One of the most appropriate methodologies for valuing trademarks is the relief from royalty method, which estimates the expected royalty savings attributable to the ownership of the intangible asset.
This approach is based on the concept that if a company owns an asset, it does not have to "rent" one. The owner is thus "relieved" from paying a royalty, which represents valuable cost savings. In this context, the theoretical rent or royalty payment is used as a surrogate for the income attributable to the trademark.
The key assumptions when valuing a trade name are the revenue base, the royalty rate and the discount rate.
For telcos, the challenge arises around the remaining useful life of the acquired trademarks. Specific re-branding and co-branding relating to the acquisition must not be included.
The intention of the acquirer must not be taken into account, unless under specific circumstances where it can be proved that market participants would have acted in the same way, supported by strict documentation.
How royalty rates vary
Royalty rates for the telecoms industry vary widely, between 0.5% and 4%, depending on:
- The strength of the brand
- The company's market position (e.g., low cost vs. premium services or market share)
- The operator's financial performance