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The world’s strongest and most valuable brands revealed
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Valuation basis of the 500 Most Valuable Global Brands The general basis for the valuation is fair market value (FMV). research. it is very easy to understate the price at which a global brand would change hands between a hypothetical willing buyer and willing seller. For its part. has tumbled down the rankings and only just scrapes inside the top 10. financially feasible. Once created. the By David Haigh For the second year running. Cost approach It is possible to value brands on the basis of the cost to create or recreate a similar brand.com Intellectual Asset Management April/May 2008 31 . less an allowance for any forms of depreciation that might be necessary. advertising. prudently. All the names that fill the top 50 places are exceptional assets for those who own them highest and best use (HABU). trade and consumer promotional spend. Such costs are held to include naming. including brands: cost. Apart from the difficulties of data collection and calculation inherent in the cost approach. Citi.” The FMV basis presupposes that the subject property is valued on the basis of www.Feature Brand Finance 500 Superstar brands The Brand Finance 500 is the world’s leading ranking of brand value. But while value is clearly a vital issue. and income. each previously having had time for investigation of other market opportunities and alternatives. Google has soared through the rankings to become the world’s third most valuable brand. In this article we reveal the names of the world’s 50 most valuable brands and examine the performance of some of them in a little more detail. which is defined as: “The most probable use of a property which is physically possible. It is a representation of the price to which a buyer and seller would agree at that time under the FMV definition. and without compulsion. packaging.” The use of an FMV basis is not dependent on an actual transaction taking place on the date of the valuation. While Coca-Cola and Microsoft retain the top two spots. Brand valuation approaches There are three widely recognised approaches to valuing all assets. it is important to understand how we got to the results that we did. with turmoil in the financial markets and changes in consumer behaviour among the factors behind the decline in some brands’ fortunes. appropriately justified. product design. last year’s third placed brand. For the purposes of this valuation FMV is defined as follows: “The estimated amount for which an asset should exchange on the date of valuation between a willing buyer and a willing seller in an arm’slength transaction after proper marketing wherein the parties had each acted knowledgeably. FMV is an estimate of the price that should be realised in a sale at the valuation date under the conditions of the definition above. And here too we have seen significant changes – both positive and negative – from 2006. brand strength is also of fundamental importance. But before we begin to do that. market. legally permissible. Rather. with equivalent consumer appeal and commercial utility. Brand Finance plc has conducted detailed research to identify the most valuable global brands. and which results in the highest value of the property being valued.iam-magazine. Consideration is given to all costs (expressed in current values) associated with replacing or replicating the brand.
At the furthest extreme. This estimate may be true and if it could be achieved.com . Reproductions from China can be bought today for less than US$100. The margin in question generally refers to gross or operating margins and does not include things such as financial costs. the business would sell its products at a lower. there is a loss. Vincent Van Gogh’s portrait of Dr Gachet was painted in 1890 at a cost of less than 100 francs. logos. of the price premium should be attributed to the brand. There are likely to be price. advertising visuals and written copy etc). It is also very rare to find prices paid for brands in outright sales. it is uncommon for brands to be sold separately from the businesses they form part of. being “any sign capable of being represented graphically that is capable of distinguishing goods and services of one undertaking from those of other undertakings”. products are seldom identical. 32 Intellectual Asset Management April/May 2008 www.” This is the package of legal rights that is most commonly licensed in brand licensing deals. However. unless there is a transaction in the actual brands under consideration. symbol. trade dress. it is hard to determine which unbranded or commodity alternative the price premium should be measured against. Excess margin The excess margin approach takes into account both price and volume effects derived from strong brands. most valuers use the income approach for estimating the FMV of assets. These are: price premium. part or all of this may be attributed to the brand and its associated goodwill. design rights. this approach suffers from many of the same problems as the price premium approach. As a result. Some commentators define it simply as trademarks. In this case the valuer considers the value of the whole business and attempts to imagine that the subject brands are removed and the business is left without them. However. service marks. packaging. The notion is that