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The Strength of Your Company’s Brand Can Increase Your Business’ Valuation

If you are buying, selling or merging your business with another organization, make sure to calculate brand equity as part of the overarching business valuation process. Like capital and human assets, a business’ brand is a tangible investment that has market value and can be monetized. Most importantly, brand equity can influence the net valuation of an organization and significantly affect the sale or purchase price.

In today’s economy, you want to get the most value for your dollar – this especially holds true as you plan for business mergers, acquisitions and/or succession planning. The typical due diligence process in any M&A deal focuses on hard assets (like real estate and equipment), human assets (such as subject matter experts and organizational leaders), proprietary processes and trademarked patents as well as past, current and projected financial performance. The value and strength of a brand is often overlooked because it doesn’t fall into any of these traditional categories and can be challenging to monetize.

My firm recently had a client that was purchased as part of a national business acquisition initiative. The parent entity conducted extensive research and analysis of many potential acquisition targets. Our client quickly rose to the top of this nationwide list due, in large part, to the strength of the brand. Of course, our client also offered extremely high-demand products and services, employed a rock-solid leadership team, ranked high in customer satisfaction, had filing cabinets full of assignable contracts and was profitable. The strength of the brand was just icing on the cake and made our client’s business a much more attractive acquisition target. In the end, our client was acquired for 20 percent more than the asking price. The buyer acknowledged it was a good investment to pay a premium for a business with a strong brand.

If you’re wondering why anyone would pay more for a company with, in essence, better marketing than another, consider the financial benefits of these marketing and branding outcomes.

  • AWARENESS: A company that proactively markets itself and sustains strong brand awareness in the marketplace will consistently generate qualified in-bound leads. Keeping your company top-of-mind everyday among prospects takes focus and commitment. When a buyer is interested in a product or service, they will typically contact the first provider they are familiar with. This gives the vendor with the highest awareness (you) a chance to pitch more sales opportunities than competitors that don’t market themselves as effectively. What is a lead worth to your organization? Or better yet, what is your sales pipeline and your ability to continually replenish it worth? How would this type of lead generation process impact a merger or acquisition?
  • CREDIBILITY: A company that effectively positions itself and its executives as industry experts can significantly shorten the sales cycle. Buyers will typically make faster purchasing decisions with vendors they know and trust. Establishing this high level of trust requires demonstrated industry knowledge, proven relevant experience and tangible results. This type of credibility in the marketplace leads to a stronger comfort level and higher confidence among prospects. What is it worth to your organization to generate and collect revenue faster? How would it affect the sale price if you sold the business?
  • REPUTATION: Corporate reputation goes hand-in-hand with market awareness and industry credibility. Companies that establish themselves as market leaders are well positioned to demand a premium for their products and services. This battle of reputation is hard won. It requires a proven track record over a long period of time. Prospects are typically willing to pay more if they truly believe they are buying the best the market has to offer. What is it worth to your organization to protect and/or increase your margins? Would your reputation in the market give you the upper hand in negotiating a merger or acquisition?
  • CUSTOMER SATISFACTION: A critical, yet frequently overlooked, brand factor is customer satisfaction. This raw, candid judgment from customers can be the lifeblood or liability of a business. Prospects make purchasing decision based on a wide range of dynamics, including emotions. Feelings of satisfaction lead to loyalty and loyalty leads to revenue in many forms. Satisfied customers can represent both recurring revenue and new revenue via references to other customers and up-selling and cross selling opportunities. What is a secure, recurring revenue stream (with the potential for growth) worth to your organization? How would it affect the sale price if you sold the business?

While revenue, cash flow and profitability are the basis for any standard business valuation, “multipliers” also come into play during the final sale. Brand equity is one such factor that enables the seller to multiply these tangible numbers by anywhere from 2 to 6 times, depending on market demand, competitive landscape and industry outlook. In an acquisition or succession, buyers are usually willing to pay for this investment in marketing (e.g., awareness, credibility, reputation and customer satisfaction) because they see the financial impact. In fact, for most buyers, the spring board created by an existing strong brand is the difference between buying a thriving enterprise and building a new venture from the ground up.

Even if you are not actively buying, selling or merging a business today, building equity in your company’s brand is a good investment in any economy. This goodwill asset can be a deal breaker or deal maker when it comes time to exit the business. The financial results of building a brand can significantly expand your options and improve your negotiating position during an M&A deal. Consult with a brand strategy expert to assess the current value of your brand and map out an exit plan that includes a methodical investment in increasing your business valuation by strengthening the company’s awareness, credibility, reputation and customer satisfaction. An investment in your brand today will directly correlate with an increased return on your investment in the future.

About the Author:
Amy Zucker, a public relations and marketing veteran with 15 years of industry expertise, is president and founder of Synergy Marketing Group. The marketing/advertising/PR agency is a Woman-owned Business Enterprise (WBE) with offices in Indianapolis and Dallas. In Synergy specializes in brand strategy and development, strategic marketing, traditional and online advertising, public relations, Internet marketing, Web site design and development, social media and corporate event planning. In her role as president, Amy sets the agency’s quality standards, defines Synergy’s client service model and develops the firm’s operational processes. She also actively participates in all clients’ strategic planning processes and provides them with ongoing counsel and crisis management. Throughout her career she has helped her clients increase brand awareness, establish credibility, generate demand, launch new companies, and measure return on investment. Her areas of expertise include: strategic planning; brand creation; media relations; crisis management; crafting and effectively delivering strategic key messages; and Internet marketing and PR. Amy can be reached at 317.205.9690 ext. 223 or amy@synergy-mg.com. To learn more about Synergy Marketing Group, please visit www.synergy-mg.com.