Trade Marks and Brand Valuation
IP Kitchen
This episode of IP Kitchen features Kelvin King, founder of Valuation Consulting, discussing the critical importance of brand valuation in t
Key takeaways
- Intangible assets rose from 17% of S&P 500 market value in 1975 to 90% in 2020.
- Common valuation methodologies include relief from royalty, excess profits, and brand strength assessments.
Main topics
- Brand valuation methodologies
- Intangible vs tangible assets
Notable quotes
Intangible assets... have overtaken tangible assets... to become the biggest contributor to the total market value of S&P 500 companies.
Conclusion
Effective brand valuation and rigorous IP protection are indispensable
Transcript preview
Speaker 1 (0:11) Hello everyone, welcome to the IP Kitchen. The IP Kitchen is a new podcast series from HGF that focuses on intellectual property within the food and drink industry. In each episode, an IP specialist from HGF will be joined by an industry expert, a food and drink business, or some other professional service provider to discuss useful practical topics with an IP spin. We hope that the collective experience and expertise of our hosts and guests will provide some useful practical guidance and commercial insights to help food and drink businesses maximize their IP rights. As this is one of our first episodes, I should probably briefly introduce intellectual property for those who are not too familiar with it, just to provide some context. So intellectual property protects creations of the mind. This includes trademarks, which protect brand assets, patents, which protect inventions and technological innovations, designs, which protect the appearance of a product, copyright that protects original works of authorship, such as literary, musical and artistic works, and trade secrets, which protect confidential business information that gives some sort of competitive edge. such as formulas, recipes, and processes. Collectively, they are intangible assets. They can be sold, they can be licensed, and even used as security for loans. So why are intangible assets important? According to the Ocean Tomo Intangible Market Value Study, intangible assets such as patents, brand value, confidential information, and product design have overtaken tangible assets such as inventory, factories and buildings, and equipment to become the biggest contributor to the total total market value of S &P 500 companies. over the past 50 years. Intangible assets made up around 17 % of market value in 1975, and this figure rose to 90 % in 2020. So intangible assets are typically the biggest contributors to the overall value of the food and drink business, so you can see why they're so important to protect. So what better way to kick off the series than to talk about the value of IP? So in this episode, I'll be joined by Kelvin King, the founder of Valuation Consulting, to talk about brand valuation. So hi, Kelvin. Thanks for joining us. Good morning. Thank you for the invite. Well, perhaps you could start by briefly introducing yourself, your background and your experience in the food and drink industry. Thank Speaker 2 (2:13) you. I began this amazing topic in the early 1980s, where I was in a government department that specialized in the valuation of all assets which didn't have a ready market value, sort of coin collections, horses, art collections. that the private company was seen as pretty valuable in those days. In the early, well, March 1981, I was asked to set up a special unit within the corporate valuation division specializing in the value of intangibles and IP. I'll make that distinction time and time again as we go through this little chat. It was triggered by the sad murder of John Lennon in New York. The UK Treasury felt that they may have a good chance of getting his domicile. It didn't quite happen in those ways. But also the recognition that a lot in his estate, if it was going to be valued, was of an intangible and intellectual property nature. But in the 80s, governments around the world found that... companies were planning with intellectual property, their crown jewels. And it was no longer the fixed assets and the lumps of metal that were of concern to boards, but intellectual property and in charge of assets. So I was in the right place at the right time, left government, went to two investment banks, managing director of their valuation divisions, not least analysts. Market makers, corporate financiers in those institutions were very interested in the lack of transparency in public reporting of intangibles and IP, not least because, Jason, of the point you made, it was recognized as the most valuable asset class. So I was pretty fortunate of being in the right place at the right time to fill out this study after the... investment banks, set-up valuation consulting, specialist in company and IP and brand valuation, all about 30 years ago now. So we're just