Of brands and brand values
The largest brand value by far reported by an Indian corporation was the acquisition of Jaguar Land Rover by Tata Motors in 2008
Last week, Markables released its annual listing of the most expensive brands that changed hands globally during 2015. According to the list, the top three most expensive brand acquisitions of all time are Kraft Foods by Heinz, Newport (tobacco) by Reynolds American and Novartis’s over-the-counter (OTC) brand portfolio by GlaxoSmithKline.
The firm has released a list of 20 such brands that changed hands in 2015 and their value. Markables is a Switzerland-based trademark value database, listing all trademarks that have been acquired, valued, accounted and reported in the financial statements of more than 15,000 listed companies worldwide. The basis for such reporting is, typically, the acquisition of a business combination including a trademark and, in very rare cases, the acquisition of only a trademark.
The list from Markables features brands in categories such as tobacco, food (packaged foods and restaurant chains), e-commerce, OTC drugs, pet food, discount retail and fashion, among others. Ranked No. 6, Family Dollar Stores, for instance, is a leading US discount retailer offering competitively priced merchandise in convenient neighbourhood stores. Ranked No. 5 was DirecTV, a provider of digital television entertainment in the US and Latin America, which was acquired by AT&T. Beijing-based online travel booking firm Qunar.com, acquired by Ctrip.com, also based in China, is ranked at No. 12.
The report highlights some interesting numbers: the average value of the top 20 brands increased to $5.6 billion, up almost two-and-a-half times from $2.1 billion in 2014. The top 20 brands account for 41% of the value of the enterprises to which they belong, up from 34% last year.
According to a media release from Markables, 2015 was a good year for brands as they seem to be back in focus for M&A investors. Kraft Foods with its portfolio of brands (Kraft, Philadelphia, Oscar Mayer and others) reported brand value of $41.3 billion, emerging not only best in class of 2015, but of all time, surpassing the acquisition of Gillette by Procter & Gamble in 2005. The second place in 2015 went to the tobacco company Lorillard’s brands (Newport, Kent, True, Maverick, Old Gold, blu eCigs), acquired by Reynolds American for $27.2 billion. Novartis’s OTC brand portfolio (including Voltaren, Excedrin, Otrivin, Theraflu, among others) acquired by GlaxoSmithKline and valued at $9.2 billion was at No. 3.
According to Christof Binder, managing partner at Trademark Comparables AG that runs Markables, the database was publicly launched in 2014 as there was an urgent need for comparable data for the valuation of brands and trademarks. “The availability and usefulness of existing data (basically royalty rates from trademark licence agreements) is rather weak, and our intention was to create something in addition, or on top of that,” Binder says.
To be sure, globally several brand value rankings and league tables are published every year, namely Interbrand, Millward Brown and Brand Finance, among others.
However, Markables claims that its top 20 list is different as it is the only listing where brand values are real values paid for brands in a transaction. “The benefit of this particular study is to analyse brand-related investment strategies and brand value appreciation of investors. This is not only insightful to corporate investors and corporate finance professionals, but also for CMOs (chief marketing officers) and brand managers,” Binder says.
The company started promoting its services in India in April. Asked why no Indian brand features on the Markables list, Binder says that India is still a “poor” territory regarding the reporting of acquired intangible assets, including brands and trademarks.
“There are two major reasons: first is the accounting and financial reporting standards. Indian corporations simply did not have to report about their acquired intangible assets, unlike in most other territories. This will certainly change with the adoption of new accounting standards starting 31 March 2017,” he says.
Second is the size of businesses. “The 50 largest Indian corporations have an average market cap of $17.5 billion. The 50 largest British corporations have an average of $45 billion, and the 50 top US firms have an average of $185 billion. The likelihood of affording, financing and digesting an expensive acquisition is very much related to size,” he adds. However, he says that for 2015, the acquisition of Kesh King by Emami will be ranked somewhere around the 50th position in the global listing.
According to Binder, the largest brand value by far reported by an Indian corporation was the acquisition of Jaguar Land Rover by Tata Motors in 2008. The largest brand value acquired within India was the acquisition of United Spirits by Diageo in 2014.
To be sure, after this, the firm is looking forward to working on brands acquired this year. Binder feels that 2016 could be an even better year for brands in M&A, with some landmark acquisitions in the books—SABMiller, Time Warner, LinkedIn, Monsanto, Chubb and Starwood Hotels, to name a few.
Markables will begin work on the 2016 cases once their valuations are finalized, audited and reported in their financial statements. “The reporting season for the year 2016 will start end of February 2017 in the US, and it will take us until approximately October or November 2017 to do all the discovery and research work from the financial statements of over 15,000 listed companies worldwide,” Binder says.
Shuchi Bansal is Mint’s media, marketing and advertising editor. Ordinary Post will look at pressing issues related to all three. Or just fun stuff.