Trademarks and trade names are classified as marketing-related intangible assets under IFRS 3 and ASC 805. They represent the commercial identity of the business — the name, logo, visual identity, and associated reputation that customers recognise and respond to. In a purchase price allocation, trade names typically represent 5-20% of the total identifiable intangible value, though this range varies enormously depending on the brand's strength and market position.
The Relief from Royalty (RFR) method is the standard approach for trade name valuation because trade names and trademarks are commonly licensed between parties, providing a relatively deep pool of comparable royalty rate data.
Trade name valuation through RFR is conceptually simple but requires careful attention to the factors that drive brand-specific royalty rates. A luxury fashion brand commands a very different royalty rate from an industrial component manufacturer's trade name, even though both are marketing-related intangibles.
Not all trade names are equally valuable. The factors that differentiate a high-value brand from a low-value one include:
| Factor | Higher Value | Lower Value |
|---|---|---|
| Brand awareness | Nationally or globally recognised | Regional or niche only |
| Brand loyalty | Customers pay premiums for the brand | Customers are price-driven |
| Market position | Category leader | One of many competitors |
| Price premium | Commands measurable premium over unbranded alternatives | No observable premium |
| Advertising investment | Decades of sustained investment | Minimal marketing spend |
| Legal protection | Registered trademark in key markets | Unregistered or weak protection |
| Brand history | Long-established reputation | Recently created |
Consider two acquired companies in the same industry. Company A has a 40-year-old brand that customers specifically request by name, supported by £2M annual advertising spend and registered trademarks in 30 countries. Company B has a 5-year-old brand that is primarily known through its sales force relationships. Company A's trade name might command a 6-8% royalty rate; Company B's might warrant only 1-2%.
The RFR calculation for trade names follows the standard framework:
Identify the revenue attributable to products or services sold under the trade name. If the company operates multiple brands, separate the revenue by brand.
Derive the rate from comparable trade name licensing transactions, adjusted for brand strength, industry, and deal structure. See Royalty Rate Selection for the detailed methodology.
Forecast the royalty savings over the trade name's useful life, applying revenue growth assumptions consistent with the overall business case.
Apply the tax rate to the royalty savings and discount to present value using a trade name-specific discount rate.
| Industry | Typical Trade Name Royalty Rate | Key Driver |
|---|---|---|
| Luxury goods and fashion | 5-15% | Brand is the primary purchase driver |
| Consumer packaged goods | 2-8% | Brand awareness and shelf positioning |
| Technology (B2B) | 1-4% | Technology matters more than brand |
| Technology (B2C) | 3-8% | Brand trust influences consumer choices |
| Financial services | 1-3% | Regulatory trust, conservative marketing |
| Healthcare / pharmaceuticals | 1-4% | Physician-driven decisions reduce brand impact |
| Industrial / manufacturing | 0.5-3% | Specifications dominate over brand |
| Hospitality and leisure | 3-10% | Brand experience is the product |
Trade names present a distinctive useful life challenge because strong brands can persist for decades — or even centuries. The assessment depends on management's intentions:
Classifying a trade name as having an indefinite useful life requires strong evidence. The entity must demonstrate that it intends to continue using the brand, that the brand has no foreseeable expiry, and that ongoing investment will maintain its value. A trade name in a rapidly evolving industry where rebranding is common may not qualify for indefinite life even if the current owner plans to keep it.
Many businesses operate under a corporate trade name while also using distinct product or service brand names. In a PPA, the valuer must determine which trade names are separately identifiable and material:
| Trade Name Type | Recognition | Valuation Approach |
|---|---|---|
| Corporate trade name | Usually recognised | RFR on total company revenue |
| Product brand names | Recognised if separately identifiable | RFR on product-specific revenue |
| Taglines and slogans | Rarely separately recognised | Value included in trade name |
| Domain names | May be separately valued if significant | Market approach or RFR |
| Colour schemes and trade dress | Rarely separated | Included in trade name value |
In multi-brand acquisitions, be careful not to double-count. If a corporate trade name and a product brand both drive the same revenue, the royalty rates should be calibrated so their combined effect reflects the total brand contribution without overlap. This often means applying a lower rate to each than would be used if only one brand were present.
A useful cross-check for trade name valuations is the unbranded scenario: what would the business's revenue and margins be if it operated without the trade name? The difference between the branded and unbranded scenarios provides an alternative measure of brand value.
This approach is particularly useful when:
The unbranded scenario typically shows:
Trade name valuation through RFR is well-established and supported by relatively good comparable data. The key judgements are the royalty rate (driven by brand strength and industry) and the useful life (driven by management's intentions and the brand's durability). Always cross-check the RFR result against the unbranded scenario to confirm economic plausibility. The Opagio Valuator includes trade name valuation with built-in industry royalty rate benchmarks. Value your brand.
Ivan Gowan is the Founder and CEO of Opagio. His experience building the Opagio brand from inception — including positioning, messaging, and market differentiation — provides practical insight into the factors that create and sustain trade name value. Meet the team.
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