When selling a business, the brand is an intangible asset you might overlook
In M&A negotiations, buyers do not pay for tangible assets; they pay for something that cannot be immediately replicated.
In merger and acquisition transactions, the brand is valued as a separate intangible asset, often reflected in the goodwill. Companies that do not systematically invest in building their brand will find it difficult to convince buyers to pay more than the value of tangible assets. This means wasting the value that has taken years to build.
In a merger and acquisition deal, the buyer often pays more than the book value of the assets. This difference, known as goodwill, reflects things that cannot be easily replicated: reputation, customer loyalty, competitive position. A strong brand is the main reason for the existence of that goodwill. Companies that do not build a systematic brand are often valued close to the value of tangible assets. This means wasting the value that has taken years to build.
Goodwill does not appear naturally
Many business owners believe that if their business is doing well, the brand will naturally hold value. This is partially true. However, in negotiations, buyers and valuation experts do not accept stories without operational evidence. They ask: do customers return because of the brand or due to personal relationships with the founder? Is the selling price higher than competitors, and if so, why? Is the identity consistent across all touchpoints? If the answers are unclear, the intangible value will be heavily discounted or completely eliminated.
According to David Aaker, brand equity consists of five components: brand awareness, perceived quality, brand associations, loyalty, and other proprietary assets. Each of these components can be observed and measured. Companies without a system to build and document these components will not be able to demonstrate them during the valuation process.
A higher valuation capability is evidence the buyer is looking for
One of the strongest signals of a healthy brand in the eyes of buyers is pricing power, meaning the ability to sell at higher prices than competitors without losing market share. Weak brands must compete on price. Strong brands compete on position. Buyers understand this well. Buying a business with pricing power means acquiring a more sustainable cash flow, less dependent on cost fluctuations and price competition pressure.
Kantar studies thousands of global brands and notes that a 1% price increase yields better profits than a 1% increase in volume. For companies preparing for liquidity events, pricing power is not only a daily business advantage but also a direct pricing argument in negotiations.
A brand is not a logo. A brand is a person's gut feeling about a product, service, or organization.
Marty Neumeier, The Brand Gap
Brand appraisal: what the buyer looks at
The due diligence process increasingly includes brand assessment as a separate item. Buyers or their advisors often consider the following factors.
- Consistent identity: Is the logo, color scheme, and brand language applied uniformly across all channels, from packaging to website to how employees answer the phone?
- Awareness and associations: How do target customers know the brand, and what do they associate with the name?
- Loyalty can be measured: customer return rate, NPS (Net Promoter Score), customer retention rate.
- Brand assets can be transferable: Is the brand tied to a system or to the individual founder? If the owner leaves, does the value remain?
- Documentation: Do brand guidelines exist and are they being implemented?
Businesses that are not prepared with specific answers to these points often find the goodwill in their acquisition offers significantly lower than expected.
The brand is tied to the founder: hidden risks in valuation
A common trap for small and medium-sized enterprises in Vietnam: the brand is essentially the personal reputation of the founder. Buyers trust the owner, not the organization. This is not bad during operations, but in the eyes of buyers, it is a risk. The question they ask is: if the founder leaves after 12 months according to the transfer agreement, will the revenue follow?
A brand built systematically will minimize this risk. This is when the brand has a clear identity, consistent language, and a culture that can be communicated and replicated. It demonstrates that value lies within the organization, not in individuals. This is why major M&A consulting firms often recommend that clients prepare their brand at least 18 to 24 months before starting the sale process.
Early brand investment: the timing puzzle
A brand cannot be built quickly before a sale. Customer loyalty, market awareness, and industry reputation accumulate over many years. There are no shortcuts. Companies that start investing systematically in their brand early will have a dual advantage. They will operate better in daily business and have more persuasive assets when it comes time for a transaction.
Conversely, companies that wait until they have a sale plan to start "beautifying the brand" often find themselves in a dilemma. There is not enough time to build substance, and experienced buyers will quickly see through the thin layer of makeup. In such cases, superficial beautification efforts can sometimes backfire, as they raise doubts about the authenticity of the brand.
References
Aaker, David. Managing Brand Equity. Free Press, 1991. Kantar BrandZ Global Report, around 2020. McKinsey & Company, The Business Value of Design, 2018. Interbrand, Best Global Brands, annual report. Damodaran, Aswath. The Dark Side of Valuation. Pearson, 2010 edition.
Frequently asked questions
What is goodwill in M&A and how is the brand related?
Goodwill is the difference between the actual purchase price and the book value of the net assets of the acquired company. A strong brand is one of the core factors that create this goodwill. It is the brand that generates customer loyalty, the ability to command higher prices than competitors, and a competitive position that is hard to replicate. Companies without a clear brand system often fail to demonstrate this value during the valuation process.
How should a business prepare its brand before selling?
The first step is a brand audit: is the identity consistent, is the message clear, and can customers describe the brand in the way you want? Next is to build a documentation system, from brand guidelines to evidence of market recognition. This process cannot be done in a few weeks before a sale. It needs to be built continuously as a real business asset.
Can a brand be valued in monetary terms?
Yes, but there is no single method. Brand valuation firms like Interbrand and Brand Finance use models that combine revenue attributable to the brand, brand risk, and growth rates. In actual M&A practice, buyers often use comparable transaction analysis and discounted cash flow analysis. The key point is that the brand needs to have specific operational evidence, not just a pretty story.