Focus on Valuing a Brand and Other "Soft" Assets (Series: Valuation in Corporate Transactions)

Copyright © 2019 by DailyDAC, LLC d/b/a Financial Poise Webinars™
Receive our free weekly newsletter at www.financialpoise.com/subscribe
1

Practical and entertaining education for
attorneys, accountants, business owners
and executives, and investors.
2

Thank You To Our Sponsor
3

4

5

DISCLAIMER
The material in this webinar is for informational purposes only. It should not be
considered legal, financial or other professional advice. You should consult with an
attorney or other appropriate professional to determine what may be best for your
individual needs. While Financial Poise™ takes reasonable steps to ensure the information
it publishes is accurate, Financial Poise™ makes no guaranty in this regard.
About this PowerPoint: if you are looking at this PowerPoint without the benefit of
listening to the conversation that surrounded it then you are doing yourself a disservice.
This PowerPoint was prepared in contemplation of being viewed in conjunction with
listening to a one hour webinar on the topic
6

MEET THE FACULTY
Moderator:
John Levitske – Ankura
Panelists:
Garth Tebay – Value Defined
Richard Claywell – J. Richard Claywell CPA
David Taber – David Taber & Associates
7

ABOUT THIS WEBINAR: Focus on
Valuing a Brand and Other “Soft” Assets
A company’s name, logo and other intangible assets have no intrinsic value. Yet,
such intellectual property (IP) rights are increasingly important. Other examples of
such “soft” assets include trademarks, copyrights, and trade secrets. This webinar
will help attendees understand how experts go about valuing such intangible assets.
8

ABOUT THIS SERIES:
Valuation in Corporate Transactions
What is it worth? Valuation experts are commonly used by market participants to determine the
price they are willing to pay or receive to transact a sale of a security, a business or a discrete
asset. Valuations can be performed on assets such as equities, options, or business enterprises.
They can also be performed on intangible assets such as patents and trademarks, or liabilities such
as debt and contingent consideration. The concept of valuation permeates the business and legal
world on a daily basis. Given the importance of valuation, it seems incongruous that two perfectly
competent valuation professionals can conclude on significantly different values for the same
subject interest. This webinar series addresses this and, more broadly, discusses how valuation
experts go about their work.
9

EPISODES IN THIS SERIES
10/4/19 Episode #1:
When, Who & Why to Value Your Assets
10/11/19 Episode #2:
How to Value Your Assets
11/8/19 Episode #3:
Focus on Valuing a Brand and Other "Soft" Assets
10
Dates shown are premiere dates.
All webinars will be available
On Demand approximately 4 weeks
after they premiere.

Episode #3:
Focus on Valuing a Brand and Other
“Soft” Assets
11

WHAT IS A BRAND?
• A brand is a set of symbols that summarize a company or product
reputation in the marketplace, encompassing the relationship the
public has with the values and aspirations of the firm.
• A brand is usually represented by assets that may be subject to
copyrights or other legal protection such as trade names, logos,
trade dress, trademarks, internet domain names, tag lines, jingles
and other intangible assets
12

WHAT IS A BRAND? (cont’d)
• Intangible assets: nonphysical assets such as franchises, trademarks, patents,
copyrights, goodwill, equities, mineral rights, securities, and contracts (as
distinguished from physical assets) that grant rights and privileges and have value
for the owner
 International Glossary of Business Valuation Terms as agreed to by the
American Institute of Certified Public Accountants, American Society of
Appraisers, Canadian Institute of Chartered Business Valuators, National
Association of Certified Valuation Analysts, and The Institute of Business
Appraisers
• Thus, a brand is generally a group of assets that would be considered a subset of
intangible assets
13

TYPES OF INTANGIBLE ASSETS
• Intellectual Property
 Patents
 Trademarks
 Copyrights
 Trade secrets
14
• Intellectual assets
 Unregistered but codified
 Drawings
 Software
 Blueprints
 Documents
 Databases
 Formulas
 Recipes

TYPES OF INTANGIBLE ASSETS
(cont’d).
• Intellectual capital
 Uncodified human and organizational
 Collective corporate knowledge
 Individual employee skills and knowledge
 Know How
 Organizational culture
 Customer satisfaction
15

ACCOUNTING STANDARDS CODIFICATION
805: CATEGORIES OF IDENTIFIABLE
INTANGIBLE ASSETS
• ASC 805-20-55 presents five categories of identifiable intangible assets:
 Marketing-related intangible assets
 Customer-related intangible assets
 Artistic intangible assets
 Contract-related intangible assets
 Technology-related intangible assets
• According to ASC 805, goodwill is also an intangible asset, although it is not an
identifiable intangible asset
16

