Brands in private equity
Updated: Mar 19, 2021
Target screening and Brand Due Diligence
To better understand where to invest and which brands to acquire, we help Private Equity investors by applying Brand Due Diligence on target companies. In a Brand Due Diligence process, we conduct a Brand Audit, thoroughly auditing the competitive position of a company and/or its brands. This allows us to formulate the amount of measurable competitive advantage and its monetary value (brand value). This enables us to give recommendations for increasing the brand value in the next stage. Brand Audit is based on the ISO Standards ISO 10668 (Brand Valuation) and ISO 20671 (Brand Evaluation), both of which BrandWorxx has been defining as part of the ISO/TC 289 committee, together with the world’s leading accountants and brand-driven strategy consultants. The IPR analysis for all of our Brand Due Diligence projects is provided by Roschier.
Brand value creation and exit plans during holding period
In brand intensive industries, brands constitute the companies’ largest single assets, and therefore brand value maximization should be on top of corporate strategy. For a Private Equity investor, brand value monitoring and its systematic development should be a key concern. For 24 years, we have been helping the biggest brands in Finland in developing this asset.
We specialize in providing solutions for strategy and management. Together with our clients, we have observed that the management of a brand intensive business is very different from the management of traditional production or sales driven companies. To maximize enduring profitable growth, the management of these companies must evolve closer to so called brand-driven business management.
Sell side advisory on brand value and deal composition
When exiting the company, Private Equity investor seek to convince potential buyers of the ability of the company to generate substantial cash flows. One major gap can be found on that field. Companies are valued based on their future profitability and ability to generate cash flows. Profitability in the long-run is always a consequence of well managed assets, meaning that the company utilizes its assets better than its peers, leading to excess returns.
However, we see huge amounts of goodwill (going concern goodwill) in deal compositions. Leading to a conclusion that the parties have not been able to identify “cash generating” assets. Especially in brand intensive industries, this “cash generating” asset is brand (think merchandise licensing, where – 100% of profitability is driven by brands). Estimate of brand value is presented by only in a very few cases. By giving an estimate of brand value, sell side is much better positioned in arguing cash flow estimates and company value because they can show both sides of the same coin.
In some cases, industrial players acquire companies held by Private Equity funds. In the field of business combinations in Finland, brand valuation is still uncommon and inadequate, although the IFRS 3 Standard requires that the buy side disclose all transferred assets if they are identifiable according to the IAS 38 Standard. With ISO standard, we have solved the problem of measuring brand as a separable asset, which is why we recommend the valuation of brands in all mergers and acquisitions under IFRS. By giving buy side an estimate of brand value (and/or drivers of it) before transaction, Private Equity investor can increase the probability of a successful deal and speed up the process.
BrandWorxx is a strategy partner for top executives, helping company management better acknowledge the intangible assets (especially brand) in strategy formulation, company management and M&As.