BRAND / TRADEMARK VALUATION
Brand is primarily associated with the ® sign, which comes from the word “registered” and means that the logo next to it is
a registered trademark. However, a brand is not just a logo or the name of a product or service. It also embodies consumer awareness and loyalty, experience, tradition, recognition and quality.
Combining these qualitative parameters with the relevant financial data of the company using the brand makes it possible to determine its fair value.
Historically, the concept of brand valuation was born in the 1980s, but at first it was more of a curiosity. Until the 1990s, when spectacular increase in the share of intangible assets in the market value of companies (measured by the ratio of market capitalization to net book value) was observed. Changes in the global free market economy indicated that the key factor behind this phenomenon was the growth of the importance of brands in the buying process. As a result, the early 21st century saw a revolution in accounting standards. The brand became a full-fledged component of the company's balance sheet. This triggered the need to reliably determine its value.
From a formal point of view, the subject of valuation can be:
- the right to a trademark (word or word and graphic) confirmed by a certificate of protection from a relevant patent office,
- the right resulting from the application for protection of the trademark, as well as
- author's economic right to that trademark.
Of course, lack of protection – and even more so, lack of an application – significantly increases the risks associated with a brand. Nevertheless it does not exclude the possibility to assign a fair value.
A brand valuation can be carried out, among others, for the following purposes:
- transactions, i.e. the sale or licensing of trademark rights;
- business restructuring;
- accounting requirements, such as purchase price allocation or asset impairment testing.
Valuation methods used:
- The income approach (DCF), where the value is determined based on the expected future economic benefits associated with the valuation subject. These benefits are expressed as cash flows. Examples of the methods we use under this approach are:
- The Relief from Royalty Method, which is one of the most widely used methods for valuing brands andtakes into account both the "size" of the brand (level of turnover) and its "quality" (ability to generate margins);
- The Multi-Period Excess Earnings Method, which is enriched with statistical methods, and
- Price Premium Method.
- Less common (most often for inactive brands) is the cost approach: the historical replacement cost method or the cost method. This approach assumes that an asset is replicated by producing it in-house or having it made by third parties. This approach should take into account all costs that would be incurred if a given valuation item was to be reproduced.
Valuation of intangible assets, including brands/trademarks, is one of our leading specialities.
Our consultants were the originators and co-implementers of the Ranking of the Most Valuable Polish Brands published by the “Rzeczpospolita” daily from 2004 to 2018 - the first ranking of this kind in Poland. Every year it covered several hundred leading Polish brands.
Therefore, it can be said that we are the clear market leaders on the Polish consulting market in terms of the number of completed brand valuations.