without the brand name and trademarks. Approach used to determine the 500 Most Valuable Global Brands There are different ways of calculating brand value under the income approach. Market approach Also known as the sales comparison approach. then this would be today’s FMV. excess margin. brand is defined as anything up to and including the whole branded business. therefore part. intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors. In particular. any comparison of prices is likely either to be unhelpful or to require significant adjustment. Income approach An example of why the cost and market approaches are often inappropriate can be found in the art world. how can brand value be inferred if the business makes a net loss from operating the brand? In addition. The income approach is used to estimate the value of a brand by considering the net present value of the stream of future benefits accruing to the brand owner. Our choice of this definition is appropriate to the royalty relief valuation method used in the study. Price premium also ignores the volume uplift derived from strong brands. economic substitution. this is where FMV is determined by making comparisons with actual sales of comparable brands. Some define brand more broadly. It seeks to indicate how much extra margin the business derives from the subject brand. A further complication is that even in apparently basic markets. symbols. or design. For the purposes of the 500 Most Valuable Global Brands study. or all. after accounting for all costs. particularly commercial assets such as brands. Brands are by definition unique and. Philip Kotler. Above all. All involve the creation of a forecast financial model. it is often hard to identify the comparable nonbranded alternative to measure the excess margin against. Its market value today is estimated at closer to US$130 million.” This definition can be stretched to include all marketing intangibles (trademarks. This is done by taking future brand earnings and discounting them back to a net present value (NPV) in a discounted cash-flow (DCF) valuation model using the hypothetical buyer’s weighted average cost of capital (WACC). This approach is therefore considered inappropriate for our study. defines it as: “A name. Yet a century after it was painted. unbranded price. Price premium If there is a price premium over an equivalent unbranded or commodity product.Brand Finance 500 Defining the brand value of a truly global brand is usually significantly greater than the original cost to create it. For these reasons this approach is also considered inappropriate for our study. markets fluctuate for many reasons and even in the art market there is a lack of liquidity and transparency to determine values reliably at a given point in time. central overheads and exceptional items. term. Brand Finance has defined brand as: “Trademarks and all associated marketing intangibles. However. Economic substitution This method of valuation is a further extension of the price premium and excess margin methods. this approach ignores the cost of goods involved in supplying the sales.iam-magazine. Professor of Marketing at the Kellogg School of Business at the Northwestern University in Chicago. volume and cost Many separate legal rights can be included in the definition of brand. sign. or a combination of them. If. it is conceptually harder to accept a valuation based on this approach. domain names. We rejected the first four methods and decided to go with the royalty relief method. thus undermining the basis of price comparison. However. and royalty relief. However. The fact that such a widely used term has no legal definition and can mean different things to different people can lead to misunderstanding. there are five alternative ways of identifying brand earnings for inclusion in the model. earnings split. this work of art sold at Christies for US$82 million. The valuer estimates the value of the business in the absence of the brand.
it can be seen that this depends on identifying a valid unbranded alternative to substitute for the subject brands. IBES consensus forecasts and OECD GDP growth forecasts. 1. post-tax royalties. a proportion of this profit may be attributed to the brand. based on historic growth trends for the brand. The attraction of this method is that it is based on commercial practice in the real world. Having done this. Fundamental profitability in each industrial sector influences the determination of royalty rate ranges. and other publicly available data sources. to arrive at an NPV. www. the 25% rule is a useful indicator of what an appropriate royalty rate range might be in each industrial sector. investment analyst and industry expert reports. based on a combination of growth expectations (IBES and OECD forecasts).8 billion effects making the unbranded business model significantly less valuable than the branded one. which is inappropriate in most instances.com Intellectual Asset Management April/May 2008 33 . The first of these is to establish a royalty rate range for each industrial sector. a licensee should expect to pay between 25% and 40% of its expected profits for access to the licensed intellectual property. The world’s most valuable brands 1 2 3 4 5 6 7 8 9 10 Coca-Cola Microsoft Google Wal-Mart IBM GE HSBC Hewlett-Packard Nokia Citi US$45. Royalty rates may be higher or lower than 25% of profits. The NPV of all forecast royalties represents the value of