Global BV news: Construction trademark values

BVWireIssue #164-2
May 11, 2016

For most construction trade services, marketing and branding are merely just side issues. Nevertheless, creating awareness and reputation for quality and reliability is important to establish and grow a trade business. Customer relations are characterized by one-off contractual agreements, and repeat business is rather rare. Thus, the corporate name is important to generate future business with new customers.

This month’s peer group analysis from Markables illustrates trademark comparable data for 46 businesses from 10 countries engaged in construction and installation services (i.e., electrical, network, HVAC, plumbing, solar). Some of the larger businesses include Norland, Norfold, PSAV, and Kidde, among others. Trademark royalty rates for the sector range from 0.5% to 1.4% on revenues, with a median rate of 1.0% (see table). Based on these royalty rates, trademark accounts for 10% of enterprise value. Average enterprise value multiples for the sector are 0.75x revenues.

Just for comparison, trademark royalty rates for installation service businesses are twice as high as for strongly advertised airlines (see last month’s sector snapshot), which can be explained with better excess profitability above required returns on net book value.

Two takeaways: First, the bandwidth of the different ratios in this peer group is rather narrow. Obviously, such business is based on similar asset structures and value-generating strategies, so there is little room for strategies of differentiation. Second, the large majority of the businesses have a finite life, illustrating once more the delicate issue of indefiniteness of the brand asset.

Speaking of HVAC firms, BVR will be presenting a webinar tomorrow, May 12, Feel the Heat! Valuations of HVAC Companies with Kevin Yeanoplos (Brueggeman and Johnson Yeanoplos PC).

Markables, based in Switzerland, now has a database of over 8,200 trademark valuations published in financial reporting documents of listed companies from all over the world. The database reports value solely for the use of trademarks (not bundled with other rights).

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