MARKETING-RELATED INTANGLIBLE
ASSETS
• Web page design and graphical artifacts; cover designs and mastheads
• Trademarks, service marks, trade names, collective marks, certification
marks, logos and proprietary fonts
• Trade dress
• Internet domain name
• Noncompetition agreements
• Marketing Segmentation, Targeting, and Scripts
• Active Prospect Lists
• Search engine, Yelp, NetPromoter, and other web rankings
17

CUSTOMER-RELATED INTANGIBLE
ASSETS
• Customer lists
• Customer contracts and related customer relationships
• Non-contractual customer relationships
• Order or production backlogs
18

ARTISTIC-RELATED INTANGIBLE
ASSETS
• Plays, operas, ballets
• Books, magazines, newspaper, and other literary works
• Musical works such as compositions, song lyrics, and advertising
jingles
• Photographs, drawings, and clip art
• Audiovisual material including motion pictures, music videos,
television programs
19

CONTRACT-RELATED INTANGIBLE
ASSETS
• License, royalty, standstill agreements
• Advertising contracts
• Lease agreements
• Construction permits
• Construction contracts
20

CONTRACT-RELATED INTANGIBLE
ASSETS (cont’d)
• Construction management, service, or supply contracts
• Broadcast rights
• Franchise rights
• Operating rights
• Use rights
• Servicing contracts
• Employment contracts
21

TECHNOLOGY-RELATED INTANGIBLE
ASSETS
• Patented or copyrighted software
• Design patents
• Mask works
• Unpatented technology and know-how
• Databases
• Trade secrets
22

HOW DO INTANGIBLES CREATE
VALUE?
• Branding is a marketing strategy to build intangible assets that create a
differentiated name and image in the market that will attract and retain
customers
• A brand and other intangible assets in general provide value through:
 Market advantage/power
o Premium pricing
o Reduced costs
o Increased market share
o Known reliability, quality and consistency
23

HOW DO INTANGIBLES CREATE
VALUE? (cont’d)
• Defensive value/freedom to operate
 Defensive assets protect market share or pricing advantages
 Certain legally protected intangibles (i.e. intellectual property)
create an arsenal to discourage lawsuits by others or from
utilizing information
 Hinder competition from branding efforts or differentiating
product
24

PURPOSE OF SOFT ASSET VALUATION
• Transaction advisory
 Sale/purchase, licensing, M&A, joint ventures, etc.
• Strategic decision-making (i.e., IP management)
 R&D planning, make v. buy, maintenance fees, etc.
• Tax regulation/planning
 Transfer pricing, creation of IP holding/management companies
• Financial reporting
 Purchase price allocation, value impairment
25

PURPOSE OF SOFT ASSET VALUATION
(cont’d)
• Financing (i.e., use of IP as collateral)
• Bankruptcy
• Litigation (i.e., direct and consequential damages)
• Regulatory and compliance requirements
• Others
26

GENERALLY ACCEPTED VALUATION
METHODS
• Cost approach methods
 Reproduction cost new less depreciation method
 Replacement cost new less depreciation method
 Trended historical cost less depreciation method
• Market approach methods
 Comparable uncontrolled transactions method
 Comparable profit margin method
27

GENERALLY ACCEPTED VALUATION
METHODS (cont’d)
• Income approach methods
 Relief from royalty method (cost savings)
 Differential income (with/without method)
 Profit split method
 Residual (excess earnings) method
• There are other unofficial methods that experts may resort to, such as
 “Revealed Preference” with supporting surveys
 “Counterfactuals” with supporting industry statistics
28

VALUATION PARAMETERS
• Purpose of the valuation
• Standard of value
• Premise of value
• Valuation date
29

STANDARD OF VALUE
• The definition of value being utilized for a valuation
• Typically selected to match the purpose of the valuation
 Certain purposes require the use of a specific standard of value
• Three primary standards of value
 Fair market value/arm’s length standard – U.S. income, gift & estate tax
reporting
 Investment value (i.e., strategic value) – decision making
 Fair value – U.S. GAAP for financial reporting
• The same asset may have vastly different values under different standards of value
30

PREMISE OF VALUE
• Operational Premise:
 Going concern (value in-use) – assumes continued future use of
the assets as a group
 Liquidation (value in-exchange) – assumes sale of assets
piecemeal
o Orderly (sold over a reasonably period of time)
o Forced (time-constrained – similar to auction; i.e., “fire sale”)
31

PREMISE OF VALUE (cont’d)
• Valuation Premise:
 Value in-exchange – the value of an asset of business interest
assuming it will be changing hands in a real or hypothetical sale
 Value to the holder – the value of an asset or business interest
assuming it is not being sold but instead is being maintained in its
present form by its present owners
• The same asset may have vastly different values under different
premises of value
32