the brand to the business. Source: Brand Finance plc 2. The rule is based on heuristic evidence of a relationship between market royalty rates and margins earned in licensee businesses. thirdparty transactions.1 billion US$35. It also involves many calculations of how removal of the brand or part thereof would affect the drivers of value in the business model. However.9 billion US$36. company data sources such as websites and annual reports.1 billion US$33. Model the market to identify market demand and the position of individual brands in the context of market competitors Three forecast periods were created for each brand: • Estimated financial results for 2007 using Institutional Brokers Estimate System (IBES) consensus forecasts. which states that.5 billion US$43. In some extreme instances.5 billion US$34. We use the royalty relief method for two reasons: it is favoured by tax authorities and the courts because it calculates brand values by reference to documented. It involves estimating likely future sales. When determining royalty rate ranges. This method is seldom appropriate because of its subjectivity and complexity. • Perpetuity growth. if profit margin is 20%.iam-magazine. Royalty relief The royalty relief method is based on the notion that a brand holding company owns the brand and licenses it to an operating company.1 billion US$27. Establish the notional royalty rate for each brand There are a series of steps to take when determining the notional royalty rate. The notional price paid by the operating company to the brand company is expressed as a royalty rate. this method can indicate either negative or nil value for the brand. Earnings split If a business makes an economic profit. These are detailed below. Royalty rate ranges were set for each industry by reference to a review of comparable licensing agreements and industry norms. A capital value may be calculated for these brand earnings. applying an appropriate royalty rate to them and then discounting estimated future.Brand Finance 500 Table 1. Where appropriate. A rule of thumb exists within the licensing industry (rule of 25). Obtain brand-specific financial and revenue data This quantitative data is obtained from Bloomberg. it is time to compare royalty rates with operating margins in the industrial sector. and because it can be done based on publicly available financial information. an appropriate royalty rate should fall between 25% of 20% for a royalty rate of 5% and 40% of 20% for one of 8%. For example. 3.4 billion US$44. data sources varied by industrial sector. Steps in the valuation process There are a number of steps in the royalty relief brand valuation process. • Estimated four-year financial forecast (2008-2011). But the earnings split method can be unreliable where earnings are volatile. on average.1 billion US$39 billion US$37. where the branded business is making losses. depending upon a variety of quantitative and qualitative factors that can and do affect commercial negotiations. A review of publicly available licensing agreement indicates the royalty rates set between third parties in arm’s-length commercial transactions. This must be taken into account when determining the royalty rate ranges.
Gillette. American Express Source: Brand Finance plc The ratings can be altered by including a plus (+) or minus (-) sign to show their more detailed positioning. • Margin levels. it is necessary to pinpoint where in the range is appropriate for each brand under review. including brand. • BB – under-performing. CC – extremely weak. • Marketing investment levels. This is calculated by conducting a BrandBeta® analysis. • AA – very strong. Such detailed metrics and financial analysis are beyond the scope of the current point in time brand valuations included in 34 Intellectual Asset Management April/May 2008 www. Calculate the notional future royalty income stream for each brand This is done by applying the royalty rate. 5.Brand Finance 500 Having found a general royalty rate range. • Brand preference and brand loyalty. to sales in the explicit forecast and perpetuity periods. at higher prices. Nike. It is conceptually similar to a credit rating. Table 2. CCC – very weak. influencing the perceptions they have of the branded business.com . taking account of its size.iam-magazine. reputation and Brand Rating Brand ratings are used to determine a weighted average cost of capital (WACC). Consumers and customers buy more. which is a benchmarking study of the strength. and provides an indication of the risk attached to future earnings of the brand. Debt costs. • BBB – average. • Consumer awareness. geographic and demographic segment to maximise brand value. which estimates the proportion of income attributable to each category of intangible asset. the brand value is expressed as a percentage of enterprise value (EV). while suppliers offer better terms of business and finance providers invest at lower cost. 6. How brand equity affects shareholder value Brands and brand equity affect all stakeholder groups. Discount future royalty stream to a net present value (NPV) The result is the brand value for inclusion in our table. With this done. you can establish the appropriate royalty rate within the range for each global brand. risk and future earning potential. Brand ratings incorporate both quantitative and qualitative data. to determine the proportion of margins which should be attributed to the brand. the next