On Mergers & Acquisitions

18th September 2017

Remember the scene from American Psycho?

Daisy: What do you do?
Patrick Bateman: I’m into . . . well, murders and executions mostly.
Daisy: Do you like it?
Patrick Bateman: It depends. Why?
Daisy: Because most guys I know who work with mergers and acquisitions really don’t like it.

Is the treatment of brands in some situations similarly that brutal? In many cases, regrettably, the answer has to be a resounding ‘yes’.

Intangibles are starting to play a greater part within the asset mix and brands should in theory become the hot boardroom agenda item for corporate advisers, asset based lenders and company executives alike.

John Stewart, Former CEO, Quaker said, “If this business were split up, I would give you the land and bricks and mortar, and I would take the brands and trademarks and I would fare better than you.” It follows that intangibles should form an integral part of corporate responsibility.

One of the fundamental objectives of any merger or acquisition should be the intelligent optimisation of brand equity, rather than some Darwinian survival of the fittest. Finance directors and marketing directors therefore need to become more proficient at working together pre-merger to assess product brand portfolios and recommend investment/delisting decisions.

Why then are brands treated in such a cavalier fashion, discussed fleetingly after the deal has been structured and potentially lying neglected in the spreadsheet entitled ‘cost structures’?

Strategists Joseph Benson and Jack Foley conclude that there are four principal brand strategies for merging brands:

  1. Black Hole: only the brand of the acquiring company survives.
  2. Harvest: the equity in one brand is extracted until customers transfer their loyalty resulting in the surviving brand commanding a potential price premium.
  3. Marriage: both brands seek to create meaningful and relevant differentiation in the minds of the customers.
  4. New Beginnings: merging finance companies see that their brands have little or no brand equity, so elect to launch a new brand.

So much of the focus within the financial services industry has been on differentiation at product level in order to drive short-term tactical initiatives in pursuit of targets. There have also been so many mergers and acquisitions within this sector, that there is a real danger that brand differentiation of individual firms is becoming muddied, cloudy and ultimately lost along the way.

Mergers and acquisitions have for too long been a brand battleground where egos win over equity, arguably one of the greatest reasons why so many mergers fail to create shareholder value. I would urge advisers, asset based lenders, CEOs and CFOs to think very carefully about brand stewardship issues during the due diligence process, before it is too late.

 

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