BRAND VALUATION concepts models and business is need of the hour

BRAND VALUATION & M&A

1. BRAND VALUATION IN M&A CHAPTER 14 Dr. Deepak Tandon MBA(IB) 2022-25 (Part Time)

2. A business in any market structure is normally known by its brands. A brand is an identity or name of a product in a market. It is an intangible asset of the company manufacturing it. Brands include different potential aspects such as: Trademarks ,Trade names , Product formulations/recipes ,Marketing materials ,Style guides, Websites and URLs , Unique packaging/trade dress. A brand name makes it easier to differentiate products especially when a single company manufactures a large number of products The value of brands also depends on how their new owners leverage them

3. Keller : CBBE : Customer Based Brand equity

4. Economic Income Approach  - Under this approach, the future economic benefits from the brand are discounted to its present value using various discounting methods. Deciding the discount rate and the tenure is important to derive realistic results. Market Comparable Approach  - As the name suggests, a brand is compared with other brands under the same product category using various financial ratios like P/E ratios and turnover ratios. Cost Approach  - It simply involves adding up the cost of different components used in creating the brand. The components, for instance, can be advertising cost, research cost, manufacturing cost, etc. Inference : target marketing capability and acquirer brand portfolio diversity have positive effect on target’s brand(s) value. Deal type inhibits the impact of acquirer portfolio diversity on target’s brand value. Target firm sales growth inhibits the impact of target’s marketing capability on target’s brand value

5. COST BASED APPROACH MARKET BASED / ORIENTED APPROACH

6. Income Oriented approach

7. BRAND VALUATION

8. Brand Purchased for Rs 9000 FV =23000 PV 16078 So Value of Brand increases

9. YR TOTAL PROFIT TOTAL Profit without Brand Profit in Brand PVF @15% Present Value 2023=24 5000 1200 3800 0.870 3306 2024-25 6000 1500 4500 0.756 3402 2025-26 7000 2000 5000 0.658 3290 2026-27 8000 3000 5000 0.572 2860 2027-28 4000 1000 3000 0.497 1491 14349

10. ROYALTY RELIEF METHOD Royalty Relief Method

11. Premium Price Method

12. Brand Brand X needs to be valued and we select the comparable firm Y which has a P/ Eof 3 , while EV/sales is 5 and EV / EBITDA is 4 .The earnings of the firm is Rs 1200 Billion , Sales is Rs 25,000 ad EBITDA is Rs 1000Billion . What is the Value of Brand X according to Multiples ? Value Brand X = P/E X Earning of X Value of Brand X = EV/Salesy X Sales x 3X1200=Rs 3600 5x2500=125000 Billion Value of Brand X =EV/ EBITDAy XEBITDA x = 4 X1000= Rs 4000 Billion Therefore the value of Brand X ranges from Rs 3600 to Rs 125000

13. Interbrand Approach Determines the brand's earnings by defining the "Brand Index" seven factors: 1.Market (with weight of 5 %): considers whether the market is growing and if there are strong barriers to entry. 2. Stability (15%): values customer loyalty. 3. Leadership (25%): looks at the position of the brand in the sector; 4. Trend (20%): gives an indication of where the brand is moving; 5. Support (15%): evaluates the support that the brand has received; 6. Internationalization/Geography (15%): considers the strength of the brand internationally (it should not be applied on local brand earnings); 7. Protection (5%): looks at the ability of the company to protect the brand. Applying the Price/Earnings logic, Interbrand defines the Brand Multiple as the Brand Value to be calculated divided by the Net Profits of the Brand. The applicable brand net profits are computed through a weighted average of the net profits of the last three years where the weight corresponds to the importance given to the year. They are discounted taking into account inflation.

14. P/E industry is 18 & Average profit=30Million

15. Brand A 76/100X9.9=9.12 Brand B : 54/100 X12=6.48 Brand C : 46/100X12=5.52 Brand Strength directly proportional to brand multiple

16. Royalty Relief Method - The Royalty Relief approach is the most popular in practice. It is premised on the royalty that a company would need to pay for using the trademark if they needed to license it. The technique that needs to be observed right here is that the valuer should first decide the underlining base for the calculation (percent of turnover, net sales or another base, or quantity of units), determine the correct royalty rate and determine a growth rate, predicted life and discount price for the brand. This approach has an edge of being industry-specific and accepted by tax authorities however this approach loses out as there are actually few brands that might be genuinely similar and generally the royalty rate encompasses more than just the brand.

17. THANKS