Introduction
Most of the time, a consumer brand is valued as part of the business that sells it. Sometimes, though, the brand must be valued on its own: when an acquirer allocates its purchase price, when an auditor tests a trademark for impairment, when a brand is sold without the company behind it or when it is licensed to someone else. The standard answer is to ask what the owner would have to pay to license the brand if it did not own it.
Acquisitions show how much of a deal can be attributed to brand value. Hershey's acquisition of LesserEvil, completed on 18 November 2025 for initial cash consideration of about $769.1 million, was preliminarily allocated $303.0 million of indefinite-lived trademarks, $301.5 million of customer relationships and $289.1 million of goodwill, according to Hershey's annual report notes, with relief-from-royalty among the valuation methods used. This article explains how relief-from-royalty works, how royalty rates are chosen and when brand value matters in deals.
How Relief-From-Royalty Works
- Relief-From-Royalty Method
A valuation method that values a brand or other intellectual property as the present value of the royalties its owner is relieved from paying because it owns the asset rather than licensing it from a third party. It applies a market royalty rate to forecast revenue, deducts tax and discounts the result.
The method is an income approach built on a simple thought experiment: if a third party owned the brand, the company would pay it a royalty on every branded sale. Owning the brand saves that royalty, so the brand is worth the present value of the savings. Its appeal is that royalty rates can be observed in real licensing agreements, which gives the valuation an anchor outside the company's own forecasts. How the method fits into a full purchase price allocation is covered in the Accounting guide's purchase price allocation.
Forecast revenue
Project the sales that carry the brand, often over a long period or into perpetuity for an established brand.
Choose a royalty rate
Select the rate a willing licensee would pay for this brand, based on comparable licenses and the brand's profitability.
Tax the royalties
Deduct tax at the relevant rate, since the owner's savings are after tax.
Discount
Discount the after-tax royalties at a rate reflecting the brand's risk, usually close to or slightly above the business's cost of capital.
Add the tax benefit
Where relevant, include the value of tax amortization the buyer of the asset could claim.
Other ways to value a brand
Relief-from-royalty is the usual method for trademarks, but not the only one. The multi-period excess earnings method values an asset as the earnings left after charging for every other asset the business uses; valuers typically reserve it for the most important intangible in a deal, often customer relationships. The with-and-without method compares the business's cash flows with and without the asset. And a market approach uses prices paid for comparable brands, which is possible when brands are sold on their own, as in licensing and brand management deals. Hershey listed discounted cash flow analysis, relief-from-royalty, multi-period excess earnings and with-and-without among the techniques used for its acquisitions, which is typical of how valuers combine methods for different assets.
Choosing the Royalty Rate
The royalty rate is the most judgment-heavy input. Valuers look first at comparable license agreements, where a brand owner has licensed a similar brand in the same category, and then adjust for differences in brand strength, exclusivity and territory. They also check the rate against the profitability of the branded products: a licensee will only pay a royalty that leaves it a reasonable return on its own manufacturing, distribution and selling.
| Factor | Supports a higher royalty rate | Supports a lower royalty rate |
|---|---|---|
| Brand strength | Leading, trusted brand with pricing power | Weak or regional brand, close substitutes |
| Category margins | High-margin categories such as beauty or luxury | Low-margin categories such as staple foods |
| Scope of license | Exclusive, broad categories and territories | Narrow, non-exclusive rights |
| Licensor support | Owner funds marketing and design | Licensee carries all brand investment |
Royalty rates therefore differ widely by category. Fashion and lifestyle brands are routinely licensed across categories, so there is plenty of market evidence, a model described in brand management companies and IP licensing. Food and household brands are licensed less often, so valuers rely more on profit-based reasoning and on rates disclosed in filings and litigation.
Profit split checks
A common sense check is to compare the implied royalty with the operating profit of the branded product. If the chosen rate would leave the licensee little or no profit, it is too high; if it captures only a sliver of the brand's premium, it may be too low. Valuers often express the royalty as a share of operating profit to make that test explicit, while treating any rule of thumb as a starting point rather than an answer.
A Worked Example
The example leaves out the tax amortization benefit, which can add meaningfully to the value in jurisdictions where an acquired brand can be amortized for tax purposes. It also assumes a brand that lasts indefinitely; a fading or fashion-driven brand is valued over a finite life, which lowers the result.
When Brand Value Matters
Brand valuations appear in several kinds of work, each with a different purpose and audience:
| Situation | Who needs the value | Why it matters |
|---|---|---|
| Purchase price allocation | Acquirer and auditors | Sets the trademark's book value and future amortization or testing |
| Impairment test | Owner and auditors | A shortfall forces a write-down |
| Brand or IP sale | Seller, buyer and their advisors | The brand is the asset being priced |
| Licensing deal | Licensor and licensee | Sets the royalty for a new category or region |
| Royalty-backed financing | Lenders and rating agencies | Determines how much debt the royalties support |
In purchase price allocations, the acquirer records the brand at fair value, as Hershey did for LesserEvil, and the amount affects future amortization or impairment testing. In impairment testing, the owner revalues the brand when performance falls short.
- Indefinite-Lived Intangible Asset
An acquired intangible, such as a long-established trademark, with no foreseeable limit on the period it will generate cash flows. It is not amortized but must be tested for impairment at least annually; if its outlook dims, it can be reclassified as finite-lived and amortized from then on.
Established consumer brands are often recorded as indefinite-lived, which makes their annual impairment test an important signal. J.M. Smucker recorded a $454.2 million impairment of the Hostess indefinite-lived trademark in the third quarter of fiscal 2026, after sustained underperformance led to a further reduction of the projected long-term growth rate and royalty rate, and reclassified the brand as a finite-lived asset, according to Smucker's fiscal 2026 Form 10-K.
Brand IP sales and licensing deals
Brand value matters most directly when the brand itself is the asset being sold. Distressed retailers often sell their names and trademarks separately from their stores and inventory, sometimes to brand management companies that license them to new operators, as described in distressed retail: liquidations and brand IP sales. Licensing deals, in which a brand owner grants rights in a new category or region, are priced on the same royalty logic. And brands with a dependable royalty stream can support financing secured on them, the structure behind whole-business securitization for franchisors.
For a coverage banker, relief-from-royalty turns an intangible asset into a number that can be defended: what a willing licensee would pay to use the name. The number is only as good as the royalty rate behind it, which is why the best brand valuations show their evidence for that rate before anything else.