thing to do is to conduct a brand value added (BVA®) analysis. McDonald’s. Brand managers need to understand how these brand equity attributes impact on the branded business and need to develop marketing strategies to optimise brand switching behaviour. Brands are awarded brand ratings based on their strength. • Distribution penetration. Microsoft. The world’s strongest brands AAA+ Coca-Cola. This is a research-driven process. equity costs and the debt-toequity ratio are all given a discount or premium based on the strength of the brand. • Functional quality perceptions. risk and future potential of a brand relative to its competitor set. Apple AAA HSBC. Where enterprise values can be calculated by reference to public market information. BMW. This process uses a brand power matrix to map the relative importance of different tangible and intangible assets in the value creation process. • Market share growth. These and other stakeholder behaviours affect business value drivers to give higher revenues. They are also expressed alphabetically from AAA to D: • AAA – extremely strong. The final brand ratings are expressed as an index score from 0-100. Factors included both hard and soft brand performance measures: • Market concentration. lower costs and greater capital value. • A – strong. To find the world’s most valuable brands. international presence. The results of this BVA® analysis refine the margin analysis in determining royalty rate ranges. the principle being that a strong brand should command a lower discount rate in the valuation calculation than a weak one. for longer. • Sales growth. A brand rating quantifies the strength and performance of the brand being valued. D – moribund. Calculate discount rate specific to each brand. C – failing. This analysis needs to be conducted by product. Qualitative data is compiled by Brand Finance from secondary research. determined in step 3. • • • • • B – weak. the Brand Finance Brand Ratings panel considered a variety of factors in this BrandBeta® analysis process. Having established the royalty rate range. Google. their preference or loyalty to that organisation and their behaviour. • Image or emotional perceptions. 4.
only in this case HSBC has managed to dislodge the leading brand.88 billion from Singapore’s investment arm (Government of Singapore Investment Corporation). with approximately US$3 billion from the Kuwait Investment Authority and US$6. Citigroup has been hit hardest by the financial crisis. to wrongfoot Coke as consumer tastes shift to still.5 billion in new capital from Chinese and public market investors. they also explain why some brands are thriving while others are languishing. Despite a strong challenge from Pepsi. they are the next natural step in understanding and developing brand value.4 billion compared with US$33. However.1 billion in the fourth quarter and the bank is expected to raise as much as US$12. from AAA to AA. The enterprise fell from US$274 billion to US$147 billion. It is number 1 in our table with a value of US$45. “The world’s local bank” strapline plays perfectly to the growth in demand from developing markets. Coke and Pepsi This is an interesting example of the challenge facing brand managers. Pepsi’s brand value also grew from US$23. Coke still reigns supreme. it maintained a AAA+ brand rating and the branded business or enterprise value rose from US$110 billion to US$147 billion. Anecdotally.5 billion already injected by the Abu Dhabi Investment Authority in November. The drop in the Citi brand rating. Writedowns in the value of its investment portfolio amounted to US$18. Coke is the defining brand in the carbonated drinks category worldwide. The enterprise value rose from US$107 billion to US$126 billion.8 this time. However. with other brands. In the main cola category. reflects its poor performance in the current sub-prime crisis.5 billion last time round. in a tough climate HSBC has thrived. Why is this? The real problem for Pepsi is that it is a follower brand.iam-magazine. It maintained a AAA brand rating even though the branded business or enterprise value fell from US$241 billion to US$189 billion.9 billion last time to US$24. Its management has made valiant attempts to orchestrate the perceptual attributes which drive demand. The highest brand values to overall enterprise value Nike Dell Budweiser McDonald’s American Express Coca-Cola L’Oreal Tesco Disney Hewlett-Packard Source: Brand Finance plc 72% 45% 36% 32% 31% 31% 30% 27% 26% 26% Citi and HSBC These two brands from the banking world provide a similar example. The fact is that because of the sub-prime crisis and the credit crunch. This is in addition to the US$7. Citi. HSBC is number 7 in our table with a value of US$35. Citi’s brand value dropped from US$35. However. Table 3. unsweetened and healthy products. the banking sector has been re-rated and share prices have fallen. but Coke’s position is so dominant that there is little it can do to dislodge the market leader head-on. enhancing Pepsi’s emotional imagery.4 billion compared with US$43.com Intellectual Asset Management April/May 2008 35 . representing a stake www.1 billion last time to US$27. Meanwhile.1 billion last time round. its brand rating remains at AA and brand value to enterprise value remains approximately 20% while Coke’s is 30%.8 this time.Brand Finance 500 this year’s league table. Its strategy has therefore been to diversify into other beverage categories.
