Brand Valuation

Brand Valuation

1. Approach

   • IFRS 3
     • Brands acquired should be at FAIR VALUE
       • IFRS 13
         • FV definition: "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date."
         • FV should be determined on the basis of its 'highest and best use' from a market participant's perspective.
           • Must consider what is...
             • PHYSICALLY POSSIBLE
               • LEGALLY PERMISSIBLE
                 • FINANCIALLY FEASIBLE

2. Heirarchy of inputs

   • IFRS 13 presents a FV hierarchy (Level 1 inputs are preferred)
   • LEVEL 1
     • Quoted prices in an active market for identical assets. This is not normally reasonable for a brand given its unique nature
   • LEVEL 2
     • Inputs other than quoted prices which are observable. This may include prices in markets which are NOT ACTIVE
   • LEVEL 3
     • Unobservable inputs, including internal company data

3. Valuation bases

   • IFRS 13: 3 possible valuation techniques to value a brand
     • Most appropriate technique is partly determined by the quality of inputs available
   • The market basis
     • Uses market price & other market transactions
       • Given nature of brand - such info is difficult to obtain/use
   • The income basis
     • PV of the INCREMENTAL INCOME generated by the brand
     • A recognised brand may enable a firm to sell at a higher price/in greater volume/both
   • The cost basis
     • Current replacement cost of the brand
     • Estimate of the PV of costs (R&D, advertising, promotion etc) needed to be incurred to develop a comparable brand from scratch
       • Highly judgemental
       • Appropriate measure of goodwill?