Module I· Goodwill, Intangibles & ImpairmentIntermediate
Question
How do you handle brand value / trademark valuation in a PPA?
Answer
Mechanics
Brand-value measurement in a PPA — typical methods:
- Relief-from-royalty (standard): how much royalty would a non-owner have to pay each year to use the brand? Formula: royalty rate × branded sales × (1 − t), discounted.
- Income approach: a forward forecast of the cash flows attributable to the brand.
- Comparable transactions: comparable brand acquisitions (rarely enough data points available).
Deep diveShow more details
Royalty-rate ranges by industry
| Industry | Royalty rate |
|---|---|
| Luxury | 8–15% |
| Consumer goods | 1–4% |
| Industrials | 0.5–2% |
Useful-life question
- Indefinite-life brand: for established brands with no decay (Coca-Cola, Mercedes-Benz, BMW) — no amortization, impairment test only.
- Definite-life brand: when a brand is being strategically phased out (e.g. transitional branding after M&A) — amortization typically over 10–25 years.
Valuation consequence
an indefinite-life brand means no D&A drag and therefore higher reported EBIT in later years — more aggressive PPA accounting.
Example
Henkel's brands (Persil, Schwarzkopf) are carried as indefinite-life. The Coca-Cola brand is carried globally at ~$70bn, indefinite-life.
Pitch tip
'In a consumer-goods M&A pitch, typically 30–50% of the purchase price sits in brand value, carried indefinite-life — no D&A drag, but impairment risk if margins erode'.