Approaches to Value Marketing-Related and Technology-Based Intangibles

Posted on May 27th, 2025 in Business Valuations

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This is the fourth article in a series on intangible assets and the various valuation methodologies and considerations. Please see our Spring 2024 and Fall 2024 FSAT News releases for the prior articles in this series, Unlocking the Value: Understanding Intangible Assets in Business Valuation’, ‘Determining the Economic Benefits of Customer-related Intangible Assets’, and ‘Approaches to Value Customer-Related Intangibles’.

From the previous articles in the series, we recap that there are five categories of identifiable intangible assets:

Marketing-related;
Customer-related;
Contract-based;
Technology-based; and
Artistic-related.

In the Fall 2024 release of FSAT News, we discussed that customer-related intangible assets are often valued using the Multi-Period Excess Earnings Method (MEEM).

Relief-From-Royalty Approach (RFR)

For marketing-related intangibles, such as brand names and trade names or technology-based intangibles, such as software and licenses, one approach to determine value can be the RFR approach.

While there are some technical details to consider in applying the RFR approach, in simple terms, this method determines the value of the intangible asset based on the hypothetical savings by owning the asset instead of licensing it from a third party. This savings is estimated by applying a market-based royalty rate to a forecast future revenue stream from use of the asset. This stream of royalty income is reduced for income taxes and discounted to a present value as at the valuation date.

The RFR approach is simpler to calculate than a MEEM but determining and selecting an appropriate royalty rate can be challenging if there are limited comparable products in the market. Additionally, research and professional judgment is required to determine the economic life of the intangible asset, as most brand names, trade names, and technologies have a finite lifespan.

Selecting a Comparable Royalty Rate

To select a comparable royalty rate, royalty agreements for similar intangible assets are often reviewed and evaluated based on the following factors:

The date of the transaction. Royalty agreements near the transaction date may more accurately reflect comparable royalty rates.
Any non-cash considerations. A more complex transaction involving multiple non-cash considerations typically leads to a higher royalty rate.
The royalty rate should be determined by examining royalty agreements between third parties, rather than those between related parties to ensure they represent market rates.
Whether the agreement is for global usage or limited to specific territories.
Whether there are legal means to protect intellectual property in the territory where the royalty agreement applies. Lack of legal protection will decrease the royalty rate.
Profitability of the intangible asset and whether there is ability to pay the royalty rate.
The base on which the royalty rate is applied to the agreements, such as gross revenue, net revenue, gross profit, etc.

Alternative Approaches to RFR

In situations where royalty agreements or market royalty rates are not readily available for review, alternative approaches to value marketing-related and technology-based intangibles include, but is not limited to, reviewing the acquired company’s existing agreements or calculating the return on investment of the intangible asset.

Selecting an appropriate royalty rate for the RFR approach or applying an alternative approach to RFR requires careful consideration. If you have any questions or require assistance regarding business combinations and valuing brand/trade names or technologies, please contact a member of our Financial Services Advisory Team (FSAT) team.

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Article originally published in: FSAT News – Spring/Summer 2025

Article written by: Rachel Mak, CBV