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.
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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. Businesses without a system to build and document these components will not be able to demonstrate them during the due diligence process.
A higher valuation capability is evidence the buyer is looking for
One of the strongest signals of a strong brand in the eyes of buyers is pricing power, which means the ability to sell at a higher price than competitors without losing market share. Weak brands must compete on price. Strong brands compete on positioning. Buyers understand this well. Purchasing 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 natural perception of a product, service, or organization.
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 enforced?
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 purchase because they trust the owner, not because they trust the organization. This is not bad during the operational phase, 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 as a system 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 resides 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 sales 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. Businesses that start investing systematically in their brand early will have a dual advantage. They will operate better in daily business and have more compelling assets when it comes time for a transaction.
Conversely, businesses that wait until they have a sale plan to start "beautifying the brand" often find themselves in a difficult situation. There is not enough time to build substance, and experienced buyers will immediately recognize the thin layer of makeup. In such cases, efforts to enhance the appearance 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.