Intangible Assets

"My analysis of 3,700+ mergers over the 10 years reveals that there are three primary forms of intangible asset – intellectual property, contracts and brands.  IP assets (such as patents) account for a sizeable proportion of the value of Technology and Healthcare companies; while contracts (such a drilling rights, supply contracts, landing rights) are the dominant form of intangible asset in industries such as Energy and Transportation; while brands (in the form of copyrights and trademarks) are the intangible assets that matter most in consumer-facing industries such as Media, Food & Beverage, and Consumer Durables/Staples.... 50% come from just 5 of the 24 industry sectors... Software, Automobiles, Food & Beverage, Banks, and Communications" — Jonathan Knowles

"There is only limited consensus about which are the world’s most valuable brands – and limited consensus regarding the value of the same brands. The three lists contain 174 unique brands. Only 8 brands appear in the Top 30 of each list. Only 38 brands appear in the Top 100 of each list. 50 brands appear on two of the three lists. 86 brands appear on only one list" — Jonathan Knowles

From [[How Accurate are the Brand Value Rankings?.pdf]]

• "The accuracy of the brand rankings has been questioned from time to time. Attentive readers have noticed numerous discrepancies between the rankings, like the following randomly selected examples:

  • Different values for the same brand. In the 2014 global rankings, the Google brand was valued from US$ billion 68.6 (Brand Finance) to US$ billion 158.8 (Millward Brown), and Interbrand in between. Samsung was valued from US$ billion 25.9 (Millward Brown) to US$ 78.8 (Brand Finance), again with Interbrand in between. Similar ranges can be observed for many brands.
  • Different composition of the rankings. Brands like Verizon, AT&T and Walmart appear high up on the rankings of Millward Brown and Brand Finance, but miss on Interbrand’s ranking. Vice versa, brands like Disney and Mercedes are missing on Millward Brown, or Visa and L’Oréal are missing on Brand Finance’s Top100.
  • Time series. In the same year, the value of a particular brand increased in one ranking but decreased in the other. Or take the Porsche example. In the rankings of Brand Finance, the value of the Porsche brand increased from US$ billion 5.4 in 2009 to 8.0 in 2010 and 11.2 in 2013 and thereafter collapsed to 3.5 in 2014 and 3.8 in 2015. Neither the rating of the brand by Brand Finance (AAA) nor the enterprise value of Porsche AG changed significantly."

• "From time to time such brands are acquired, and sometimes it even happens that their acquisition values are revealed in the financial statements of the acquirer. The value of the brand contained in the purchase price for a business is determined from fair value assessments done by “purchase price allocation” experts according to established national and international accounting standards. They represent brand valuations when there is a real financial transaction, i.e. the enterprise values reflect actual willingness to pay. Fair value is the amount at which an asset for which a market price cannot be determined (because there is no established market for the asset) could be bought or sold in a current transaction between willing parties."

• "The average absolute difference between league values and fair values for all 82 pairs is 276%. Netting negative and positive deviations out, the average distance is still 254%. This means that the league values exhibit an average overvaluation of brand by a factor of 2.5x."

• "Overestimation of brand value seems to increase with the complexity of asset structure. In that respect, retail businesses are rather simple to understand. They have inventory, and their intangibles include not much more than brand and goodwill (plus eventually some minor favorable leases or key moneys). As a result, the brand value estimations for that sector are accurate up to a certain point. However, the accuracy diminishes the more complex and the less brand focused the sectors are. For example in sectors like telecoms or banks, intangible assets include – besides goodwill and brand – many other important intangibles like licenses, concessions, complex software, contracts, and customer relations. Without a detailed understanding of all these intangibles, it seems to be impractical to find a realistic value for the brand intangible alone. In the end, the value of all assets taken together must not exceed enterprise value or market cap. The Kabel Deutschland case provides a good illustration for this predicament"