ANALYSIS: Is the Price Right for Brand Acquisition? - Brand Due Diligence Is in High Demand as Non-Core Brands Are Sold

Article excerpt

In the 1980s Sir Paul Judge, then strategy director at Cadbury, used City money to buy out non-core brands from Cadbury, to form Premier Brands. He went on to make himself and his investors a fortune.

Five years ago, John Murphy, the founder of Interbrand, led a small consortium to buy Plymouth Gin from Allied Domecq. It turned the brand round and also made a fortune when they sold the brand on.

There are also cases where brands have been bought too dearly. The acquisition of Snapple by Quaker resulted in a pounds 644m write off.

Correctly pricing brands has become a big issue as conglomerates review their portfolios and spin off non-core brands.

Competition is hotting up between private equity players, mini-conglomerates and individual 'angels' to buy these cast-offs and there is typically a competitive tendering process. In the current climate investors need to be sure they are putting in the right bid. Meanwhile sellers obviously want to extract the highest price.

Which is why 'brand due diligence' is in big demand. It is a mixture of conventional legal, financial and commercial due diligence, but focused on individual brands.

Final reports usually include a branded business valuation, segmented by key market, a trademark valuation, an understanding of what drives demand and loyalty and a detailed appraisal of various alternative growth and value scenarios.

Brand Finance conducted a brand due diligence for Saatchinvest prior to its acquisition of Complan and Casilan. Andrew Leek at Saatchinvest, says: 'This deal was unusual in the sense that the security was largely intangible assets - formulas, trademarks, design and copyrights, distribution and manufacturing agreements.'

Robust appraisal

Brand due diligence applies to business-to-business brands as well as consumer brands. In 2001 Brand Finance was engaged by Caradon Plumbing Solutions to appraise the Mira bathroom fittings brand. Other parties involved in the transaction were HSBC Private Equity (owners), CSFB (appointed seller) and Ernst & Young (reporting accountants).

Most investors and bankers have little idea what makes a strong brand that is likely to deliver the expected benefits. …