Global mergers and acquisitions (M&A) activity is expected to hit $3.2tn next year. This boost in transactional value is expected to grow in line with greater clarity around key economic issues, including the UK-EU relationship and the US policy on global trade and investment.
Drivers of M&A activity vary; from the need for consolidation within an industry, to the potential for future disruption, or the impact of legislative and regulatory activity on the market. Coupled with the huge sums of money involved and it is unsurprising that extensive due diligence and planning is given to the financials and other factors during the deal-making process.
However, consideration of brand strategy – what will ultimately happen to the acquired brand post-acquisition – is often overlooked. This is partly because of an absence of data.
Earlier this year, Landor conducted the first ever in-depth analysis of brand activity around M&A, based on the transactions of the S&P 100 over the last ten years. The study uncovered a number of key factors that affect the fate of brands involved in an acquisition, and shows that consideration of brand should play a much larger role in M&A decision-making than is currently the case.
Behavioural patterns vary by industry
The study uncovered distinct patterns by industry. More than any other category, consumer goods companies decide to retain the identity of the acquired brand. This partly reflects the fact that consumer goods companies tend to have ranges of product brands rather than a singular corporate brand, and so are more likely to actively acquire brands as well as companies.
However, it also reflects the fact that they are a traditionally brand-savvy industry which understands how to handle acquired brands.
In contrast, companies in IT, financial services, health care and energy often have more reliance on the parent company brand, and are more likely to transition a brand after being acquired. This is partly indicative of the rapid pace of consolidation in certain sectors, and also of the way they have always approached branding. The study identifies though objective benchmarks around brand transition which raises the question of whether and when transitioning acquired brands is the right answer.
The importance of deal size
As with industry, deal size also has a clear impact on post-acquisition brand strategy: as a rule, the larger the transaction, the less likely it will be for the brand to be absorbed, and the longer the transition time will be. Understandably, when a large acquisition takes place, the acquirer will spend more time and effort in managing the assets they have acquired – including brand – to ensure they get full value.
In fact, the study reveals that “mergers of equals” (which are often the largest deals) result in brand transitions only 38 per ent of the time; an indication that conflating two strong existing brand names is highly challenging.
In contrast, a smaller deal indicates a higher likelihood of change to the acquired brand, and quickly; 78 per cent of transactions under $99m were rebranded compared to only 46 per cent of transactions over $5bn. Highly acquisitive companies like Alphabet and Microsoft display some of the highest propensities to rebrand, at a rate of more than 80 per cent.
As well as providing invaluable benchmarks about brand behaviour around M&A, the most important finding from the study is that whilst brand strategy does have a major impact on the success of deal, the fact is that it is often overlooked pre-deal. As a result, brand strategy questions only get seriously considered once the acquisition is a fait accompli.
Looking ahead, this raises two opportunities: for acquirers, those that have brand acquisition strategies already in place will benefit from a thorough understanding of all the factors that influence a deal; and for vendors, if you are not considering the role of brand when you sell, then the reality is that you are leaving money on the table.
And in what will be a big year for M&A in 2018, businesses would be reckless to overlook either of these considerations.
Nick Cooper is executive director of Landor