Valuing Branded Businesses

We develop and validate a conditional multiplier approach for valuing branded businesses. Our approach enhances traditional multiplier-based valuation by explicitly incorporating brand characteristics into the model. We present theoretical arguments why, develop a model to demonstrate how, and provide an empirical illustration showing that brand assets are not fully reflected in contemporaneous margins and, therefore, valuation accuracy can be improved by incorporating information about the properties of the firm's brand asset directly into a valuation framework. We find that brand metrics have statistically significant associations with valuation multipliers and add incremental explanatory power to accounting variables in explaining valuation multipliers. Out-of-sample analysis shows a 16% improvement in the mean absolute error for predictions taking into account brand metrics compared to predictions based on accounting variables alone.