VALUATION DATE
• All valuations only represent a snapshot in time and are
performed as of a specific date to be clearly identified for the user
• The value of the same asset can change from one date to another
33

COMPARING BUSINESS VALUATION AND
INTANGIBLE ASSET VALUATION
• Both business and asset valuation consider the same three
approaches: income, market, and cost
 However, the methods within each approach may be different
• Intangible asset valuation typically entails valuation of a single asset
or small group of assets rather than assembly of all assets necessary to
operate a business
34

INTANGIBLE ASSET VALUATION (cont’d)
• Assets involving assessing an incremental benefit stream –
specific cash flows attributed to intangible asset vs. total
company available cash flow
• Business valuation typically assumes an indefinite life – i.e.
perpetual returns from a going concern, whereas most intangible
assets are assumed to have a finite life/diminishing returns.
35

• The assessment and quantification of risk can vary significantly
 Finite life of assets
 Lack of fungibility – uniqueness of the asset to a specific business
precludes it from being redeployed in another business
 Intangible assets are less desirable as collateral
36

• Market approach is more difficult to apply to intangible assets
 By definition, intangible assets are unique
 Lack of robust secondary market to observe arms-length trades –
i.e. no stock market
• Business valuation more often entails partial ownership partial
ownership interests that require a consideration of certain discounts
and premia.
 Partial ownership of intangible assets is rare
37

IDENTIFYING AND ACCOUNTING FOR
RISK IN INTANGIBLE ASSET VALUATIONS
• Types of risk
 Business risk
 Technology risk
 Legal / regulatory / compliance risk
• Methods to mitigate or manage risk
 Due diligence
 Pricing
38

IDENTIFYING AND ACCOUNTING FOR
RISK IN INTANGIBLE ASSET VALUATIONS
(cont’d)
• Methods for pricing risk and uncertainty
 Discounted cash flows – adjust discount rate for risk premiums
 Discounted cash flows – adjust cash flow projections
o Weighted range of scenarios (best, likely, worst)
o Decision tree – lattice models with discrete probabilistic outcomes
o Monte Carlo simulation – continuous probability distributions with a
central tendency and standard deviation
39

ABOUT THE FACULTY
40

John Levitske – John.Levitske@ankura.com
John Levitske is a Senior Managing Director at Ankura, focused on business valuation and complex financial
disputes. He has served as a senior advisor to companies, owners, executives, and legal counsel in business
disputes, shareholder disputes, and M&A transactions regarding issues of valuation, finance, damages, and
accounting. John is based in Chicago.
With more than two decades of Big Four public accounting and international consulting experience, John is
seasoned in business valuation, financial analysis, economic damage quantification, forensic accounting,
retrospective solvency analysis, and post-merger & acquisition accounting calculations. He handles appraisals
of healthy and distressed companies for buyouts of shareholders and creditors, transaction planning, estate
and gift taxation, financial accounting, bankruptcy proceedings, and litigation disputes.
John has provided consulting and expert witness testimony services and has served as a neutral party in
arbitration and mediation. He has testified as an expert witness in the US and Europe in depositions, hearings,
bench and jury court trials, and domestic and international arbitration (ICC, SCC, AAA, JAMS, FINRA, and ad
hoc arbitrations) and has served as a neutral arbitrator. In addition, he has rendered binding decisions on
disputed matters.
To read more, go to https://www.financialpoise.com/financialpoisewebinars/faculty/john-levitske/
41

Garth Tebay – gtebay@valuedefined.com
Mr. Tebay is a practicing Certified Public Accountant, Certified Valuation Analyst, Master Analyst in
Financial Forensics, and Certified Merger & Acquisition Advisor with over 46 years of experience. He
is the founder and Managing Partner of Value Defined, LLC, a business valuation, M&A, forensic and
litigation support firm in Sylvania, Ohio. He is also associated with Weber Clark Ltd., accounting, tax
and consulting firm in Sylvania, Ohio as well as Managing Director of Family Office Direct
Investment Services (FODIS) and a Core Service Provider of the Business Growth Alliance LLC
(BGA). Mr. Tebay is a frequent speaker at the National Valuation Conference of NACVA/CTI and
other professional associates as well as instructor for the NACVA Certification Program and Current
Update in Valuation.
Mr. Tebay received his Bachelor of Science in Accounting in 1972 from Findlay College in Ohio. He
then received certification as a Public Accountant in 1975. In 1997, he became a Certified Valuation
Analyst, awarded the CM&AA (Certified Merger & Acquisition Advisor) in 2001, and Master Analyst
in Financial Forensic in 2008. He is the recipient of the Circle of Light Award and currently serves
on the Executive Advisory Board of NACVA.
42

