Brand Value? Sweet like chocolate

When Valeo Foods agreed to acquire the European and Middle Eastern part of crisp company Kettle Foods in a deal worth £66m in 2019 it was in spite of a £4m loss made by Kettle Foods in the first half of their 2018 financial year. Similarly, Pret bought out their rival Eat for £60m in 2019 even the face of Eat’s losses of over £17m in 2018.

In 2018 the New England Confectionery Company, one of America’s oldest and most treasured candy manufacturers, found itself threatened with closure. In stepped the Ohio-based Spangler Candy Company to save the brand, which bid $18.83 million (£14.17 million) for Necco at a federal bankruptcy auction. As a result, Necco Wafers, which were originally created all the way back in 1847, are about to make a triumphant return to the market.

No doubt when news broke of the difficulties facing the New England Confectionery Company, the 63% increase in wholesale website sales of Necco’s iconic products and eBay listings at more than $30 for a box helped persuade Spangler Candy Company that the business was worth acquiring. But that on its own would not be enough to drive such a high value transaction, so what does?

Driving up the value

When a purchaser or investor is considering a target, all aspects of the business will be subject to careful analysis. It is not just the commercial performance that is considered. This means that even a loss-making company can have extremely valuable assets – and if an acquirer thinks they could make more of those assets than the company has done, they could be looking at a real bargain.

Some of these assets – such as land, machinery and stock – are tangible and are easier to value, with readily available reference points. But the greater value often lies in less easily quantifiable elements, such as brand recognition, goodwill and customer loyalty, know-how (recipes, for instance), customer databases, and other such intangibles. These can often be the easiest thing to take over and incorporate into a new business, yet the hardest thing to put a price on.

Indeed, brand valuation has traditionally been viewed as something of a dark art, although there are some pretty established methodologies nowadays. Ultimately, like anything, a brand is worth what someone will pay for it. Find the right buyer and the value of the brands could be huge, especially when it comes to food and drink products, which have the power to inspire particularly strong customer loyalty and can convey an engaging brand philosophy.

The price of love

It might be hard to put a price on consumers’ love of their favourite products, but it can often be a big one. Consider, for example, Amazon’s $13.7 billion acquisition of Whole Foods or the eye-watering sum of $19 billion that Kraft paid for Cadbury in 2010 when, according to one analysis, the Cadbury brand portfolio alone was worth about £3.2 billion.

These brands promised something far more precious than factories or other bricks and mortar in the eyes of their buyers as well as the public. The value of these brands can be captured and secured by a business with registered trade mark protection. As the examples show, it is the brand, or trade mark that can attract significant value.

Protect the brand

Where there is a registered trade mark in place it is easier for that business to prevent a third party adopting a similar name for a similar product because all they need do to prove their earlier right exists is to produce the registration certificate. Compare that with where there is no registered trade mark. In those circumstances, the business must persuade a court with evidence that they have any rights at all. It is an expensive and time consuming exercise producing evidence of customer recognition because it will be necessary to produce invoices, sales and turnover figures, advertising and promotional materials and so on. Indeed, some countries give little or no recognition to unregistered rights, which can leave the brand owner unable to prevent confusion arising amongst consumers, loss of sales to a competitor and possible tarnishing of their own brand in the process.

In order to protect its brand and other intangible assets a prudent business will also take steps to ensure that the IP remains in its control and ownership. Note that if a third party has been commissioned to create the brand logo or website content the copyright will be owned by the third party, so an assignment is needed to bring ownership back to the business. Likewise, the business should ensure that it retains ownership of domain names and that access to logins for social media accounts are saved centrally so all is not lost if the responsible staff members change.

Where a new brand is created or a new product or market is identified it is important to ensure that the business has conducted freedom to operate searches to identify any risks to the proposed use and so that mitigating action can be taken. An infringement action is expensive to defend and can seriously damage a hard won reputation.

The kind of brand loyalty that gives companies the confidence to buy a business, and even one that is struggling, at such stratospheric valuations isn’t something you can build overnight. Especially not in a highly competitive marketplace that is constantly expanding, and where consumers might be swayed by the arrival of the next big thing. Building up a trusted following takes years of hard work and investment, developing not just a quality product but also a brand that can stand the test of time and will remain attractive even when the going gets tough. Therefore, you should make sure you take the necessary action to protect that time and cost investment by maintaining protection and control of your trade mark rights.

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