Saturday, May 16, 2015
How much are your customer relationships worth?
There's always a lot of argument about the way companies value their customer relationships as a percent of the value of the company. The value of customer relationships falls into the category of an intangible asset when looking at the balance sheet of a Corporation. Brands and trademarks are included in the valuation of the company along with the value of customer relationships as the two major intangibles.
MARKABLES is a cross-border venture of experienced trademark experts who deal with the challenges of trademark valuation from different perspectives. It is owned and operated by a privately held company located in Switzerland and specializes in company evaluations for M&A.
There really is no accounting data that can be used for evaluation of trademarks and customer relationships. The general methodology used to value intangible data is highly dependent on comparative data. One of the best ways of valuing customer relationships occurs when a company unit being bought or sold since it's value must stand up to the scrutiny of auditors. The process used for estimating the selling price of a company requires valuing the different assets of the company which also includes the intangible assets of the brand or trademarks owned by the company and the customer relationships of the company.
A study of 6000 mergers and acquisitions (M&A) worldwide between 2003 and 2013 revealed some interesting characteristics of the value of customer relationships and brands and trademarks. Since evaluations were done by experts and documented, the data which were accrued from the evaluations can be used to indicate how experts are valuing the two intangibles of brands and customer relationships.
The outcome of this analysis shows that the value of brands and trademarks has dropped as a percent of the overall value the company from approximately 18% in 2003 to about 10% in this 11 year period. On the other hand, the value given to customer relationships has increased from about 9% in 2003 to 18% in the same time frame. Thus while brands and trademarks seem to be declining at a rate of approximately 0.8% per year in terms of asset value of the company, customer relationships value and as a percent of the company seem to be growing at approximately 0.9% per year.