Prior Sales of Toy Brands, Trademarks, Insufficient to Determine Intangible Valuation
Business Valuation Advisor, Fall 2007

Re Marriage of Keener, 2007 Iowa Sup. LEXIS 13 (February 9, 2007)

“When two people cannot get along, sometimes it is better for both of them to just pick up their toys and leave.” The court couldn’t resist opening its opinion with that observation about a couple who developed a toy company during their marriage. Unfortunately, these two couldn’t just divide their interests and depart—not when the complicated valuation of the company’s intangible assets was at stake.

An Ongoing Tug-of-War

The trial court awarded the company to the wife, who was the CEO, with an order for her to pay the husband an equalizing payment. The Keeners had already been through the appeals process once. In the first, Keener v. Keener (2006 Iowa App. LEXIS 659), the parties contested the trial court’s net asset value determination of the company, which favored the husband’s expert. The appeals court confirmed this conclusion of approximately $10.2 million, and the parties did not seek further review of this value.

But they disputed the appeals court’s decision regarding the intangible asset valuation. At trial, the wife’s expert had assigned a zero value to intangibles, arguing that they produced no cash flow. But the husband’s expert cited two prior sales of trademarks—one for $7.7 million, the other for nearly $500,000. Using these guidelines, he estimated the company’s intellectual property to be worth between $20 million and $30 million. (Notably, continued on next page 3 he had not received relevant financial records to review.) Based on this evidence, the trial court valued the intangibles at $5 million, and the appeals court confirmed, finding sufficient support from the two prior sales. The wife disagreed, asserting to the Iowa Supreme Court that the valuation was speculative.

Rough Justice Ends in Reversal

The parties had placed the appeals court “in the unenviable position” of valuing the intangibles “without specific dollar amounts or other supporting data to attach to these assets,” according to the Iowa Supreme Court. The husband acknowledged the inadequacy of the record, conceding that his expert had been able to offer only a haphazard guess based on the prior sales of trademarks.

Further, in his own testimony, the husband (who was qualified as an expert in the toy business) had described various offers to buy the company’s brands but failed to substantiate them or calculate their current value. Likewise, the company’s business consultant testified that certain brands would be worth considerable amounts should certain revitalization plans be met. As the court pointed out, however, the consultant “was never asked the essential question: what [are the brands] worth now?”

The supreme court found the “anecdotal evidence” insufficient to determine fair market value for the intangibles. The company’s trademarks, brands, and other intellectual property most likely did have some value, but without adequate proof the appeals court had relied on “rough justice” to determine intangible asset amounts. As a result, the supreme court denied the $5 million award, leaving that valuable toy on the table.