Unlocking the value of brands: an enormous change is coming

link to this entry | April 17th, 2007

A recent article appeared in BusinessWeek (April 16, p58 - or see it here http://www.businessweek.com/magazine/content/07_16/b4030071.htm?chan=search

Basically, Eddie Lampert who runs/owns Sears and KMart has issued bonds to the value of $1.8bn based on the Kenmore, Crafstman and Diehard brand names. “In essence, [Sears] has transferred ownership of the brands to another entity, which it then pays for the right to use the brands…” the article goes on to say “…the market in bonds backed by intangible assets could be even bigger thn the market for junk bonds, given that 70% to 80% of the total value of the stock market rests on intangibles…”

This struck me as very, very interesting given that Sears has, essentially placed a value on its three core brands and now has the opportunity to monetize them quickly (in the same way, the article points out, David Bowie monetized his songs by selling bonds backed by royalties to the songs for $55m). Given the spate of leveraged takeovers by private equity companies, I imagine that a number of these folks are considering how to unlock the value of the brands that they are buying into. And if they can do this easily, they will be on the prowl not only for underleveraged companies that can generate cash, but underleveraged companies that have underleveraged or strong brands. This will bode well for companies like Interbrand who can provide some sense of the value of the brands (although its still a little too ‘black box-y’ for me) as well as for ad agencies and brand consultancies who know how to build brands quickly.

I think we’ll be hearing a lot more about securities like these in the near future.

Entry Filed under: Branding