January 29, 2021
Did Boohoo get a good deal acquiring the Debenhams brand for £55m?
Did Boohoo get a good deal acquiring the Debenhams brand for £55m?

Brand valuation & Brand strength

As Debenhams went into administration, one of its most valuable assets was its brand.

In accessing the value of a brand, the exercise should not be done solely from a general perspective. It is critical for one to clearly understand the brand’s strengths when determining its value, which involves a deep understanding of the brand, including public perception, market reach and competitors, financial strength, licensing strength, brand protection and effectively managing and monitoring the brand. With this in mind, Stobbs together with their strategic partner Valuation Consulting have together developed a proprietary and specialist Brand Score model to better access a company’s brand strength.

The importance of effectively managing and protecting a company’s brand, as well as thoroughly understanding a brand’s strength, to make well informed difficult decisions, cannot be overstated.

Brand values are often calculated by reference to the royalty rate that brand could achieve under a licensing agreement, most often as a percentage of turnover. For example, the strength of the brand can make a 2% difference on relative royalty rates for the purpose of brand strength assessment, which is turn may lead to a very significant capital value difference. This should be not understated as the brand strength will have a direct impact on a brand’s valuation, and it the ultimate price the brand is able to attract in the open market during an exit.

It would have been great if Debenhams had the right tools to conduct its brand strength assessment together with tools in assisting the business manage its large brand portfolio, spanning several product lines and in several jurisdictions.

Stobbs has also recently developed and launched iaidō, (iaido.ai/), a software platform tool which allows businesses to have the ability to:

(1)   See the validity issues regarding brands

(2)   Download the entire brand portfolio with sales volume data attributed to each line of the trademark/brand portfolio; and

(3)   Develop and build in a brand strategy and view a gap analysis, together with the cost to cover that gap analysis

These are the key ways the use of iaidō could help businesses in developing stronger brands, and ultimately in more valuable brands. iaidō is a tool that can enhance corporate governance and strategic management of businesses, by bringing together the commercial teams and legal teams to provide a strategic oversight of a business.

It appears that Debenhams did not have such capabilities to rely on, and it most likely responded to market and rebranding challenges with more reacted measures as opposed to proactive actions.

From an IP point of view, certainly if a company’s brands are run better the brands’ exit value, even during an administration, would objectively be higher.

Was the acquisition price of £55m for Debenhams brand a fair deal?

According to Debenhams’ most recent financial year to August 2020, its online business generated unaudited online net revenues of approximately £400m, it generated an unaudited gross transaction value (i.e., overall sales including those from concession brands) of the Debenhams retail brand of £1.524bn and an unaudited EBITDA of £12.7m. This was a sharp decline from the company’s last filed accounts with Companies House for 2018, which reported a gross transactional value of £2.90bn and an EBITDA of £157.3m, and from its 2017 accounts, which reported a gross transactional value of £2.95bn and an EBITDA of £217m.

Research on benchmarked EV/EBITDA multiples for comparable companies similar to Debenhams and Boohoo, were found to be in the range of 17- 20 x. From a simplistic view, if one considers a multiple of 17x and the EBITDA of 12.7m, for illustrative purposes, the approximate Enterprise Value for Debenhams would be £216m. A price of £55m for the Debenham brand and associated brand assets therefore represent approximately 25% of the total Debenhams Enterprise Value, based on the above assumptions.

However, we emphasize that to better understand the strength and value of a Company’s brand to support a higher exit value, businesses should consider a detailed brand strength analysis and specialist valuation as the most advisable way forward.

For example, some may think that this was a good bargain, if one considers the brand value accrued over Debenhams’ 242-year history and a brand strength that translates into 300 million visitors a year to its website - where one can promote products and services, not to mention the value of the customer data and analytics one is able to capture through Debenhams’ online platform.

Overall, we note that from Boohoo’s point of view it must have been a fair deal as they were willing to pay £55m. From the Debenhams administrator’s point of view, this is likely to be the best offer they received, under the distressed circumstances and their negotiation power. An administration is by definition a distressed scenario, so the price paid is probably less than the strategic value for Boohoo and for their new strategy for the brand. In any circumstance however we believe that a well-managed and strong brand, together with a specialist valuation, is likely to support negotiations and help achieve a high exit value.

Time will tell if this ultimately becomes a future success story, and it will be exciting to see how the Debenhams brand develops and lives on in the fully e-commerce space.

If you are thinking of better ways to manage and value your IP and brands, please get in touch with us at Stobbs and Valuation Consulting.

Fashion /  Brand Valuation /  Brand Intelligence /  Brand Extension (licensing) /  Commercial Contracts /  Brand Structuring

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