iam-magazine.Brand Finance 500 The world's 50 most valuable brands Rank 07 Rank 06 Brand Parent company Sector Domicile 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 1 2 15 4 5 7 6 9 17 3 11 12 16 14 13 8 19 20 67 25 10 18 28 46 29 34 23 21 60 30 27 33 26 36 37 40 39 42 51 49 24 43 32 54 57 56 41 44 81 63 Coca-Cola Microsoft Google Wal-Mart IBM GE HSBC Hewlett-Packard Nokia Citi Vodafone Gillette Toyota L'Oreal Intel Bank of America Pepsi Dell AT&T Verizon Marlboro McDonald's Nike Apple Santander Tesco Mercedes-Benz Disney Orange Cisco BMW Budweiser American Express Shell Home Depot AXA AIG UPS Chase BNP Paribas Time Warner Allianz Samsung China Mobile Honda Target Wells Fargo ExxonMobil Goldman Sachs Carrefour The Coca-Cola Company Microsoft Corporation Google Inc Wal-Mart Stores Inc International Business Machines Corporation General Electric Company HSBC Holdings Plc Hewlett-Packard Company Nokia Oyj Citgroup Inc Vodafone Group Plc The Procter & Gamble Company Toyoto Motor Corporation L'Oreal SA Intel Corporation Bank of America Corporation PepsiCo Inc Dell Inc AT&T Inc Verizon Communications Inc Altria Group Inc McDonald's Corporation Nike Inc Apple Inc Banco Santander SA Tesco Plc Daimler AG The Walt Disney Company France Télécom SA Cisco Systems Inc Bayerische Motoren Werke (BMW) AG Anheuser-Busch Companies Inc American Express Company Royal Dutch Shell Plc The Home Depot Inc AXA SA American International Group Inc United Parcel Service Inc JPMorgan Chase & Co BNP Paribas SA Time Warner Inc Allianz SE Samsung Electronics Co Ltd China Mobile Ltd Honda Motor Co Ltd Target Corporation Wells Fargo & Company ExxonMobil Oil Corporation The Goldman Sachs Group Inc Carrefour SA Beverages Software Internet Retail Computers Miscellaneous manufacturers Financial services Computers Telecommunications Financial services Telecommunications Cosmetics/personal care Auto manufacturers Cosmetics/personal care Computers Financial services Beverages Computers Telecommunications Telecommunications Tobacco Retail restaurants Apparel Computers Financial services Food Auto manufacturers Media Telecommunications Software Auto manufacturers Beverages Credit cards Oil & gas Retail Insurance Insurance Transport services Financial services Financial services Media Insurance Electronics Telecommunications Auto manufacturers Retail Financial services Oil & gas Financial services Retail US US US US US US UK US FI US UK US JP FR US US US US US US US US US US ES UK DE US FR US DE US US NL US FR US US US FR US DE KR HK JP US US NL US FR * Financial and insurance brands show market cap 36 Intellectual Asset Management April/May 2008 www.com .
