M&A from a brand development perspective

20 Dec M&A from a brand development perspective

“If you can’t beat ’em, join ’em”. That proverb effectively describes the majority of merger and acquisition (M&A) activities. In reality, M&A is in-market consolidation. Not only in the sense that two former enemies now join forces. But from a customer perspective, the M&A means fewer – and typically more expensive – choices. So what are the key factors to successful M&A activities from a brand development perspective? And how can communications make the merger more manageable? Read on.

Communications key to successful mergers and acquisitions

Globalization continues to intensify. As a result, M&As are of ever more importance as means of business development. Most firms entering M&A projects use external suppliers or partners to deal with the transaction as they expect greater benefits from the advice of the consultancy firms. When those expert financial advisors were asked “What are the critical success factors for merger & acquisition projects?” they delivered the following top ten list¹:

M&A advisory firms top 10 keys to M&A success

  1. Complete and clear objectives, goals and scope of the project
  2. Client consultation and acceptance
  3. Project manager’s competence and commitment
  4. Project team member’s competence and commitment
  5. Communication, information sharing and information exchange
  6. Project plan development
  7. M&A advisory firm’s resource planning
  8. Time management and tight secrecy,
  9. Price evaluation and financing scheme
  10. Risk management

Clear impact of communications

Notice something? Communications factors are listed at #1, #2 and #5 on a list compiled following an extensive review of financial advisory firms specialized in M&A. That’s not all. From the influential book Mergers, Sell-Offs, and Economic Efficiency, communications factors are again listed right at the top of M&A key success factors²:

  1. Define an enticing vision framework for the combined company or corporate offering
  2. Express how the new company meets greater customer and employee expectations
  3. Deliver on meeting to those greater expectations

Which begs the obvious question: shouldn’t more firms entering M&A projects use external partners to deal with the communications issues? “Yes” is the obvious answer. But few firms actually do so!

Impact on business culture and process.

Corporations typically consider M&A  to realize cost synergies against increased competition, pricing pressures, gaps in product mix and asset concentration. The main reasons for M&As remain the same and include:

  • Driving growth
  • Working more efficiently
  • Achieving greater market domination
  • Exploiting economies of scale
  • Sharing technical excellence and operational expertise
  • Raising larger amounts of capital


These are some of the many favorable outcomes that can result from a successful M&A. Moreover, because the acquiring company believes its target is undervalued, it thereby generates a high return for the parent company’s shareholders². For all the potential benefits, however, there are many potential obstacles to resolve.

Stressful time of uncertainty

The risk of job losses, restructuring and the adapting to a new corporate culture and identity can create uncertainty, anxiety and resentment among a employees³. In fact, research shows that a productivity can drop up to 50% while undergoing such large-scale change; demoralization of the workforce is a major reason for this4. Companies often pay undue attention to the short-term legal and financial considerations involved in a merger or acquisition, and neglect the implications for corporate identity and communication, factors that may prove equally important in the long run because of their impact on workers’ morale and productivity5.

Strategic impact on communications

A merger will result in countless queries from all directions. Employees, customers, investors, regulators, suppliers and the media will want information. In an ideal world, functions such as corporate communications, market communications, investor relations and public relations are kept abreast of all the company’s actions. However, senior management is often so immersed with the financial aspects of the deal that communications become less of a priority.

Having an effective communications strategy during a deal can help prevent an exodus of employees and customers. Proper communication is necessary for a successful integration, yet it is frequently overlooked, under-resourced, and then finally blamed if the merger fails.

Corporate communications, market communications, investor relations and public relations must be prepared with the appropriate messages, medium, and coordination to meet demands from all parties. The workflow below provides an overview of how communications can make the merger process more manageable.

BEFORE THE ANNOUNCEMENT

  • Create an internal communications and integration task force
  • Assessment of culture for target and acquirer
  • Create a list of short-term goals
  • Determine the contingency announcement plan in case news is leaked
  • Retain the counsel of a qualified independent integrated communications firm

DURING THE MERGER

Create a cross-organizational communications alignment team to:

  • Identify potential problems
  • Determine how messaging will be coordinated across management teams
  • Share M&A communication experience
  • Create messaging platforms for corporate- and market communications as well as investor- & public relations
  • Identify vision, value propositions and messaging per target audiences
  • Set up and distribute content
  • Analyze the perception of the deal (internally and externally)

AFTER THE MERGER

Externally

  • Continue dialogue with internal and external parties
  • Reinforce the (new) brand promise, structure, expression, etc.
  • Measure customer satisfaction, attitudes and outstanding concerns


Internally

  • Organize an internal road show to highlight new organization and strategic workflow
  • Reinforce alignment to the strategic workflow
  • Measure engagement and outstanding concerns


50% of managers consider changing jobs.

