Brand Due Diligence – Definition

What is included in a Brand Due Diligence?

There are five key steps to understanding Brand Due Diligence:

1. Legal review and risk analysis

  • Involves understanding the nature of the franchise:
  • Are trademarks registered in all territories and business classes?
  • Are trademarks properly protected?
  • Are trademark rights sold, shared or licensed?
  • Are sales being lost through parallel trading or counterfeiting?


2. Market review and risk analysis

  • Involves understanding the risk profile of the industry:
  • Is the industry in a growth or decline phase?
  • Is the industry stable or particularly vulnerable to social, economic, political, technological or environmental factors?
  • How are developments in e-commerce and the internet affecting the distribution channels in the industry?


3. Competitor review and risk analysis

  • Involves understanding the competitor landscape:
  • Who is the market leader and what is its strategy - is it integrating up/ down/ across?
  • Which of the other players are considered market challengers/ followers/ nichers and what appears to be their marketing strategy?
  • What are the barriers to entry in the market?


4. Brand image review and risk analysis


  • Is the brand well managed?
  • Customer target profile
  • Pricing strategy
  • Adequate marketing support
  • Responding to changing environment
  • Is there protection against reputation damage? 
  • Product malfunction
  • Personnel error
  • Ethical or environmental problems


5. Branded business review and risk analysis


  • Is there any sustainable competitive advantage?
  • Product innovation
  • Manufacturing capability
  • Distribution/ channel structure
  • Quality of service/ people
  • Lowest cost/ price
  • Customer loyalty/ inertia
  • Intangible differentiation


Brand Due Diligence - Conclusion


The introduction of IFRS 3 for acquisitions after 31 March 2004 is expected to have important implications for brand owners and the way trademarks are valued and accounted for. In particular, the separate recognition of trademarks and other acquired intangible assets, together with subsequent annual testing for impairment, will require companies to establish robust intangible asset valuation methodologies, which will stand up to increased scrutiny by the market. A more rigorous and detailed due diligence process should also be developed. In cases where the acquired brand is considered to represent a significant proportion of total intangible asset value, a "Brand Due Diligence" should be considered.

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