanent transfer of rights, but a grant of limited
duration. A license does not diminish the rights of the licensor in relation to how the
brand is used.”
Mary-Ellen Field, Licensing Director, BF plc
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Advantages of licensing to brand owners
• Product extensions• New distribution channels• New geographical cover• New customer acquisition • New demographics touched• Additional advertising and promotion• Enhanced trademark protection• Partnerships to reduce counterfeiting• Enhanced brand imagery• Increased brand awareness • Revenue growth and reduced risk
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• Exclusive or non-exclusive• Uniqueness IP rights associated with the brand• IP Protection and enforcement• Existing brand awareness and equity in licensee territories• Master license, sublicense• Risks to the licensor: legal, financial, reputation • Level of competition to the brand and nature of alternatives• Level of support to be provided by the licensor and cost implications• Duration of the license agreement and renewal rights• Obligations of licensee
Considerations when licensing a brand32
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Key Terms of Licences
• Define IP forming subject matter of licence• Permitted use• Type and duration of licence• Consideration and royalties• Geographical extent - exhaustion of rights • Licensor/licensee obligations• Quality Control• Ownership of IP rights• Grounds for termination• Sub-licensing/assignment• Use of acknowledgments by licensee; “reproduced by kind permission
of…” – loss of right to oppose the re-sale of the product in other jurisdictions
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Types of Licence
1. Exclusive– Only the licensee may use the work ( also excludes the licensor)
2. Non-exclusive– The licensor and multiple licensees can use the work
3. Sole– Only the licensor and licensee can use the work
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Which licence to use?
• When acting as Licensor…. - Non-exclusive licences more flexible - Exclusive licences may lead to greater rewards• When acting as Licensee…. - Exclusive licences allow for control - Costs implications • Compromise - Sole licences - Divide exclusive/non exclusive rights based on geographical scope and
duration of licence
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Negotiating Licensing deals• What rights are being granted• Exclusive or non exclusive • Royalty rates: Fixed, adjustable, free, due dates• Territory • Term: Right to renew• Guarantees: Upfront, non refundable, minimums• Performance and reason for termination• Management: management continuity and communication• Licensor obligations• Licensee obligations• No change of control• Don’t let lawyers negotiate the deal
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• Toys 5% - 15%
• Packaging 1% - 5%
• Sporting goods 3% - 10%
• Automotive accessories 3% - 8%
• Luxury perfumes 8% - 15%
• Skincare / Beauty Products 3% - 15%
• Food products 1% - 5%
Example royalty rates*
*All rates are based on percentage of wholesale price
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sectionseven
Why value brands?
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‘Brand’
‘Branded Business’
‘Branded Enterprise’
Definitions
• Enterprise Value – the value of the entire enterprise, comprised of all of the individual branded businesses operated by the enterprise
• Branded Business Value – the value of the entire business operating under a particular trademark
• Brand Value – the value of the trademark (and relating marketing IP and ‘goodwill’ attached to it) within the branded business
What is being valued?
There is no legal definition of the term ‘brand’ and it is often used with a variety of meanings. It is usually helpful to understand the value of the brand (as defined below) for the purposes of communication and performance tracking but also to understand the impact of brand and marketing strategy on branded business value
E.g. Unilever
E.g. Persil
PersilTrademark
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FOCU
S
40What is the purpose of the valuation?
There are a number of different reasons for valuing brands. These range from highly technical to commercially-focused reasons:
Technical:• Balance sheet reporting and impairment reviews
• Tax valuations and transfer pricing compliance
• Litigation and dispute resolution
Commercial:• M&A and financing
• Licensing and JVs
• Establishment of brand management company
• Brand strategy formulation
• Brand architecture review
• Portfolio management
• Brand performance tracking (scorecards)
• Investor relations
FO
CU
STrademark Valuation
Branded Business Valuation
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FOCU
S
41What is the purpose of the valuation?
There are a number of different reasons for valuing brands. These range from highly technical to commercially-focused reasons:
FO
CU
STrademark Valuation
Branded Business Valuation
Technical:• Balance sheet reporting and impairment reviews
• Tax valuations and transfer pricing compliance
• Litigation and dispute resolution
Commercial:• M&A and financing
• Licensing and JVs
• Establishment of brand management company
• Brand strategy formulation
• Brand architecture review
• Portfolio management
• Brand performance tracking (scorecards)
• Investor relations
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The first brand valuation... 1988
• RHM had £300m of tangible assets
• GFW offered £600m for the company
• RHM thought this undervalued the brands
• John Murphy approached RHM with an idea
• 1984 News Corporation valued its mastheads
• RHM valued approximately £680m of ‘brands’
• Both acquired and internally generated
• Tomkins ‘won’ in 1990 @ £950m
• UK accounting authorities were appalled
• Started the process which led to IFRS 3
• A free for all in proprietary brand valuation methodologies
Hovis
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The primary valuation approaches
MarketApproach
Valuation Approaches
Cost Approach
Income Approach
Value estimate
present value of earnings attributable to the asset or costs avoided as a result of
owning the asset
Value estimate
reproduction/ replacement cost-
adjusted for depreciation and
obsolescence
Value estimate
based on multiples or prices from market transactions involving
the sale of comparable assets
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The primary valuation approaches
MarketApproach
Valuation Approaches
Cost Approach
Income Approach
• Price premium
• Volume premium
• Income split
• Multi-period excess earnings
• Incremental cash flow
• Royalty Relief
• Comparable market transactions
• Cost to create
• Cost to recreate
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Introduction to Royalty Relief methodology
The Royalty Relief approach is based on the assumption that if a company did not own any trade marks it would need to license them from a third party trade mark owner instead. Ownership therefore ‘relieves’ the company from paying a license fee (the royalty) for the use of the third party trade marks
By determining the royalty fees the business would theoretically be required to pay, we are able to estimate the proportion of future cash flows that are attributable to the brand – the present value of the post-tax royalties are held to represent the value of the brand today;
Royalty relief is generally accepted as a robust method for valuing brands and patents because:
It ties back to the commercial reality of brands - their ability to command a premium in an arm’s length transaction;
The methodology is specifically recommended by the IVSC for use in IFRS reporting; &
This method relies on verifiable third party data (licensing agreements – where appropriate) and therefore less judgment is involved than other methods.
Brand Finance uses Royalty Relief to value brands in the Banking 500 League Table because:
It is the approach that is most recognised by technical authorities worldwide and favoured by accounting, tax and legal users because it calculates brand values by reference to comparable, third-party transactions.
It can deliver a robust valuation even when only limited data is available
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I can make a whole lot more money skillfully managing intangible assets than managing tangible assets
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”Warren Buffett, CEO
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Brand Finance plc is the leading brand valuation and strategy firm, helping companies to manage their brands more intelligently for improved business results.
If you'd like to know more about Brand Finance, we are eager to hear from you.
3rd Floor, Finland House
56 Haymarket
London, SW1Y 4RN
United Kingdom
Mary-Ellen Field
IP and Licensing [email protected]
+44 20 7389 9400
How can we help? +44 207 389 9400 [email protected]
Thank You!