When using comparable data in valuation, establishing comparability is of the utmost importance. In other words, guideline firms should be similar in their products, business models, and assets. Typically, a valuation professional would proceed by industry sectors, but caution is needed. A sector is like a drawer: It may contain identical items, or it may be a junk box.
Sector snapshot: Take fashion retail, for example. Traditionally, a fashion retailer was a multibrand store-based retailer. But, over the last 20 years, different business models emerged. First, monobrand fashion verticals such as H&M, Zara, and Abercrombie made inroads. Later, pure-play e-commerce retailers arrived on the scene. A sector snapshot from MARKABLES (see chart below) looks at brand value multiples of 75 fashion retailers in three different subsectors acquired between 2005 and 2015. Some of the prominent brand names included in the sample are Saks Fifth Avenue, Burlington Coat Factory, Express, PEP, zulily, HauteLook, or Net-a-porter.
The results illustrate that the three subsectors are in fact very different. While brand has a similar relative importance for all three groups (about 30% of enterprise value), appropriate royalty rates are twice as high for the “younger” subsectors (about 4% vs. 2% on revenues). E-commerce fashion retailers show the highest brand value multiples in all different aspects.
As a takeaway, guidelines entities and comparable transactions must be thoroughly researched in order to come to robust conclusions. The quality of the outcome depends on database size and applicable search filters.
MARKABLES (Switzerland) has a database of over 8,200 global trademark valuations published in financial reporting documents of listed companies.
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