Posts Tagged ‘Valuation’

What’s the value of your brand?

March 30, 2017

Andy Warhol’s “Coca-Cola [3]”
Crystal Bridges Museum of American Art

The typical raw materials of valuation are numbers – and investor relations people get very comfortable working with metrics that feed investors’ calculations for growth, margins, cash flows, multiples of earnings and the like, and assorted more granular numbers.

But what value do you assign to your company’s brand? Your customer base? Your products or product lines? Valuing these seems open to as many interpretations as, say, a painting by Andy Warhol. Assigning a dollar value seems more like art than science.

So I find it interesting when brand gurus, from time to time, peg the best-known brands as having a monetary value. Recently I ran across the “Global 500 2017” – a list of the world’s most valuable brands – published by Brand Finance, a London consultancy in brand strategy.

The list itself is interesting to browse. No. 1 in 2017 is Google, nudging Apple to No. 2 from its place at the top last year. The iconic Coca-Cola, a favorite of old-school marketing profs (and Andy Warhol), has slipped to No. 27. Christian Dior is No. 500.

The directory is sortable by industry, country or year. If you sort for your industry or country, you’ll see the big names – maybe your company’s, if you rate. If not, it’s still interesting to see who did make the list. (Estimated dollar values are given for the top 100. Beyond that, the Brand Finance table is a teaser to draw you into buying their services or reports. Everyone’s got to make a living.)

So what makes the Google brand worth $109 billion, and Apple $107 billion, and Amazon $106 billion?

Poking around for Brand Finance’s Methodology page, you can pull back the curtain. When they talk about a brand, they mean the trademark – words, iconography and other intellectual property. The value, then, is an estimate of what you would have to pay to buy (or could gain by selling) global rights to that brand. Brand Finance estimates the future revenue that a brand will generate, applies a royalty rate, and does a net present value calculation. Along the way, the gurus mix things like a brand’s financial performance with its emotional connection and sustainability to score “brand strength” on a scale of 1 to 100. Then they multiply by a royalty rate based on deals in the relevant sector. And they apply that to forecasts of future revenues related to that brand. Stir, mix and – voila! – brand value.

In my mind, intangibles are best understood qualitatively. Saying the Starbucks brand is worth $25.615 billion seems less meaningful than talking about its actual financials, plus forecasts – or looking at today’s market cap. Investors should qualitatively understand those emotional connections, daily habits of customers, sales of other stuff under the Starbucks name, and so on. Separated from the organization, all the baristas and training, aromas in the stores, and whatever else goes into the “brand,” the value of the name could go way down. Sometimes it happens fast, when a big crisis overtakes a company. More often it is slow, as management loses its edge or people’s tastes change and leave the brand behind.

When it comes to assigning monetary values to brand, I must confess I feel more confident with, well, the numbers – in the sense of sales, margins, discounted cash flows.

But it’s still interesting to contemplate the value of your company’s brands (corporate and products). We should all analyze and talk with investors about the durability, customer loyalty, competitive strengths, and values that maintain and bring growth to our brands. Investors will factor this into their assessment of brand value – which is the one that counts in IR.

What do you think?

© 2017 Johnson Strategic Communications Inc.

 

 

Advertisements

Let’s make a deal

May 27, 2014

Mergers and acquisitions are resurgent – a factor in the stock market’s buoyancy, a topic of conversation everywhere and a sometimes challenging reality in our jobs as investor relations professionals.

The current issue of Barron’s advises investors on “How to Play M&A” and offers some stats from Dealogic:

So far this year companies have announced deals worth $1.52 trillion that are either completed or pending, according to Dealogic. That’s up 56% from last year and marks the largest dollar amount for deals since the $2.06 trillion recorded during the same period in 2007. Jumbo deals in particular are making a comeback.

Mergers, divestitures and other deals are popping up all over. The top five sectors are healthcare, telecom, real estate, tech, and oil & gas. Make no mistake, M&A is cyclical, as seen in this chart from Barron’s:

M&A deal value by year

If you observe that the last two peaks in M&A activity coincided with stock market “tops,” you’re not alone – although Barron’s believes this bull still has room to run, in both stock prices and deal flow. We’ll see.

My point here is that IROs and IR counselors should develop M&A communication as a core competency. Mergers are so important to the strategic future of most companies – as buyer, seller or competitor – that we need to dig deeply into how deals do (and do not) create value for shareholders. And we need to consider how to tell that story.

The first instinct of some CEOs, and IR people, is to trot out familiar M&A bromides: “strategic combination,” synergies, “merger of equals,” 2+2=5, “critical mass” and excitement about the future. The press conferences are all smiles. Not that these stories are false, but they don’t tell investor whether the transaction is really creating value.

Worse yet, merger messaging can arise from defensiveness. Execs who have spent months thrashing out a deal may draw talking points from the touchy issues: where the new headquarters is or how the top jobs are divvied up. Significant maybe, but not the main point for investors.

Here are three key needs to consider in communicating M&A:

  • Strategy. An acquiring company must explain why the deal makes sense and keep explaining it. Strategy is not a combined list of products or expanded footprint. It’s how the deal changes your competitive position, how it changes who your company is, three to five years from now.
  • Metrics. Besides adding two companies’ sales together, merger announcements most commonly discuss forecasted cost savings and change to EPS (acquirers love to say “accretive”). How about operating cash flow per share? Return on capital invested vs. your cost of capital, or change in return on equity overall? Impact on dividends?
  • Follow-through. Success in M&A is all about integration, and IROs can help execute the strategy. When it comes to telling the story, plan for follow-up announcements as milestones are achieved. Track those metrics and report the progress. And keep explaining the “why.”

I’m not saying these are the answers. Getting the right messaging depends on all the specifics of your company, the deal that’s in front of you, your industry and what your investors care about the most. But developing that messaging with the CEO and your deal team is one of the most important jobs of IR during a time of transition.

IR professionals also play a central role in managing communication. It’s critical to lay out a detailed timetable for all communications that need to take place on Day 1, announcement day, and following.

Delivering the right investor messages, tailored for each audience, is essential in playing “Let’s make a deal” as a public company.

© 2014 Johnson Strategic Communications Inc.

Guiding expectations: Of course we do

May 9, 2013

It’s as close as possible to unanimous: 97% of investor relations professionals say their companies attempt to manage expectations of shareholders, according to a survey of corporate members of the National Investor Relations Institute (NIRI).

No surprise, really. The results published today by NIRI just affirm the definition of IR as cultivating accurate understanding among investors of a company’s business, performance and prospects – communicating all that goes into valuing a stock.

IROs said the biggest focus (61%) is on guiding expectations for the current year, with smaller numbers of companies focusing on longer-term expectations.

What approach do companies use to manage expectations? Some 70% release financial metrics such as goals for revenue, margin or earnings; 27% offer “micro” industry-level metrics; and 22% give “macro” business-environment expectations.

Most CEOs and CFOs know instinctively that their job includes painting the clearest possible picture of the direction and prospects of the business. Exactly how to manage  expectations varies greatly from company to company – and executive to executive. You’ll find details and examples in the NIRI survey – and other sources.

As to the imperative of communicating with the market, it’s unanimous: We all do.

© 2013 Johnson Strategic Communications Inc.