Branding in Merger and Acquisition

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BRANDING IN MERGER AND ACQUISITIONS

Article written by: DR.AISHA SHERIEFF, MBA, Phd. And ANJAN K., MBA

Introduction

In the Current international scenario, Strategic decisions are grounded in geographic expansion, product and competency diversification, and brand leveraging. Brand Management importance is understood through Effective brand management which goes well beyond the basic marketing tools. It requires an integrated approach to ensure efficiency of corporate message and identity throughout all aspects of business. Without careful brand management, the M&A procedure is vulnerable to failure. Simply put, brand management helps to secure stability and brand loyalty for your company. A merger or acquisition represents a new alliance that sets to create a compelling, ambitious vision that is understood and shared to capture commercial & market value which is not present prior to the transaction. This opportunity allows one to develop a new brand and/or leverage the strength of existing brands. Such alliances attempt to capture two sources of value; the hard tangible goals established (revenue recognition and cash enhancement) and the softer intangible issues related to culture, motive and human resources.

Many of us have seen the statistics covering the results of mergers and acquisitions. Studies by Booz-Allen & Hamilton indicate that over 70 percent of merger objectives go unmet. CFO Magazine reports a 50 percent overall drop-off in productivity in the four to eight months following a deal; just 23 percent earn their cost of capital 1. To ensure a complete viable Merger takes place between two entities, proper Due Diligence of the Brand is required. Brand enhancement & recognition in the Global Scenario Brand strategy, if executed after proper Due Diligence and elevated focus, can proportionately contribute towards successful uptake of a new post-M&A brand that engages with, and is understood by, key audiences... notably • • • • Shareholders Customers Stakeholders Suppliers

Despite market fluctuations, M&A activity globally is still active, yet incredibly some 40% of M&As are reputed to fail, with up to 80% of M&As failing to meet shareholder expectations and M&A objectives. Brand components

Brand Equity To ensure optimal strategic value from the brands they are buying and selling, just calculating brand value does not suffice. They need a process for integrating brand and corporate finance M&A practices and for determining how to brand the acquired company and how to manage the migration of the brand to the new company. The imperative is to ensure that customers remain happy and loyal to the brand2.

1 2

Brandchannel, Northern Exposure - Building Brands in Mergers & Acquisitions, Jeff Swystun, December 3, 2001 issue Making brand equity a key factor in M&A decision-making, Shailendra Kumar, Strategy & Leadership, Year 2004, Volume 32, Issue 2, Pg. 21

Attractiveness and familiarity of a Brand Name plays a vital role in the general marketplace. Brand equity permits companies to charge premium advantages during the M&A, contributing to increased profit margins. Brand equity is therefore a valuable asset that companies invest huge amounts of money to develop3.

Traditionally viewed as an intangible value component, three concrete ways can be suggested and can be quantified: 1. Value insight – Patrons will potentially pay more for a product or service bearing an emotive brand from a reputed brand. 2. Brand Leverage – A strong brand can be used as a podium to launch related or additional services. 3. Fidelity – Positive brand experiences stimulate fidelity. If a brand has previously delivered positively against specific criteria, it then has the potential to take its alliance on a successful post-M&A journey, as well as support additional or new sub-brands.

Brand strategies during Post-merger Objectives of Branding during post M&A:

1.
3

Maintain and enhance previous brand commitments with key stakeholders http://www.answers.com/topic/brand-equity as on 04-01-2010

2. 3.

Preserve and enhance shareholder confidence Uphold the positive aspects of both businesses and integrate them

Many fast-growth technology companies draw on strategic alliances to benefit from more-established channels of distribution, marketing, or brand reputation of bigger, better-known players4. Initial Post merger period is the gestation period & the real acid test for the new combined entity. Most often the combined company is overwhelmed with the complexities of alliance & majority of the actions tend to be reactive to the ensuing flow of events than proactive. Defining brand strategies under multiple scenarios and establishing guidelines to monitor integration are very important before any corporate level strategy is designed and implemented.

1.

Brand Mix Stratagem: The high percentage of M&A failures has made brand strategy in a post merger

scenario even more important. Brands of the two merged companies usually have their own unique identities and ideologies. As such the fundamental question of brand strategy would be – how to treat these brands – single brand, joint brand, or a new brand. Depending on the market presence, brand recognition and the product line of the brand, a company can decide to one of the following three strategies:

a.

Acquirer brand: More often than not, the acquirer’s brand replaces the acquired Company’s brand. In such a

case the acquirer’s brand becomes the brand of the combined entity. This is the case when the acquirer brand is the market leader and the acquisition would have been done primarily to consolidate its position either for market reach or growth.

b.

Joint brand: This case is resorted to when M&A happens between equals or is based on geographically

separated entitied. Both brands enjoy an equal or similar brand identity, market reach and market density. Tata Corus, Bharti Walmart are good examples.

c.

New brand: When few alliances take place both the partners Brand names are left out & a new Brand name

evolves & is used for recognizing the entity’s products/ services.

2.

Brand amalgamation: Amalgamation of brands is probably the most challenging of all issues after a merger.

When two companies have come together either through a merger or an acquisition, integration of organizational strengths becomes quintessential for the merged entities’ survival and success. Management should establish clear internal organizational expectations and guidelines for the smoother transition of projects, resources and brands to ensure that all activities are channeled towards the affirmed objective.

Post M&A brand commitment Brand is increasingly seen as a key business asset. Defining and developing a compelling re-brand provides the opportunity to present and position the emergent brand values and the future vision. The true value inherent in the pre-M&A brands is often not researched and therefore not recognised. Fundamental branding decisions post-M&A are often driven by political or economic motivations rather than objective or strategic ones. Post M&A branding is often limited in concept to simply re-naming the new entity – hugely important but in terms of a branding journey it represents only the beginning. Crossing this off the ‘to do list’ is not the end of the post-M&A
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Case Studies on Mergers, Acquisitions and Alliances – Vol I, R.Muthukumar, ICFAI, Pg.iii

branding activity. The name is a label, the logo a badge and the brand is the total experience created for your key audiences: 1. Employees 2. Customers 3. Shareholders 4. Suppliers Conclusion Managing the brand portfolio of merging entities is a complex task. The need for efficient brand management increases with the complexity of the M&A and number of entities being brought together. Ultimately, how well a company achieves the goals depends on the strength & value of its Brand. And the strength is determined by the support provided by the stakeholders as it is by the effectiveness of the company’s strategy. Fennell at Customer Centred Consulting affirms, “Put your brand at the core centre of the Corporate Strategy” & continues to say that, “Because a brand does not mean simply a corporate name, a visual look or a logo. It’s about your organization, your operations, your systems and customer service strategy”. It’s about everything the Company does. So brand strategy has to be incorporated into every level in the organization to make sure the ultimate goals are achieved.

BIBLIOGRAPHY JournalsBrand building after the merge: forging a new identity after a merger or acquisition is critical to maintaining a strong client- By Marjo Johne, CMA Management - April, 2003 Brandchannel, Northern Exposure - Building Brands in Mergers & Acquisitions, Jeff Swystun, December 3, 2001 issue

Making brand equity a key factor in M&A decision-making, Shailendra Kumar, Strategy & Leadership, Year 2004, Volume 32, Issue 2, Pg. 21

BooksAfter the Merger- The Authoritative Guide to Integration Success- By Price Pritchett, Donald Robinson and Russell Clarkson, McGraw-Hill, 1997 Case Studies on Mergers, Acquisitions and Alliances – Vol I, R.Muthukumar, ICFAI, Pg.iii

Internet Resources http://www.answers.com/topic/brand-equity as on 04-01-2010

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