Some businesses are characterized by the difficulty of building long-term relationships with end users. This may be due to one-off or rare needs (i.e., construction services, building products, hospital services), and/or intermediaries with strong influence on vendor decisions (e.g., prescription drugs). Where repeat purchases from existing customers are difficult to achieve, it is vital to focus marketing efforts on both influencer marketing and on reputation marketing to create awareness for the one moment when the customer makes the purchase decision.
Such is the backdrop for an analysis of market-based intangible assets for a particular subsector of building products: windows and doors. MARKABLES, a Switzerland firm that has a database of over 8,200 global trademark valuations published in financial reporting documents of listed companies, analyzed the purchase price allocations of 20 acquisitions in that sector between 2001 and 2015 in five different countries. To begin with, revenue multiples range from 0.6x to 1.3x of revenues (see table below) and represent strong competition, limited growth expectations, and moderate profitability of the sector. Revenue multiples were higher in emerging countries with higher growth in building markets. All analyzed cases report a value of the acquired trade name, and 85% of the cases report a value for their customer relations (with wholesalers, installers, and/or architects/engineers).
Overall, trade names and customer relations have a very similar importance, with 15.6% and 15.4% of enterprise value. As for the trade name, the median royalty rate applied in the valuing is 1.4%, and the mean rate is 2.2%. Two-thirds of the acquired trade names are assigned an indefinite life, and one-third a finite life with an average RUL of 15 years. Goodwill accounts for 40% of enterprise value on average, indicating—among others—the potential synergies (cost savings, logistics, and cross-selling) expected from the business combination. But the most important asset of all is tangibles. Building products requires expensive factories, inventories, logistics, and customer receivables. And—for its moderate profitability—the excess value over book value that can be allocated to intangible assets is smaller than in many other sectors.