Richard Claywell – richard@biz-valuation.com
Richard is a practicing Certified Public Accountant, and holds the additional designations of Accredited in
Business Valuation, Accredited Senior Appraiser, Certified Business Appraiser, International Certified
Valuation Specialist, Certified Valuation Analyst, Certified in Merger & Acquisition Advisor, Master Analyst in
Financial Forensics, Certified in Fraud Deterrence, Accredited in Business Appraisal Review. Richard has been
valuing closely held companies since 1985. Richard’s practice is restricted to business valuation, economic
damages, profit enhancement and exit planning. Richard received his Bachelor of Science in Accounting in
1979 from the University of Houston – Clear Lake. He then received certification as a Public Accountant in
1983. Over the years, Richard has earned additional accreditations that relate to business valuations, economic
damages and fraud. Richard has been an instructor for the National Association of Certified Valuation Analysts
for many years, has been an instructor for the Internal Revenue Service and the International Association of
Consultants Valuators and Analysts (IACVA). Richard is currently the Director of Education for the IACVA and
is responsible for the business valuations materials being taught in 55 countries. Richard has taught business
valuation or economic damage courses in China, Korea, Taiwan. Richard has performed over 1,000 business
valuations since 1985. Richard has testified in Texas County Court, Texas State Court, Bankruptcy Court and
Texas State Courts. Richard has given testimony in economic damages (lost profits), shareholder disputes,
personal injury, wrongful termination and divorce.
43

David Taber – David@SalesLolgistix.com
David is CEO of SalesLogistix, a CRM best practices consultancy, and serves as an expert
witness in marketing and software intellectual property cases in state and federal
venues. With more than 20 years in the marketing profession, he served as a senior vice
president of marketing for two publicly-traded software companies, took a company
public, and spearheaded two acquisitions. He has served on the integration teams of a
dozen corporate mergers, and has advised venture capital firms on mergers and
divestitures of high-tech companies.
David has taught business courses at the undergraduate and graduate level at UC Berkeley,
and is a frequent guest lecturer and speaker on marketing, sales, and technical
management topics. He is the author of the Prentice-Hall book, "Salesforce.com Secrets of
Success," now in its second edition, as well as hundreds of articles on marketing and
technical management topics.
To read more, go to http://www.saleslogistix.com/services/ExpertWitness.html
44

QUESTIONS OR COMMENTS?
If you have any questions about this webinar that you did not get to ask during
the live premiere, or if you are watching this webinar On Demand, please do
not hesitate to email us at info@financialpoise.com with any questions or
comments you may have. Please include the name of the webinar in your email
and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes only. It has been prepared primarily
for attorneys and accountants for use in the pursuit of their continuing legal education and continuing professional education.
45

ABOUT FINANCIAL POISE
DailyDAC LLC, d/b/a Financial Poise™ provides
continuing education to attorneys, accountants,
business owners and executives, and investors. Its
websites, webinars, and books provide Plain
English, entertaining, explanations about legal,
financial, and other subjects of interest to these
audiences.
Visit us at www.financialpoise.com.
46
Our free weekly newsletter, Financial Poise
Weekly, educates readers about business,
business law, finance, and investing. To receive
it simply add yourself by going to:
https://www.financialpoise.com/newsletter/
Email addresses are never sold to or shared
with third parties.

ABOUT DailyDAC
DailyDAC.com is the leading source of
information about assignments, article 9,
bankruptcy, receiverships, out-of-court workouts
and vulture investing, designed for business
owners and vulture investors.
Visit us at www.dailydac.com.
47
Premium Public Notice Service
DailyDAC’s Premium Public Notice Service helps market asset
sales on behalf of fiduciaries (e.g., Chapter 11 debtors-in-
possession and committees, trustees, receivers, assignees),
secured lenders selling collateral under UCC Article 9, and
auctioneers to a very large and self-selected group of potential
bidders and their advisors. The Service also assists with noticing
other events, deadlines, and milestones – including tombstones
and other press releases.
Our free weekly newsletter, DailyDAC contains our latest
bankruptcy article, current Public Notices and all
opportunistic deals added to our proprietary database
that week. Sign up at:
https://www.dailydac.com/dacyak-weekly-newsletter-signup/

Focus on Valuing a Brand and Other "Soft" Assets (Series: Valuation in Corporate Transactions)

Recommended

Recommended

More Related Content

More from Financial Poise

More from Financial Poise (20)

Recently uploaded

Recently uploaded (20)

Focus on Valuing a Brand and Other "Soft" Assets (Series: Valuation in Corporate Transactions)