Analysis by Luc Paugam, Christof Binder, and Henri Philippe.
In 1999, Kering (then PPR) took on the luxury industry when it bought a stake in the Gucci group and with it, took another iconic luxury brands under its umbrella: Yves Saint Laurent. For Kering, as for other major French companies, brands are of prime importance. Above all in the luxury sector, but also in the consumer goods, and even the communications sectors, major French brands are internationally active and visible. The brand portfolios held by groups such as Sanofi, LVMH, L'Oreal, Accor, Pernod Ricard, BIC, Orange, or SEB, to name just a few, give them a decisive economic and strategic edge on the world stage.
Indeed, a strong brand helps to grow sales, to justify steeper prices, and ultimately to increase profitability for the controlling entity. While it is generally recognized that brands play a key strategic role for many French corporations, is there something unique about French-owned brands? What makes them different from other international brands?
Today, it’s possible to study French brand value by looking at the financial transactions of those quoted companies who acquire them. Indeed, listed companies must follow international financial reporting standards (IFRS). Those standards require that the acquiring companies report the estimated value of the assets acquired, including brand value.
Markables is a global database of more than 8200 transactions. By taking a closer look at the 317 transactions involving French firms – including both the acquisition of French brands and the acquisition of international brands by French companies – it’s possible to learn more about French brand value.
Most notably, famousFrench brands like LU biscuits, Conforama, Yoplait, and Saint Hubert have recently been acquired by international firms. And meanwhile, French firms have acquired their fair share of iconic foreign brands, including prestigious alcohol brands (Ballantine's and Absolut), sports equipment (Puma), clinical nutrition (Nutricia), and even jewelry (Bulgari).
France generates the highest economic surplus in the world from brand transactions
Between 2005 and 2014, French firms invested more than $43.8 billion acquiring foreign brands, while foreign firms invested $11.3 billion acquiring French brands. In other words, the overall value of investments in foreign brands by French companies exceeds the value of brands sold to foreign firms by a factor of 3.9 times – the highest ratio of its kind in the world. As a point of comparison, Switzerland comes closest with a factor of 3.0 times, and Germany and Canada far behind at 1.4 and 1.3 times, respectively. Other countries carry a deficit, including Australia (0.3x), the UK (0.6x), the US (0.7x) and Italy (0.7x).
Cultural factors may explain these differences. Indeed, French culture is based on the importance of good taste, art, beauty, style, and leisure. It seems particularly conducive to the development of strategies based on differentiation, on "premium" offers, which both help create and develop strong brands. This characteristic reflects a real expertise on the part of French companies: their strategic choices focus on the acquisition, integration, and deployment of brands worldwide.
Brands are critical to the overall value of French transactions
Another indicator reflects the importance of brands in France: the percentage of the purchase price allocated to brands by French companies. France is in the group of countries for which the value attributed to brands is highest with an average of 17.9%. Only three countries are slightly ahead of France: Australia (19.8%), Italy (18.9%) and the UK (18.8%). The United States is far behind with only 11.7% of value attributed to brands.
If the weight of brands today is higher in France than elsewhere, this obviously means that the value of other intangible assets such as technologies and customer relationships is lower. This finding is the financial translation of the orientation of the French economy which is strongly focused on the consumer. The study of the evolution of these trends in future years could indicate changes in the focus onintangible assets bycompanies involved in M&A.
Some consulting firms sometimes argue that brands represent a significant percentage in the total value of companies. It is not uncommon to read that brands would account for 40% or even 50% of the total value of companies. In fact, from a financial point of view, data from acquired brands suggest that this figure is closer to a much lower range. The average weight of global brands is 14% of the total value of companies that have been acquired, and 18% for French companies.
But even if France can today be regarded as the world champion of brands, it is affected by a major global trend recently pointed out by Binder and Hanssens (2015): the overall decline of brand value in acquisitions. From 2005 to 2014, the average share of brands in the purchase price has steadily declined in favor of other intangible assets. This negative development of brand value is observed in France (the share of brands has decreased from 20% to 15%) and the world (the share of brands decreased from 15% to 12%). Investors seem to turn more towards technology and customer relationships. And the French economy necessarily enters the digital and technological age even if consumers around the world will continue to express their real admiration for the tricolor brands.
Binder C., Hanssens D. (2015), Why Strong Customer Relationships Trump Powerful Brands, Harvard Business Review, 14 avril.
Paugam L., André P., Philippe H. et Harfouche R. (2016), Brand Valuation, Routledge Studies in Accounting, Taylor & Francis, New York.