M&A deals are on the up but many risk destroying brand value
Brand due-dilligence a crucial matter that should be thoroughly assessed in a consolidation exercise, says Sholto Lindsay-Smith, Chief Executive at Industry Partners.
Following a period of subdued deal flow, merger and acquisition (M&A) activity is now on the cusp of a significant increase in the Middle East and Africa.
Due in large part to more relaxed policies for foreign direct investment, the region is becoming a more attractive investment destination and an easier place to do business. In 2015, the UAE climbed to the 28th position on the list of most attractive countries for M&A activity around the world. However, in many instances organisations overpay for synergies that are not realised and do not plan for post-deal integration. In particular brand synergy is often overlooked.
While it has become common practise for institutions to carry out financial due diligence prior to the undertaking of a merger or acquisition, many fail to adequately consider brand or culture fit. This can spell failure for newly combined entities without a solid strategy.
Many organisations have suffered from trying to join incompatible brands, only to file for bankruptcy protection, or to divest merged businesses further down the line. Take Daimler Benz and Chrysler, for example. The two combined in 1998 with the vision of creating a transatlantic car-making powerhouse. But, ultimately their two brands were worlds apart; one high-end and one run-of-the-mill. The result of the deal was the ultimate sale of Chrysler and a $30 billion write-down for Daimler.
So, inadequate assessment of the brand being acquired can be cost big money, but what does robust brand due-diligence involve?
Brand due-diligence, like financial due-diligence, should provide a comprehensive assessment of the potential brand synergies. It should answer some key questions. Will the new brand cannibalise or extend the customer base? Which brand name should you keep or do you need a new one? Will a change to the brand ethos alienate loyal customers? Will employees resist change and demonstrate tribal loyalty to their old brand? Will you be able to square the different brand propositions? The answers will help to plan and carry out assimilation and integration activity.
Brand due-diligence not only helps minimise the risk of failure, but also it can speed up integration and realising the benefits of a deal by demonstrating clear leadership and defining a common sense of purpose.
Often, the benefits of M&A deals may be in opportunities for rationalisation and efficiency savings. This can extend to brand portfolios, but there is always a risk that assimilation or elimination of brands may unwittingly destroy brand value, by alienating key customer segments. While assigning a fixed value to brands is not an absolute science, they can represent a significant chunk of a company’s intangible assets—mismanaging these can produce unintended consequences.
Taking keys steps in the brand integration process before, during and following an M&A deal can help ensure things do not go wrong.
Before the deal
The pre-deal phase should focus on proactively identifying companies with the right brand fit, by carrying out a comprehensive review of the market, including mapping the brand positioning of potential deal partners and competitors.
This assessment will uncover both strong potential brand synergies (e.g. market coverage and product portfolio) as well as brand fit in terms of reputation, and provide a solid basis to consider the best acquisition strategy—whether the end-game would be to continue with stand-alone brands, to carry out a bolt-on acquisition, or to pursue a full merger.
During the deal
During the deal process, acquirers should carry out a deeper a review and audit of the target company’s brand and brand strategy, making use of research to validate the brand’s reputation, review current perceptions and refine initial assessments.
At this stage, scenario planning can be used to consider alternative brand strategies, such as the merits of a single brand versus multi-brand strategy and opportunities to rationalise the product brand portfolio.
Prior to the finalisation of the deal, internal communication of the brand strategy will help to signal intent and build confidence.
After the deal
Post-merger integration is a stumbling block for many companies. Success is not only reliant on a new brand identity, but also on underpinning the brand with a clear set of values and ensuring the company can live up to its brand promise. Carrying employees on the journey is vital.
Companies who take these steps, monitor progress and remain responsive will stand a better chance of realising the full value of their brands in the post-M&A world.