The financial crisis continues to rage – certainly here in the UK, the unprecedented activity taking place between The Treasury, Bank of England, the FSA and some of the (until now) most respected high street banks, continues to hold our attention. These are dark days; but the light may be in sight. Gordon Brown has said today that the current efforts being made across Europe should see some stability return to the banking system within the next few days. So that’s OK then.
But is there another asset bubble about to burst..?
With all this talk of reigning in flamboyant valuations and complex financial instruments, is this new conservative push likely to focus on the rampant overvaluations of brands? It could do. Market capitalisation figures (or Enterprise Value, if that’s your preferred measurement) show brand value representing unprecedented levels of company value. Some reports cite as much as 30%. What started out as an exercise to include non-balance sheet value, could have serious implications – because with brand value so strongly linked to free cash flow projections, if a brand is overvalued, then the problem is not just a marketing department’s headache. It’s everyone’s.
Maybe it will not happen. But it does highlight the parallels – and dangers – of a liberal, free-wheeling system plumping up valuations.
If consumers continue to fall out of love with business – and their brands – then we could see these brands defaulting on payments to their owners.
And as we’ve already seen, the first casualties are the brokers and the middlemen who enjoy(ed) creating and trading complex vehicles that keep the market dynamic. In this case – these are the brand agencies: media, creative, DM etc. The list goes on, but they share one key common quality: it is in their interests to keep making a market that continues to inflate the value of the brand asset.
So are we about to see the beginning of the ‘creative-crunch’…?
G
