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Valuation of a brand v/s valuation of a company

In the M&A world, there are some unique deals where the buyer is interested in acquiring a brand rather than the whole target company.

Now in such situations it becomes necessary to find the valuation of the brand rather than that of the company.

A strong brand enjoys the certain benefits over the conventional generic brand (imagine a premium brand like an I-phone and then compare it to any generic mobile handset) like

- Enjoys a superior pricing power, better supplier agreements (hence lower raw material costs) thereby increasing its margins compared to the generic brand

(Apple despite of outsourcing its manufacturing operations to emerging countries hasn't reduced its pricing thereby widening the margins)

- Enjoys superior ROC over a generic brand

- Access to low cost capital compared to generic brands

(Superior brands will ensure strong turnovers and hence stable/low volatile cashflows and hence lower cost of capital)

One of the tricks to derive the valuation of a brand is to first spread out a regular DCF using the cashflows derived with its the original premium margins.

Next step would be to spread another DCF by simply applying the generic margin to the turnover of the premium brand keeping everything else same.

The difference in the valuation using the above technique is nothing but the excess value that the premium brand gets over and above the generic brand due to its brand power and hence determines the valuation of that brand.


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