March 2, 2020 • Tim Schantz
In the current coronavirus induced social and financial crisis, company valuations have swung wildly from record highs to record lows. Understanding the true valuation of your organization’s history and heritage assets has never been more important. Traditionally, companies have thought of the value of an archives in conventional accounting or insurance terms. This means that an archives either has an appraised value assigned by an expert or an estimate based on replacement cost calculations. The reality is that an individual company’s heritage—more specifically, its archives—is unique and irreplaceable. One might even say it’s priceless. Moreover, archival assets of the past 10 to 15 years are largely digital, which are by their nature intangible, and the conventional use of replacement cost is outright archaic. As with family photos, it is impossible to place a tangible book value on assets that have a very specific meaning and form an essential part of an organization’s character. A brand derives much of its value from intangible factors such as reputation and the use of historical content held within its archives.
Connecting the value of an archival heritage to book value accounting is deeply flawed. Rather, a company should consider its heritage in the context of its brand and aggregate market value and determine how much of that value comes from its heritage.
Long gone are the days when accounting book values related directly to corporate market valuations. Yet traditional accounting perspectives continue to dominate the prevailing view of archival heritage value. Even when the majority of a company’s market value is represented by intangible factors, it’s assumed that the value of historical assets can be treated like tangible assets, because archives management is often relegated to facilities management or a similar department. This technically means archives can be written off over time, such that the founder’s original writings or 100-year-old photographs are written down to $0. Treating assets this way is especially surprising, because most well-structured C-suite compensation is directly linked to the long-term market valuation of a firm and not the tangible book value of its assets.
Many people have long puzzled over the logic of acquisition goodwill that doesn’t extend to the intangible value of the acquirer. Likewise, the accounting for long-lived but depreciated assets can be problematic because they still have significant value to an enterprise despite their book value. And accounting for digital assets factors in IP valuation but not the value of historical websites, email correspondence, social posts, etc.
Where do heritage assets fit in to the value equation for a corporation? We believe the book value of an archival collection is virtually irrelevant, and that heritage is deeply connected to the overarching market value of a corporation, akin to how its brand is valued. Moreover, heritage can help differentiate competitors. In this respect, consider Coca-Cola versus own-label colas. There is little doubt that the immense value of the Coca-Cola brand is based on its substantial heritage. Even if the volume of Coke consumed were comparable to the aggregate volume of own-label colas, there is no denying that Coke’s heritage and brand recognition sets it apart from any competitor. If we are correct in this hypothesis, then the value of a corporate archive is a component of aggregate brand value, not a defined appraised or replacement value.
However, brand valuation is imprecise at best—and so is valuation of historical assets. The choice of brand value ranking and methodology can lead to wide variances in the calculation. For example, the Interbrand Best Global Brands report for 2019 shows Amazon’s brand value at $125 billion, nearly $100 billion less than Brand Finance’s calculation. WPP’s BrandZ reports Amazon’s brand value at $315 billion. It’s an inexact science for sure, so calculating the percentage heritage value within that brand value must be done with some latitude.
Although effective calculation of brand value and heritage value is elusive, it is not impossible. What is probably more important is to avoid seeing that figure as absolute—the value of our heritage is $X billion—but instead determine the percentage of the overall brand value as heritage value. This will vary by product sector: It will be a higher percentage for Scotch whiskey or wine than energy drinks.
Benchmarking within a particular industry is a logical first step. One method might involve using primary research to determine the relative price premium someone is willing to pay for a heritage-based brand vs. a non-heritage-based brand. Another might look at the licensing value of specific assets, such as memorabilia, as a component of heritage value.
Most importantly, keep track of whatever asset valuation you deploy over time, to gauge how that asset is performing and how well you’re using it to drive organizational activities.
Heritage assets, which have intangible value, can be used to drive tangible business results by tying their value to aggregate brand value. By extension, interweaving brand and heritage to advance business objectives can contribute to P&Ls and stakeholder and market values. Ultimately, when the content in digital and physical archives is managed and used effectively, it can contribute significantly to a firm’s valuation in the marketplace.
For more information, check out our comprehensive guide to company archives.
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