ITL #299 - Executing M&A deals: don’t neglect brand strategy12 months ago
A significant portion of the premium companies pay for an acquisition comes down to the strength of the brand. Yet often the brand conversation happens too late in the process. By Dave Heinsch.
Some might find it surprising that most M&A deals fail to fully generate the value that the companies expected. Harvard Business Review puts that failure rate at a grim 80 percent.
Certainly, these deals fail for a host of operational and marketplace reasons. But there is one dimension of failure that’s well within the control of the companies involved and that’s installing the right brand strategy.
To be clear, we’re not talking about brand names, logos or marketing assets. We’re talking about an approach to brand that accurately reflects both the deal rationale and considers the experience each critical constituent – employees, customers, suppliers, partners, distributors, etc. has with each organization in a deal. We mean how these experiences need to be combined and optimized – the sum of the cultural and commercial identities of each organization involved in the deal.
Ultimately, this is what drives brand recognition, loyalty and long-term value. But, unfortunately, a thorough understanding of the brand experience, especially of the acquisition target, is one of the hardest things to accurately obtain and understand early in a deal. That creates risk.
A failure to properly consider this critical dimension of M&A – from the very outset of the deal – presents one of the most significant long-term threats to the value such transactions are supposed to deliver. An important step to mitigating this risk is for leadership and brand managers to better understand each other and what’s necessary for a successful brand management in a strategic M&A situation.
Leadership team imperatives during a deal - what the brand manager needs to know
Strategic M&A – the kind that fundamentally transforms a business – brings excitement and big opportunity, but also immense risk: risk to the acquirer’s capital structure; operational risk as systems and facilities are combined; execution risk on both sides of the transaction as sales teams and other personnel struggle to understand how their world is changing, to name just a few.
Beyond negotiating the purchase agreement, obtaining financing, conducting due diligence and navigating legal and regulatory hurdles, the main imperative of the leadership team – and the board behind it - is reducing or eliminating these near-term risks to value. These include:
- Keeping the contemplated deal confidential, sometimes to the exclusion of those responsible for building the eventual brand experience.
- Creating and presenting to investors and other constituents a solid, compelling, pro forma understanding of the merged entity based on vast amounts of operational data, market and financial analysis.
- Installing a plan and team for the operation integration and cultural stabilization of the combined entity.
- Identifying, then quickly capturing, various synergies to get to earnings accretion.
- CEOs and CFOs often strive to establish some level of predictability and continuity during a transaction. If the acquirer is publicly traded, it’s doubly true since perceived radical changes to the businesses can spook more desirable, large investors who are risk-averse, attract short sellers and increase volatility. This can result in a hesitation to make any changes to the brand in the near-term but, unfortunately, that can often result in problems down the road.
All of this can lead to a kind of “deal myopia,” where leadership and deal teams are almost always concerned with the “here and now” and less concerned with the longer-term value implications such as brand.
Brand manager imperatives during a deal – what leadership teams need to know
After all the due diligence is done, the transaction closes and integration begins, it falls to the brand managers, human resources and others to bring together the cultures and commercial entities in a way that preserves the brand equity of each organization and brings it into the new entity in a powerful way. No small task. But on the heels of a transaction, brand managers are often at a distinct disadvantage.
- Marketing and communications are more often brought in after the deal is done and initial brand decisions are already made – decisions that are often based on ego, emotion and the wrong kind of insights. Due diligence estimates brand strengths based on things like financial modeling, market share statistics, the value of intellectual property, etc. This falls well short of what is needed to make sound, long-term brand decisions. That takes deep, bottom-up insights into the customer, employee and partner experience. For obvious reasons, this cannot be effectively obtained during the due diligence phase, which means that it needs to be established soon after integration begins. Furthermore, while deal-related costs such as advisory and legal expenses are booked against the transaction, there is often no earmarked budget for brand research and brand managers often can’t provide for this quickly enough in their operating budgets. In short, brand decisions are often made based on the wrong insights, with little provision to get the right ones.
- From a cultural perspective, deal excitement quickly gives way to an intense focus on achieving operational and financial milestones, at the expense of establishing a strong culture. Ineffectively addressing the immense cultural change in a transaction can precipitate many of the operational and execution risks that management teams fear most. Brand managers, along with human resources and internal communications staff, know that treating culture as a short-term communications strategy vs. a long-term engagement strategy is dangerous.
Better communication, better planning, better insights – what both leadership and brand management need to do to help ensure a strong post-M&A brand strategy
If you just paid a significant premium for that strategic asset, how do you ensure that value is preserved from the standpoint of brand? Here are a few things to consider:
- Get marketing and brand strategists involved at the outset of a deal – Initial impressions of whether a deal will be good, or bad, for employees, customers, partners and others are cemented early on based on their prior experience with the individual brands involved in a deal. Brand management knows the questions to ask, and the insights necessary to truly establish the brand strength of what you are buying. They are, in effect, long-term risk managers in this capacity. They need to be part of the deal team right from the start.
- Get your hands on the right insights – Financial modeling and assessments of tangible assets can’t tell you if, or why, customers, partners and employees are loyal to and engaged with the brand you just bought. But, we can all agree that customer loyalty and employee engagement are essential for long-term value creation. Insist on obtaining from the acquiree employee engagement and voice-of-the-customer research. Combining the qualitative with the quantitative with give you a much stronger overall view of brand equity.
- Make brand strategy part of the integration plan – and budget for it as part of the deal – If these kinds of insights don’t exist or if they are unsatisfactory, budget for this work as a deal integration cost where it can be booked against deal financing. Don’t kick it down the road and hope to work it into existing operating budgets, which may already be stressed. In the big scheme of things, the costs for the kind of research necessary to drive a solid brand strategy will likely be a fraction of the costs of advisors, legal and accounting services that come with a transaction. Don’t give the long-term brand strategy short shrift.
Solid brand strategy protects and builds post-deal value
A healthy portion of the premium companies pay for an acquisition comes down to the strength of the brand. That value can erode significantly without a sound, insights-driven approach to assessing and optimizing your approach to brand. Why put that at risk? The steps necessary to protecting this dimension of deal value are relatively simple, represent management best practices and begin with having the brand conversation early.
Matt Kucharski is President of Padilla. Dave Heinsch, Vice President, leads Padilla’s strategic business advisory capabilities.
Dave Heinsch, Vice President, leads Padilla’s strategic business advisory capabilities.mail the author
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