Suddenly deprived of authority and promotion opportunities, senior managers can be particularly bitter. Often there are specific personality clashes between executives in the two companies. One study found that nearly 50% of executives in acquired firms seek other jobs within one year².

Impact on value to customers?

What do customers feel about two companies that were previously fierce competitors joining forces? Empirical thinking states that in-market consolidation generates adverse price changes, harming customers over the short- to medium-term. One important reason is that the customer is left with one less alternative (always true when the acquired company operates on the same markets and in the same categories). Another is the lack of focus on attractive and real customer benefits as a result of the M&A. Don’t just address the short-term benefit. Also consider the greater expectations the combined forces can now meet. Answers that work across both of these employee and customer value levels is the key in defining, ensure ability to deliver and then expressing— as quickly and efficiently as possible. Where to start?

Consider compatibility.

Brand compatibility is a broad term that refers to the synergies between the brands of both companies that are involved in an M&A. Any brand is distinguished by its identity, personality and its underlying brand values, culture and philosophy. So when two are brought together, if core objectives of a merger are to be met, a very high level of brand compatibility is critical to success. The key is to have a two-part strategy. Part one: go beyond defining the overall brand vision! Ensure all internal stakeholders understand and reinforce the strategic intentions and framework. Part two: manage the marketplace perceptions! Work towards building the strategic external value propositions and promise of the newly combined company

Importantly, these two parts must be developed at the same time. According to John Paul Kotter, professor at the Harvard Business School and leading author in leadership and change, the following eight steps an organizations needs to successfully implement change are:

  • Create a sense of urgency
  • Develop a guiding coalition
  • Develop a vision for change
  • Communicate the vision
  • Empower broad-based action
  • Generate short-term wins
  • Don’t let up: motivate others to pursue further change
  • Make it stick in the organizational culture

From a tactical brand development perspective

The key is to understand the brand being acquired, and then have a plan as to how it will fit within the business and brand strategies of the acquiring brand. From there an appropriate brand strategy can be chosen to facilitate the best “brand architecture” (consultant lingo for what the brands are called and how they fit together). Finally, brand/product communication needs to be clearly expressed across all relevant media channels.

Brand architecture and identity

When combining brands, there are several plausible structures to consider. They range from:

  • Focusing all branding on a single master brand
  • Centering brand building around a multitude of related or non-related brands
  • Developing a new brand


Meanwhile, effective and believable brand architecture demands segmenting your new offering via:

  • Different business categories with the same target and benefit
  • Different targets with the same business category and benefits
  • Different benefits with the same category and target


Customer segmentation and role of individual brands

It is essential to understand how the individual brands currently cultivate, nurture and retain customers. The more knowledgeable they are about each company’s respective customers, the better they understand the levers that determine customer choice. How the customers perceive the merger should be the guiding star for how a competitively sustainable brand portfolio strategy is defined. Therefore, it is imperative that one understands where the brands live in the hearts and minds of the customers today in order to create a new position for the combined brands tomorrow. Answering this question often reveals opportunities for the new entity to develop an even stronger and more distinct, truly differentiated market position.

Brand stories impact on customers and employees

Strong brands have rich histories comprised of colorful stories. Both customers and employees find meaning and relevance in these stories and, often subconsciously, reference them when making a choice. After a merger, new “chapters” to the history must be added with a respectful eye to the past and a hopeful eye to the future.

In terms of success, the difference between good companies and great companies is how employees act – how the ”deliver” the brand. Employees build the products and provide the services. Furthermore, employees support customers before, during, and after the buying process. In essence, they create premium-paying, referral-generating customers for the company. Such important individuals require the utmost respect. Show it by validating their contribution to your company and then querying their thoughts, feelings and attitudes about the merger.

In summary: prioritize brand asset development in M&A!

As seriously and methodically as the financial department approaches and handles the M&A, so should corporate management, marketing and other functions regard brand development before, during and after the M&A.

References

1. Hoang and Lapumnuaypon, Critical Success Factors in Merger & Acquisition Projects: A study from the perspectives of advisory firms; Umeå, January 2008.

2. Ravenscraft, David and Scherer, F.M. Mergers, Sell-Offs, and Economic Efficiency. Washington, D.C.: Brookings Institute, 1987.

3. Appelbaum, Steven., et al., “Anatomy of a merger: behavior of organizational factors and processes throughout the pre- during- post-stages”, Management Decision, Vol. 38, Numbers 9 and 10, (2000)

4. Tetenbaum, Tony J., “Beating the odds of merger and acquisition failure: seven key practices that improve the chance for expected integration and synergies”, Organizational Dynamics, Autumn 1999.

5. Balmer, John M.T., and Dinnie, Keith, “Corporate identity and corporate communications: the antidote to merger madness”, Corporate Communications: An International Journal, Vol. 4 Number 4 1999.

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