An academic health system (AHS) was considering entering a joint venture with a community hospital (Hospital). In exchange for equity in the Hospital, the AHS wanted to contribute the licensing of their academic brand. The AHS needed support valuing the enterprise value of the AHS brand and value ascribable to the AHS for the contribution of the brand license (the Brand Equity).
Situation
The AHS was in the preliminary stages of evaluating a potential joint venture with the Hospital. The AHS engaged VMG Health to perform the business valuation to assess the Hospital Equity’s fair market value for the AHS’ potential buy-in opportunity, and to evaluate the value attributable to the AHS for the contribution of its brand license to the joint venture. This dual analysis was critical in defining each party’s contribution to the partnership and aligning on a valuation framework that guides negotiations and structures the terms of agreement.
Solution
Through its proprietary brand strength index, VMG Health conducted a thorough evaluation of the brand’s strength and market presence. This index assessed key indicators of brand value, including quality and credibility, patient experience, recognition and communication, and other factors. VMG Health carefully quantified these components to establish a comprehensive view of the brand’s market position.
To determine the brand contribution equity value, VMG Health employed three valuation approaches:
- Income approach:
VMG Health estimated incremental earnings derived from brand use through a with-and-without analysis, applying a relief-from-royalty calculation to determine the upfront equity contribution. - Market approach:
VMG Health evaluated comparable royalty rates using external databases and proprietary resources to establish a market-based royalty range. - Cost approach:
VMG Health estimated the costs to recreate and sustain the brand based on historical marketing expenditures. Together, these methodologies provided a robust framework for assessing the AHS brand value.
Success
VMG Health considered the relevance and applicability of each valuation methodology to the unique circumstances of the brand and transaction. Weighting each methodology according to its applicability, VMG Health determined a comprehensive and defensible fair market value for the Brand Equity.
The AHS used VMG Health’s detailed valuation report to develop licensing agreements for the joint venture, successfully structuring a transaction that aligned with their strategic objectives while ensuring compliance with regulatory standards.