A quick scan of the business press over the years would reveal one common thread of business activity – mergers and acquisitions (M&A). Companies for a long time now have readily adopted this route to business domination and market leadership. Examples of glorious and often controversial M&As are galore in the business world – Procter and Gamble’s acquisition of Gillette, Adidas’s merger with Reebok, Mittal Steel’s merger with Arcelor (one of the most controversial mergers that raked up national sentiments amongst the French and even the French government initially opposed the merger), HP’s merger with Compaq and the list goes on. In spite of such tremendous M&A activity, a recent report by McKinsey claims that only one in every five mergers and acquisitions actually succeeds. Further research has found out that the larger the target firm acquired, the greater the percentage loss in terms of market share after acquisition. In spite of such claims, there seems to be no slowing down the M&A bandwagon.

Even though many have written about the consequences of M&As in the larger business perspective, not much is precisely known about the effects of M&A on brands, brand management and brand equity. What are the critical questions to be asked by companies before an M&A? What happens when two big brands come together either through a merger or through an acquisition? How should the brand strategy of the resulting entity be designed? These are some of the critical questions that this article addresses.

Factors to consider before M&A

When brands such as Adidas and Reebok decide to join hands, the stakes are very high. Both brands have been built around unique personalities – personalities so strong that the very identity of the brand is based on the underlying brand personality. Further, being competitors till the merger, such brands will have carved out unique niches in the market place. As such, the challenge for such M&A is post-merger integration. But before analyzing the post merger, companies need to fully understand the critical factors that they need to consider before merging their brand with another brand. The following section of the article discusses such critical factors.

1. Does the M&A enhance shareholder value? This is the most important question any brand/company has to ask itself before taking the mergers and acquisitions route. As the primary goal of any business entity is the enhancement of shareholder value, it is only fair that the factor that determines a company’s growth strategy be measured in terms of that dominant variable. Further, this issue gets complicated as the measurement of shareholder value is a much debated but yet a gray area. Many M&As result in an instant boost in stock price of individual brands. The value generated by such M&A should also be analyzed in the long term to ensure that the increase in stock price was not a market aberration but indeed a reflection of the potential of the newly formed entity.
2. Does the M&A allow the new entity market dominance? There are usually a plethora of reasons why companies choose the mergers and acquisitions route. One of the main results of a merger and acquisition activity should be market domination and leadership. This goal is very much inline with the goals of enhancing shareholder value. If two brands come together, then it is assumed that the combined resources of the two brands would enable the new entity to command enough market power that will be greater than the sum of their individual might. But this does not happen all the time.
3. Does the M&A maximize synergies between brands in culture, organizational capabilities and market reach? It has been well recorded in the annals of business literature that one of the main reasons for the failure of any merger and acquisition is the resulting conflict between the combined entities. An M&A can be a great example to demonstrate the innate power of organizational culture. It is often wrongly assumed by companies that the overarching goal of market domination, profitability and growth would tame the hidden dragons of either company. As such, this is one of the most crucial questions that any brand must ask itself before joining hands with another brand. Can the two brands attain synergies in terms of their culture? Can the M&A maximize the organizational capabilities in terms of brand portfolios, market share, financial, managerial and technological resources? Can the M&A guide the new entity towards achieving market reach and growth without hindering the established brands?
4. Does the M&A allow for brand compatibility? Brand compatibility is a broad term that refers to the level of synergies attained by brands of both companies that are parties to an M&A. Any brand is distinguished by its all powerful identity, unique personality and the underlying brand culture/philosophy. In the brand world, these three aspects are explosive and ready for conflict when they are forced to adjust to a new situation. In this context, brand compatibility refers to the level to which the identity, personality and philosophy of brands of the two companies match or show a possibility of peaceful existence. If the main objectives any M&A activity – shareholder value enhancement and market domination – has to be achieved, a very high level of brand compatibility becomes critical.

Post-merger brand strategies

Post merger period is the real acid test for the new combined entity. Most often the combined company is so overwhelmed with the complexities of integration that majority of the actions tend to be reactive to the ensuing flow of events than proactive whereby the management channels the combined synergies in line with the pre merger objectives. One of the key success factors for brands in the post merger scenario is to have a two pronged brand strategy – one part engaged in managing the marketplace perceptions given the strategic blueprint of the combined entity and the second part engaged with ensuring that all internal stakeholders are motivated and are in line with the overall brand vision. An essential prerequisite for either of these is clear cut system of brand management. Defining brand strategies under multiple scenarios and establishing guidelines to monitor integration are very important before any corporate level strategy is designed and implemented.

1. Brand Strategy: Brand strategy in a post merger scenario assumes high significance given the high percentage of M&A failures. As discussed earlier, brands of the two merged companies usually have their own unique identities, personalities and philosophies. As such the fundamental question of brand strategy would be – how to treat these brands – one brand, joint brand, flexible brand or a new brand. Depending on the market power, brand equity and the product line of the brand, a company can decide to one of the following three strategies:
   1. Acquirer corporate brand: More often than not, the acquirer corporate brand replaces the acquired corporate brand. In such a case the acquirer corporate brand becomes the brand of the combined entity. This is the case when the acquirer brand is the market leader and the acquisition would have been done primarily to consolidate its position ra>ther than to leverage the equity of the acquired brand either for market reach or growth.
   2. Joint brand: This is a case where the combined brand will be a combination of the acquired and the acquirer brand. This strategy is resorted to when M&A happens between equals. Further, both brands enjoy an equal or similar market standing, market reach and brand equity. Daimler-Chrysler and AOL-Time Warner serve as cases in point.
   3. Flexible brand: This strategy is based on geographical separation. When two well known brands have come together and each of these brands are big brands in different geographical regions, then the resulting brand, though a combination of both brands, tend to reflect the dominant brand in the relevant geographical region. The Renault-Nissan is a good example. Nissan is a highly known brand in Asia and also in the US. Renault similarly is a well known brand in Europe. These dominant markets are geographically separated. In line with the flexible strategy, Nissan is the preferred brand name in the US and Renault is the preferred name in Europe. This strategy serves well when each brand is highly regarded in its primary region and letting go of the name will be detrimental to the brand.
2. Brand Integration: Integration is probably the most challenging of all issues after a merger. Integration, like branding, encompasses all functions of the company. Especially when two companies have come together either through a merger or an acquisition, integration of organizational capabilities becomes quintessential for the merged entities’ survival and success. Management should establish clear internal organizational expectations and guidelines for the interaction of employees, resources and brands to ensure that all activities are channeled towards the objective of a smoother transition. A branding platform must be set up whereby brand managers of both companies can discuss the possibilities and future paths of individual brands. This would ensure that brand managers would work in tandem with each other.

Conclusion

M&As have a tremendous impact on brands. The challenge for companies is to devise a system whereby the basic objectives of the M&A are always kept in mind so that post merger confusions and challenges would not drive the new entity from the set path. Most importantly, all strategies for the new entity should be guided by the underlying brand blueprint so that all post merger decisions are in line with the overall brand vision and is driven by the brand identity.