ktMINE royalty rate finder plays a significant role in brand valuation

An article in Intellectual Property Magazine highlights the methodologies for valuing brands internationally, drawing heavily upon the expertise of Julian Dailly, director of valuation at Interbrand and Roy D’Souza, managing director of Ocean Tomo’s valuation practice.

The International Organization for Standardization (ISO) put together a standard, BSI ISO 10668, which categorizes the three most common approaches for brand valuation under “financial analysis.” The income approach calls for a value estimate based upon the present value of earnings attributable to the brand. Royalty rates gleaned from ktMINE provide valuable estimates as to what income can be generated by a like brand. The standard spells this out with respect to royalty payments saved by owning the brand:

“…the value calculated through the royalty relief method … constitutes the present value of the royalty payments saved through the ownership of the brand. The royalty rate applied in the valuation shall be determined after an in-depth analysis of available data from licensing arrangements for comparable brands, an appropriate split of brand earnings between licensor and licensee, and shall be as close as possible to brands with the same characteristics and size as the brand being the subject for valuation.”

The market approach focuses mainly on comparables.  BSI ISO 10668 states the market approach measures value based on what other purchasers in the market have paid for assets that can be considered reasonably similar to those being valued… emphasis on the word similar.  It is generally recognized that IP is unique, and therefore exact matches would be difficult if not impossible to locate. D’Souza goes one step further, stating that the difficulty in finding comparables forces valuators to use the market approach mostly in a supporting role, as a sanity check. “Some industries have publicly available transactions and many license agreements to use as comparables, while others may have very few or none at all.”

In an attempt to test D’Souza’s point, we examined ktMINE’s industry breakdowns, and list below the industry followed by the number of license agreements in ktMINE pertaining to that industry, where a license agreement is included only when non-redacted with respect to at least one variable royalty rate. Analysts may be surprised to learn the depth of industry coverage in the ktMINE database.

Advertising  368

Agribusiness  270

Alcoholic beverages and tobacco  121

Alternative and renewable energy  388

Biotechnology  2,550

Broadcast and cable  565

Business services  4,167

Chemicals  676

Computer hardware and software  2,724

Construction  328

Consumer durables  1,906

Consumer nondurables  1,965

Consumer services  3,252

Education  363

Electric Utilities  182

Entertainment  1,167

Environment and waste management  464

Financial services  1,012

Foods and nonalcoholic beverages  1,131

Gaming  205

Healthcare facilities 486

Healthcare insurance  108

Healthcare pharmaceutical  2,314

Healthcare products and supplies  2,001

Industrial equipment and machinery  934

Internet  1,469

Metals  164

Mining  207

Oil and Gas  433

Paper and forest products  107

Public safety  402

Publishing  491