Brand Value? Sweet like chocolate

In March this year, the New England Confectionery Company, one of America’s oldest and most treasured candy manufacturers, found itself threatened with closure. In response, thousands of fans rushed to hoard boxes of Necco Wafers and Sweethearts, fearing the worst for their potentially endangered candy favourites.

One wholesale website saw sales of Necco’s iconic products increase by 63 per cent, while eBay listings hit more than $30 for a box. No doubt shareholders and employees were equally concerned for the firm’s future, with millions of dollars and hundreds of jobs at stake.

Since then, the confectionery company has been pulled back from the brink of extinction, thanks to the Ohio-based Spangler Candy Company, which bid $18.83 million (£14.17 million) for Necco at a recent federal bankruptcy auction.

While fans wait to see what the new Necco owners do with their latest purchase, it’s worth exploring just why someone would want to spend so much on a failing company. The answer lies in the fevered consumer reaction to the possibility of Necco’s disappearance.

When a company goes under, would-be purchasers will look at its constituent parts, not just its commercial performance, when weighing up whether to put in a bid and at what price. 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, trade marks, know-how (recipes, for instance), customer databases, and other such intangibles. These can often be the easiest thing to take over and incorporate in to 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.

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, the massive £2.55 billion cash bid that Nestle made for Rowntree back in 1988 to capture Rowntree’s impressive stable of KitKat, Aero, Black Magic, and Smarties. Or the eye-watering sum of £11.6 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 kind of brand loyalty that gives companies the confidence to buy up ailing businesses 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.

That’s exactly what makes these kinds of heritage brands such an attractive proposition, especially if the purchaser thinks they can get a good deal because the company is in a tight spot. American consumers will still remember how they almost lost the iconic Twinkies brand in 2012, before the Gores Group swept in at the last moment, keen to invest in a brand “with strong fundamentals”. Now the story is being retold in the form of Necco’s timely salvation and no doubt other iconic brands will one day face the same fate and ultimately new parentage.

Now that the value of Necco’s portfolio has been set in the millions, it is clear that the kind of love we’ve recently seen from their fans has brought a knight in shining armour to the rescue of his Sweethearts.

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