148 221.023 19.945 81.001 37.613 12.649 24.580 86.398 15.621 10.544 274.698 225.074 31.442 248.229 14.860 16.637 14.iam-magazine.417 24.347 18.817 26.360 14.721 16.384 717.954 825.568 125.236 15.982 116.767 170.128 14.948 23.900 114.151 59.441 44.085 39.246 144.456 34.809 17.036 200.842 75.791 42.050 25.782 17.062 188.146 37.976 172.352 85.160 19.426 23.849 47.063 16.386 64.793 10.749 185.920 163.095 31.389 14.278 17.com Intellectual Asset Management April/May 2008 37 .752 26.512 396.606 216.338 90.182 57.712 10.010 133.245 77.797 25.518 15.516 44.537 11.109 15.117 172.811 21.501 102.520 12.471 142.605 157.910 26.512 www.063 64.018 10.169 190.237 239.841 14.345 83.697 149.275 313.645 94.681 96.630 240.710 18.779 20.445 24.851 14.157 16.419 13.648 63.705 21.047 105.204 190.Brand Finance 500 Brand value (US$M) 2007 Enterprise value (US$M) 2007* 147.130 12.304 102.850 33.277 13.971 13.269 94.495 29.074 74.918 51.136 266.083 12.903 124.319 86.277 311.990 24.379 188.758 55.534 25.362 147.807 21.097 133.687 34.798 14.167 142.865 97.179 125.818 12.744 163.862 16.157 113.594 26.649 13.105 143.196 18.404 43.280 35.840 14.033 84.122 73.060 Brand value/ Brand rating enterprise 2007 value (%) 2007 31% 14% 21% 17% 22% 4% 19% 26% 24% 19% 14% 10% 8% 30% 18% 18% 20% 45% 8% 13% 15% 32% 72% 14% 21% 27% 12% 26% 13% 14% 18% 36% 31% 6% 24% 23% 13% 18% 17% 15% 14% 18% 18% 7% 14% 21% 14% 3% 15% 18% AAA+ AAA+ AAA+ A AA AA+ AAA AA+ AAAAA AA+ AAA+ AA AA+ AA+ AA+ AA AAAAAA+ AAAAA AAA+ AAA+ AAAA+ AAAAAAAA AA AAA AAAAAA AAAAAA A AA A+ A+ A+ AAA+ AA AA A+ AA AAAA A+ Brand value (US$M) 2006 Enterprise value (US$M) 2006 110.148 26.506 106.145 10.737 117.455 270.245 68.183 15.388 26.898 44.949 36.718 20.168 12.501 43.064 144.501 25.113 17.388 317.031 21.672 24.466 130.109 33.148 8.041 185.132 157.139 13.944 13.472 20.899 34.388 23.136 22.123 35.176 30.758 65.183 258.038 66.083 17.074 24.593 483.748 82.246 113.551 23.389 Brand value/ Brand rating enterprise 2006 value (%) 2006 39% 15% 19% 15% 23% 4% 14% 24% 35% 13% 17% 12% 9% 39% 22% 12% 22% 53% 6% 12% 14% 36% 84% 21% 15% 24% 20% 24% 9% 12% 28% 37% 25% 7% 21% 23% 8% 17% 6% 11% 18% 15% 16% 8% 13% 19% 11% 3% 10% 25% AAA+ AAA+ AAA+ A AAAA+ AAA AA+ AAA AA+ AA AAA+ AAAA+ AA+ AA+ AA AAA A+ A+ AAAAA+ AAA+ AAA AAAA+ AA+ AAAAAAA AAA+ AAAAAAAAAA+ ABBB AAAAA AAA A+ A+ AAAAAA A+ A A Source: Brand Finance plc 45.326 129.601 24.103 77.867 13.116 27.637 63.056 25.903 76.279 63.564 70.128 97.621 15.803 66.232 194.807 24.216 17.692 283.068 69.839 94.072 137.
Good examples of this are the 2000 acquisition of Mannesmann by Vodafone for US$175 billion and the 2001 acquisition of Time Warner by AOL for US$124 billion. Vodafone is being chased by AT&T. Meanwhile. sees Marlboro drop in brand value from US$26. Vodafone is 11th in our table with a value of US$26. high borrowings and eventual goodwill write-downs. corporate machismo and the siren call of the big brand name often persuade chief executives to strike deals even though they make little commercial sense. The re-branding of Cingular to AT&T wireless has seen the AT&T brand rocket up the table from 67th to 19th. media and telecommunications (TMT) sector has produced more than its fair share of such value-destroying deals. As the world’s strongest tobacco company. largely due to investor sentiment moving in favour of its developing world expansion strategy. The technology. If AT&T chooses to expand its brand footprint more aggressively outside of the US. The branded business or enterprise value rose from US$158 billion to US$185 billion.iam-magazine. it is likely that the value of the Anheuser Busch branded business will increase if it can secure unfettered trademark rights worldwide. The acquisition of Hutch in India has not yet trickled through into the valuation. the changes in public smoking laws across Europe and the increase in cigarette prices suggests that the future for tobacco companies looks hazy. Vodafone has held its leading brand position. It increased to an AA+ brand rating from AA last time round. The restriction on tobacco advertising in the US. Academic studies have repeatedly found that acquisitions destroy shareholder value rather than creating it.7 billion last time round.2 billion) and moves up one place to 32nd. This has had implications on the worldwide reach of the brand. Other examples include France 38 Intellectual Asset Management April/May 2008 www. However.9% in the group.last time round. ownership of the brand is ambiguous and contested in certain territories by the Czech company Budweiser Budvar. This buyer’s curse explains why many contested takeover bids result in large premiums.6 billion compared with US$26. Its brand reputation has been tested to the limit. Despite this increase.com . Vodafone and AT&T In the telecommunications sector. records