Part one in our series on the Successful Management of your Brand during the M&A Process
Mention a merger or acquisition and what springs to mind?
Most commonly it’s the financial value of the business in question. An M&A decision is generally commercially driven: be it to gain market share, eliminate a competitor, take hold in a new market or simply diversify.
According to EY, M&A transactions are a fast-track way of achieving transformation. In their latest report, Global Capital Confidence Barometer (March 2020), they reveal that despite the COVID-19 crisis, more than 54% of CEOs still expect to actively pursue M&A activity this year, with stressed companies struggling to survive and confident investors ready to seize upon the opportunities.
As finance teams pour over the accounts and sales projections to carefully assess past performance and future revenue potential, they often fail to grasp that the most valuable assets of many companies are the intangible components of it. They don’t sit on the balance sheet but do directly contribute to the bottom line. These elements comprise the often misunderstood and undervalued area of Brand.
A target company’s brand is often a critical factor in its attractiveness to management, shareholders and investors. But the brand is often overlooked or glossed over in M&A situations, as an awkward addendum to the financially led process. Initiating a creative brand project as a consequence of an M&A or a sudden ‘forced’ rebrand needs very careful consideration and this starts with establishing very clear M&A objectives.
Ignore the brand at your risk! Perceived as something hard to put a finger on, it’s an asset to be embraced as a critical part of the M&A process. Managing it effectively and efficiently by those who understand all aspects of it during the transition, should not be underestimated.
What makes up your brand?
There are tangible and intangible aspects to every brand. All tangible assets have to be identified, quantified and where possible, valued in detail.
The most obvious assets are the physical and digital manifestations of your brand, expressed in any number of ways: signage, buildings, places, uniforms, stationery, vehicles, online and mobile presence, etc. All of these are reasonably easy to identify, quantify and value.
Then there are the intellectual aspects of your brand, which include: positioning (vision, values, purpose), brand identity (logo, fonts, colours, patterns, photography) and other creative assets (narrative, tone of voice, strapline, key communication messages). These are usually outlined and documented in brand guidelines, which describe and specify the details of all relevant brand touchpoints.
The intangible aspects are harder to pin down. For example, a brand’s reputation amongst its customers, suppliers and employees is the sum of all the emotional and perceived interactions that they have had with it, in the form of products, services and the organisation itself.
Decisions relating to a merger or acquisition can be very complex. What’s critical to remember is that a brand and business strategy are inseparable, with future success reliant upon selecting an appropriate model for managing the brand’s key M&A objectives.
Any board or executive team tasked with implementing a merger or acquisition has a number of options when it comes to managing the brand. These range from the most conservative – doing nothing, to the most radical – developing a completely new brand. Several alternative possibilities bridge the gap on the ‘evolutionary to revolutionary’ scale.
First, assess and analyse the existing equity of the two brands and decide if there are synergies and benefits to be enhanced in merging them. Or, could this change result in immediate or long-term damage to the business?
For example, if acquisition is a means of removing a key competitor from the market, then it would make little sense to keep that brand alive. However, if the company is being targeted precisely because its brand appeals to a new and desirable set of customers, it would seem self-defeating to lose that brand and the means for its customers to recognize its value.
The most common model is where both parties have equally strong brands, which contain a high level of brand equity yet are very clearly differentiated. This approach is likely to be the least alarming to stakeholders, as very little has to change (at least to start with) and is unlikely to result in any additional brand related expenditure, which also minimises the cost of the deal.
On the other hand, whilst it may not require investment, the no change approach may suggest that no synergies or savings can take place behind the scenes. This can lead adventurous stakeholders to question the benefit of the merger on the basis that they cannot see any economies of scale or efficiencies.
In this scenario one brand disappears altogether, while the other remains more or less unchanged, although perhaps with some visible or less visible changes to the remaining brand. It has the advantage of setting a very clear course for the strategy and direction of the new business, which can unite stakeholders behind it.
Inevitably though, it can force an unwelcome feeling of failure to stakeholders of the disappeared brand. This sense of disenfranchisement can be damaging to the new business, if not managed effectively.
It’s not always inevitable that the bigger or more powerful brand survives. Sometimes, a thorough evaluation of the brands may establish that the smaller company’s brand is more desirable, even if its turnover is less. In those circumstances the larger brand may be abandoned in favour of the smaller one.
As it sounds, this option is about creating a fusion of the two original brands. It may draw on the best aspects of the visual and creative assets of both parties. The results (which may not be entirely new) would convey a sense of moving forward together, utilising both respective brand’s strengths. This mutual sense of a shared endeavour, which all stakeholders can align with, instils a sense of shared value and respect.
This approach is less risky than creating an entirely new brand. If done well, the results could be worth more than the sum of the original parts. A note of caution though, it could lead to a muddled sense of authenticity and narrative, which ultimately fails to connect or resonate with the target audience.
This is the riskiest and most revolutionary of the possible routes, as it involves creating a completely new brand. It’s a high stakes option, in which all of the existing brand equity in both parties is sacrificed in favour of creating an entirely new brand that customers don’t yet know or recognize.
There’s every reason to feel fully motivated by this prospect, which needs positive energy and enthusiasm to sell its new message. It’s potentially a more expensive option though, as it involves developing a whole new brand identity and approach, which needs to be developed and detailed prior to rapidly rolling it out in the marketplace. Not all stakeholders will feel inclined to embrace such a dramatic change.
There are of course many variants within these broad scenarios. It’s possible to blend two approaches, such as evolving to a new brand more slowly over a fixed time period.
For example, some companies might decide to conduct “business as usual” for a while, in order to develop infrastructure, carry out research or plan other changes before adopting a “best of both” approach. The advantage of a phased or blended approach, is that it allows for sufficient involvement by staff and other stakeholders with a vested interest in the new brand to help shape it.
Engaging your employees within your existing and new business, whichever part of it they work in, is critical to aligning your practices with your vision. Each day, it’s they who deliver products and services to the customer and help create a positive relationship and experience.
From a purely financial perspective HR costs make up a substantial piece of the pie and may even be the biggest cost in a service driven business. It therefore makes sense that employees are engaged positively in the change and are consulted and included in key considerations.
To do this, they need clear roles and purpose within the change, they need to be ambassadors, equipped with the tools and knowledge to perform their roles in a way that supports the business. It’s natural to feel apprehensive about change, so being included in the process and being active in it helps develops confidence and leadership, which transmits to colleagues and others who experience the brand.
Having the right management team involved during the earliest discussions regarding an M&A is vital to defining the path to success. Financial teams are important but so too are Brand and Marcomms specialists, in addition to Legal, HR and IT.
Planning an appropriate strategy requires thinking far beyond transfer of ownership. How your customers and other stakeholders will perceive your new venture, needs careful consideration – so take time to consider the advantages, relevance and pitfalls of each approach.
Your current and future teams will ultimately make or break your plans, so including representatives early in the process to gauge and test your ideas could avoid future setbacks. Regular consultations during your engagement plan build-up, will help the transition with a higher chance of success.
In our next instalment, we look at ‘Preparing for a strategic brand re-positioning and creative re-design’