2020: A year of increased M&A activity and the role of brand
Despite geopolitical fears and the spectre of a global economic slowdown organisations are continuing to look to M&A to achieve growth. According to the Global Capital Confidence Barometer as we move into a new decade 52 per cent of organisations are planning to actively pursue M&A over the next 12 months. In particular tech, B2B and luxury have all been earmarked as sectors with over average potential for activity.
However, the stats show that between 50 and 85 per cent of the deals will fail. With the average transaction value set at around $52 million; the stakes are high. However, for the 15-50 per cent of M&A deals that are successful the rewards far outweigh the risk.
Cultural difference is the most vaunted reason for a failed merger. The dissonance between two organisations can be extremely divisive and the inability to align them from the offset can quickly and easily set in the rot which eventually turns gangrenous and ultimately becomes terminal. Even the most seemingly trivial of differences can be a powerful indicator that all is not right with a deal.
Successful M&A deals have casts of thousands from management consultants and corporate lawyers, accountants to hedge fund managers. Brand specialists are also now becoming an important part of the mix since a company’s culture is a major component of its brand. Being able to identify cohesions and, more importantly, sticking points and then provide a clear action plan to bring the two brands together culturally with minimum fuss, disgruntlement and brand damage is critical.
However, it is a gross misconception to believe that brand purely impacts an organisation’s culture. Brand is a powerful tool that is proven to increase shareholder value and provide employees with an identity and framework for success. Consequently, the brand decisions that an organisation makes during M&A activity can impact the long-term ability to achieve strategic objectives. For example failure to understand a brand’s strategic role can result in over payment for assets that are subsequently not used or the creation of post-merger barriers that impede business as usual.
Typically, during M&A due diligence and subsequent deal structuring little attention is paid to brand. The demands of negotiations and pressure to close the deal can often create a short-term focus which neglects to determine how value will be created after the deal is completed. Research shows that more than a third of executives who have been involved in a major acquisition acknowledge that they got too caught up in the bidding process to appreciate the importance of brand in the process. In such cases the brand is considered in passive, static terms instead of being recognised as a volatile entity that impacts the whole business including demand patterns, employee engagement and investor relations; amongst others.
Putting a spotlight on the future brand model and strategy means that the new organisation can become known, and more importantly, valued for the full range of its products and services. Too often companies continue to be recognised only for their original offerings because the brand architecture is not cohesively thought through. A well-managed brand transition plan is crucial for providing a blueprint for growth and incremental revenue and this goes much deeper than the overarching brand name and sub-brands. It must start at the search stage. Acquirers should have detailed brand decision systems in place when considering companies for acquisition to determine brand value and drivers of brand equity. This will make decisions about the brand model much easier down the line. Tata is a strong example of just how complex the brand structure can become. The group now has close to 100 operating companies in multiplied business sectors – from beverages through to energy and chemicals. For each of its acquisitions the parent brand decides how closely to align the Tata brand with the products and services of the new organisation. With Jaguar Landrover there is limited Tata association as far as consumers are concerned, but with Tetley, despite not changing the famous brand name in order to retain brand equity the company brand was changed to Tata Global Beverages. Whilst its acquisitions in the hotel sector are all branded under Tata’s strong Taj name irrespective of the previous brand’s reputation and equity. Tata is an organisation that has a very clear brand view of its brands and sub-brands and considers this from the offset.
It is no coincidence that the most successful mergers are those that have taken an active approach to the brand rather than consigning responsibility to the marketing department once the horse has bolted.