a brand value of US$17. France Telecom undertook a similar process in re-branding its fixed-line wing to Orange resulting in a big jump for them from 60th to 29th. as the demand for beer continues to grow and based on the fact that Budweiser is the strongest beer brand in the world. AT&T’s brand value has risen to US$24.2 billion (up from US$16.Brand Finance 500 of 4. this drop in brand value means Marlboro falls 11 places to 21st – this is the largest fall of any brand in the top 40. Importance of brand valuation in M&A due diligence It is common in M&A situations for buyers to overpay. the US beer brand. Budweiser. Next year we expect to see a significant uplift from this development. another challenge to Vodafone’s global brand dominance in telecommunications comes from China: China Mobile rose from 54th to 44th place purely on the basis of organic growth inside the country. The most extreme examples of overpayment and excess goodwill arise in bull markets when deals are struck at inflated prices because buyers think asset prices can only go in one direction and want to get in before it’s too late. It increased to an A+ brand rating from AA. Strategic desperation.9 billion to US$23. both resulted in multibillion-dollar goodwill writeoffs.7 billion. As in banking. Vodafone will have a run for its money.6 billion compared with only US$10 billion last time round. coupled with the smoking ban in countries across Europe. Marlboro and Budweiser The fall in cigarette sales to a 55-year low in the US.
not technological superiority.0 billion in one year. Conduct “what if?” analysis of how different brand architectures or marketing resources might create incremental value. Its brand rating increased from AAA to AAA+.8 billion to US$21. while Apple technology is good. Understand the strength and momentum of all key competitors and what niches are covered by the target brand. in film production or in education. Microsoft has offered US$44.com Intellectual Asset Management April/May 2008 39 . An example of how a brand can generate exceptional profits by leveraging other IP can be seen in the case of Apple. which drove phenomenal sales of the iPod. Microsoft management argues that Yahoo! is a struggling search engine brand and needs strong financial backing to fight back against Google. it has dominated the global software market. growth. margins. But Google has moved more quickly into the internet space and has become a dominant brand in search engine.iam-magazine. Microsoft bids for Yahoo! Is the recent bid by Microsoft for Yahoo! an example of this great tradition? Since Microsoft persuaded IBM to adopt Microsoft PC operating and application software back in the 1980s. The Apple brand has leaped from 46th to 24th in our league table with a value increase from US$12. • Financial valuation and analysis – understand the value chain and profitability of the target brand. Understand the brand equities of the target brand and how it will fit within the acquirer’s brand portfolio. Yahoo! does not feature in our top 50 global brands and is clearly struggling to compete against Google and others in its marketplace. For example.Brand Finance 500 Relationship between brand and other intangible assets The importance of strong global brands should not be underestimated.7 billion. • Customer and brand evaluation – understand who the customers are. Apple Corporation’s enterprise value has risen by US$100 billion. Google has a 56% share of this compared with MSN’s 18% and Yahoo!’s 13%. To capture this prize. Is this a good or a bad deal? Perhaps we should look to the brands. • Marketing capabilities audit – understand the quality of brand management and other marketing resources required to build and maintain the target brand. Apple appeals to an attitude choice and not just a technical product capability or advantage. Understand how eliminating or merging brands will lead to uplift of key value drivers and hence greater financial value. what attributes appeal to them and their level of loyalty or preference to different brands in the marketplace. Meanwhile.6 times profits. Google is the third most valuable brand in our table. channel structures and access. and its probable effects on the wider brand portfolio. up from US$37 billion to US$44. This may seem relatively cheap compared with a smaller deal struck last year. It was the unique Apple brand proposition.3 billion to US$43.6 times sales or 111. www. Its value has risen from US$27. it is not necessarily best in class. Microsoft has diversified into internet service provision via its MSN sub-brand. and segmentation. Microsoft is the second most valuable brand in our table.5 billion. It remains an AAA+ brand with no change year on year. remote software and internet advertising applications. They suggest