M:I Products

MISSION:INTANGIBLE, the blog of the Intangible Asset Finance Society, offers critical comments on intangible asset, corporate reputation, and finance; supplemented by quantitative reputation metrics. Intangible assets include business processes, patents, trademarks; reputations for ethics and integrity; quality, safety, sustainability, security, and resilience; and comprise 70% of the average company's value. MISSION:INTANGIBLE is a registered trademark of the Intangible Asset Finance Society.

Read future M:I posts via RSS RSS

Valuation of intangibles: New international standards

C. HUYGENS - Thursday, October 14, 2010
Justice Potter Stewart’s concurring opinion in Jacobellis v. Ohio 378 U.S. 184 (1964) enshrined the qualitative standard “I know it when I see it” into business culture. Now there is a quantitative standard too. For features other than the content of films, that is, as well as other intangibles.

The International Organization for Standards (ISO) has adopted a standard for the valuation of brands - a common term for many of the assets comprising some fraction of the typical ~70% gap between market value and book value. As abstracted from the report in the IAM blog,

ISO 10668 applies to brand valuations commissioned for all purposes, including: accounting and financial reporting; insolvency and liquidation; tax planning and compliance; litigation support and dispute resolution; corporate finance and fund raising; licensing and joint venture negotiation; internal management information and reporting; strategic planning; and brand management. The last of these applications includes brand and marketing budget determination, brand portfolio review, brand architecture analysis and brand extension planning.

ISO 10668 is a meta standard which succinctly specifies the principles to be followed and the types of work to be conducted in any brand valuation. It specifies that when conducting a brand valuation the brand valuer must conduct three types of analysis before passing an opinion on the brand’s value. These are legal, behavioural and financial analysis.

1. Definitions: The first requirement is to define what is meant by brand and which intangible assets should be included in the brand valuation opinion. The brand valuer is required to assess the legal protection afforded to the brand by identifying each of the legal rights that protect it, the legal owner of each relevant legal right and the legal parameters influencing negatively or positively the value of the brand.

2. Behavior: The brand valuer must understand and form an opinion on value drivers; ie,  likely stakeholder behaviour in each of the geographical, product and customer segments in which the subject brand operates.

3. Financial:  [The standard] specifies three alternative brand valuation approaches - the market, cost and income approaches.

The above, which seem to enshrine common practice, may move valuation experts to apply these principles to patents and other intangible assets, and the fact that these practices now have the imprimatur of the ISO may enable the capital markets to accept more readily these indications of value.

To find out if this is the case and to get the latest news from the valuation front, the Society will be hosting three consecutive Mission Intangible Monthly Briefings programs on the subject of intangible asset valuation: markets, value management, and valuation, on Nov 5, Dec 3 and Jan 7. Registration is free. You won't want to miss these!

Recent Comments