dedicated to that. This, for all sorts of reasons globally, pretty well known for it. And we aren't cluttered by the need or desire to offer any other advice. So we work with trademark and patent attorneys like yourselves, who I've known for about 25 years. In the early days in Leeds. I recall, but that's a little bit of a background. I wrote one of the first books on the topic in the early 1990s. I think Russell Parr in the US was just about ahead of me. But yeah, I've got a lot of learning, but I'm still learning in this complex subject. Speaker 1 (4:50) Thank you, Kelvin. I mean, that's a really impressive background. It's great to have one of the leading authorities on brand valuation joining us in this. Speaker 2 (4:57) episode. And I mean, IP valuation is a Speaker 1 (5:00) very broad subject. We could run an entire episode on licensing and calculating royalty rates, for example. So this episode will focus specifically on brand valuation, but we may release some follow-up episodes covering some other areas of brand valuation later down the line. So I think a lot of food and drink startup, SMEs and challenger brands will be aware that their brands and the associated trademarks have some sort of intrinsic financial value attached to them. Perhaps they don't know how brands are valued, the benefits of brand valuation, when to get them valued, and what the valuation can be used for. So it's great to have you on the episode to demystify some of these points. So I guess the logical starting point, really, so what is brand valuation and why does it matter to food and drink businesses? Speaker 2 (5:42) Yes, well, I might just, you know, in particularly this food and drink business sector. Look, and you would know better than I. Was it the first Trademark Act, 1875 or something? And what was the first trademark? I believe it was the Triangle Bass, wasn't it? As you said, if you pedal forward to today, you know, some of the most well-known and most public litigations have concerns, you know, this sector, you know, Thatcher's versus Old E. Cheese puffs and what bits and M &S's calling the... caterpillar versus all these tough birds. You know, time and time again, we are seeing examples of how companies, particularly in this sector, find that the brand asset is important. The trouble with this is, as I alluded to in the brief summary introduction, was accounting has been quite appalling in representing these assets. To Speaker 1 (6:38) their Speaker 2 (6:39) credit, Sir David Tweedy An incredible accountant on the global stage was charged with his studies of, you know, how do we begin to account for intangible assets by reporting? You know, we see fixed assets, we see lumps of metal. You know, you mandatory, you have to report valuations in your accounting. But the most valuable asset class is missing here. You know, trade, miles, patterns, design, ride, copyright, etc. And he... Did a long study. I was one of the many, many hundreds of experts, no doubt, that were called. And what we had, and we've had recently, counting has moved slowly to some point of recognition in terms of IFRS 3, International Fund for Energy Reporting 3, FRS 102 for smaller businesses in the UK, to after acquisition, it is mandatory, you need to identify the intelligence for asset. including intellectual property Speaker 1 (7:37) acquired, Speaker 2 (7:38) and an independent valuer needs to put a proportion or ascribe a salami slice proportion of the value of a transaction, say it's 10. You know, I work with trademark and patent attorneys. Well, what has been acquired? Well, there's some copyright here, some trademarks here, there's some undesign right here, and I need to ascribe valuations. So in the next year's reporting, We actually see these visibly, as it were, in the account by recognition, following mergers and acquisitions. But, you know, even if you're Coca-Cola, have been a client in the past, it would say to their auditors, you know, oh, we think we're quite a valuable little brand here. Can we recognize this in our accounting? No way, Jose, if you've generically built the trademark and brand in-house. It's a regretful still existing situation because, you know, financiers, bankers, I wrote a big report for UK government banking on IP a few years back now, four or five years, you know, trying to encourage bankers and lenders for securitization. This goes right from the largest to the smallest companies. This is really important. Bankers and financiers sadly believe accounts represent worth and value. They do not. Far from it. And this is the big problem we have, and we still have it today. But indeed, these assets are of significant value, and particularly in the food and drink sector, not least as shown by public litigations, which are always quite quickspun and interesting. Speaker 1 (9:13) Absolutely. So how do you value your brand and the associated IP? I know from speaking to you