that the Microsoft brand can grow the combined revenues and cut US$1 billion of costs. the iPod was the result of collaboration to buy in technological IP for exciting new consumer products. Such deals are usually sold to the investment market on the basis of revenue growth and cost synergies that subsequently turn out to be unrealistic. It would appear that Microsoft management might be right in arguing that the power of the Microsoft brand is needed to rescue Yahoo! However.2 times profits. Key work streams in a brand due diligence are as follows: • Market mapping – understand the market in terms of size. equating to 6. irrespective of whether the particular customer works in the corporate sector.4 times sales or 67. However. the only way to determine whether a deal of this magnitude will be value accretive or destructive is to conduct detailed brand due diligence and brand valuation. However. equating to 13. trends. The fact is that Microsoft is desperate to capture a higher share of the internet market before it is too late. Microsoft paid US$6 billion for AQuantive Inc. Apple sells to the “Think Different” market. It also remains an AAA+ brand. Telecom’s acquisition of Orange and HewlettPackard’s acquisition of Compaq. As the use of PCs has changed. In all these examples neither revenues nor cost savings met expectations and goodwill had to be written off.6 billion for Yahoo!. It is estimated that the internet advertising business alone will be worth US$80 billion a year by 2010. in design.
an nd capture.com Sorry dispel Sorry to dispel the myth but the t solo IAM su superhero just uperhero doesn’t exist It takes a whole team to manage your intellectual assets m asse ets Your Your intellectual asset management strategy needs to be applied over the entire manage ement entire lifetime of your innovations and to involve all functions of your business to capture. Talk Talk to us to ﬁnd out how to make the most of your best ideas. based in London d. It also creates a framework for testing “what-if?” scenarios to answer key brand strategy questions.lanning@watermark. financial reporting and tax review – understand the strength of trademarks.com . Brand valuations are most commonly conducted as a discounted cash-flow (DCF) analysis.haigh@brandfinance. Uplift scenarios on both revenues and costs would be played through and it would be the centrepiece for setting a maximum deal price. The answer would help determine a fair value price for the Yahoo! deal. This is the key question any pre-acquisition team should seek to answer in a brand due diligence and brand valuation exercise.com. • Brand contribution analysis. This puts a capital value on the expected future stream of revenues attributable to the subject brand.au w Patent &Trade Mark Attorneys Intellectual Property Lawyers P 40 Intellectual Asset Management April/May 2008 www. manag gement.brandfinance. protect protect and capitalise on your intellectual assets.au or on +613 9819 1664. Understand the tax position. Watermark Watermark experience profe professionalism expert advice essionalism expert Sydney T +612 9888 6600 F +612 9888 7600 Melbourne T +613 9819 1664 F +613 9819 6010 Perth Perth Email Email T +618 9325 1900 m firstname.lastname@example.org.Brand Finance 500 • Legal. One of the main questions to answer is whether the combined Microsoft and Yahoo! business would generate greater value under a monolithic or endorsed brand architecture.com www. domains. We’ll We’ll help you develop an IAM team to ensure that your IA protection and M ensure protection management strategies are aligned with your business objectives giving you are aligned maximum return on your inves investment.watermark. resource allocation and brand value maximisation.au F +618 9325 4463 In Internet nternet www. This leads on to dashboard development. • Forecast profits by segment. The key elements in a brand valuation are: • Forecast revenues by segment. copyrights. These elements are combined in a financial modelling process to provide a point-in-time valuation opinion and subsequent impairment reviews. Watermark can show you how to build and maintain competitive advantage through Watermark throu ugh astute intellectual asset management.com. Director Business ess Dr Shirley Lanning. return stment. • Brand strength analysis. Director Busine Development and Commercialisation Commercialisation r at s.com. how For more information on Watermark’s comprehensive range of intellectual property services c more Watermark comprehensive k’s property contact Lanning. • Long-term market growth rates. • Value driver analysis. • Brand risk analysis. David Haigh is the CEO of Brand Finance plc. designs and other marketing IP ownership supporting the target brand.
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