Valuation Methods: RFR, MPEEM, and With-and-Without

A practical guide to the three primary intangible asset valuation methods — Relief from Royalty, Multi-Period Excess Earnings, and With-and-Without. Covers when to use each method, worked examples, and common pitfalls in professional practice.

Lesson 7 of 10

Intangible Asset Masterclass — Lesson 7 of 10

Intangible asset valuation is equal parts financial analysis and professional judgement. Unlike tangible assets — where market prices, replacement costs, and depreciation schedules provide relatively objective reference points — intangible assets require the valuer to estimate future cash flows, select appropriate discount rates, determine useful lives, and choose between competing methodologies.

Three methods dominate professional practice: Relief from Royalty (RFR), Multi-Period Excess Earnings Method (MPEEM), and the With-and-Without method (W&W). Each has specific applications, strengths, and limitations. This lesson covers when to use each method, how to apply it, and the common pitfalls that lead to unreliable valuations.

★ Key Takeaway

There is no single correct method for valuing intangible assets. The choice of method depends on the asset type, the availability of market data, and the purpose of the valuation. In purchase price allocations, professional valuers typically use RFR for brands and technology, MPEEM for customer relationships, and W&W for non-compete agreements and specific contractual assets. Understanding all three methods — and their interactions — is essential for anyone evaluating or negotiating intangible asset values.

Method Overview

3 primary valuation methods in professional practice

RFR most commonly used for brands and technology

MPEEM standard for customer relationships

Method Selection Guide

Method	Best For	Key Input	Primary Risk
Relief from Royalty (RFR)	Brands, trademarks, patents, technology licences	Market royalty rates	Comparability of royalty evidence
Multi-Period Excess Earnings (MPEEM)	Customer relationships, primary intangible asset	Revenue forecasts and contributory asset charges	Complexity of contributory charges
With-and-Without (W&W)	Non-compete agreements, specific contracts, assembled workforce	Business value differential scenarios	Subjectivity of "without" scenario

Relief from Royalty (RFR)

The Relief from Royalty method values an intangible asset by estimating the royalty payment the owner would need to make to license the asset from a third party if it did not own it. The asset's value equals the present value of the avoided royalty payments over the asset's remaining useful life.

RFR: Step-by-Step

1. Determine the revenue attributable to the asset

For a brand, this is the total revenue generated under the brand name. For a patent, it is the revenue from products that use the patented technology. For software, it is the licence or subscription revenue.

2. Select an appropriate royalty rate

This is the most critical judgement in RFR. The royalty rate should reflect what an arm's-length licensee would pay for the right to use the asset. Sources include comparable licence agreements, industry databases (RoyaltyStat, ktMINE), and regulatory transfer pricing guidance.

3. Forecast royalty savings over the asset's useful life

Multiply projected revenue by the royalty rate for each year of the asset's expected useful life. Apply an appropriate revenue growth rate and account for any expected decline in the asset's value over time.

4. Discount to present value

Apply a discount rate that reflects the risk of the cash flows. For intangible assets, this is typically the weighted average cost of capital (WACC) plus a risk premium reflecting the specific uncertainty of the asset.

5. Apply tax amortisation benefit (TAB)

If the intangible asset is tax-deductible (amortisable for tax purposes), the buyer receives a tax shield that increases the asset's value. The TAB adjustment is typically 10-20% of the pre-TAB value.