Over 50,000 mergers and acquisitions happened worldwide in 2017 — and it’s the third straight year that milestone has been hit according to Thomson Reuters.
If you look at the trend more closely, the reasoning and rationale behind the surge of M&As is evolving. Whereas before, the key driver was typically related to augmenting organic growth or attaining intellectual property or technology, many of the M&As are now being driven by the shifting state of business.
Benjamin Gomes-Casseres, an expert on alliance strategies and professor at Brandeis University, refers to M&As as “remixes.” I like this because that is exactly what is happening, and more commonly, in non-traditional ways.
Take the CVS acquisition of Aetna, or Amazon and Wholefoods. Both are key examples of how the business landscape around us is shifting quickly, and companies are rethinking their portfolios to gain a new competitive edge or defensively counteract a competitor’s move.
But here’s the rub: according to Harvard University's Clayton Christensen, up to 90% of M&As fail to live up to their planned potential. What gives?
While each case is different, there are common themes surrounding why a merger or acquisition would, more often than not, fail to produce value. Frequently, the culprit is shortsightedness — focusing too narrowly, and often unrealistically, on cost savings and financial synergies. This is the classic “spreadsheet” approach to inorganic growth.
As technology journalist Joan Indiana Ridon related in Red Herring Magazine “the lack of integrating the two companies is the real reason why most fail.” Integration comes on multiple fronts, including people, culture, processes, vision and brand strategy.
My experience working with many post-M&A companies is that the integration of brands and the building of a forward-looking, strategic brand architecture is one of the key components that most often gets set aside for later. Companies are very protective of their brands, and while negotiations are happening the tough brand discussion (beyond “what are we going to call the new organization”) rarely gets addressed up front. It's thought that this will naturally work itself out over time.
But in reality, nothing really happens.
Companies end up with a confusing mix of brands and product lines that make little sense internally, and even less sense to the market. This is true even years after the merger or acquisition.
I call these amalgamated messes “brand goulashes.”
The period just after the M&A presents a terrific gift to the leadership of the company. It’s a time to make changes, and hand-in-hand with that, take on the tough challenges. If decisions — such as what the new brand portfolio of products and services will look like — are not made at this initial stage, they most likely will not be made later either. It will only get exponentially harder. This, in turn, saps the company from clarity and simplification and allows “brand camps” to take over the culture.
Your new combination of corporate and offering brands need to work together in a way that tells your new story. Every time an acquisition happens, the company’s narrative changes. It’s a perfect time to revisit the corporate brand narrative so that it is truly differentiated, simple, and clear. Your employees are dependent upon this, and the market wants to understand who you are becoming. Here are a few points to consider:
- Create a new corporate brand-level story. How is your corporate brand differentiated in a meaningful way? Why should anyone choose you in relation to your competitive alternatives? Even if the acquisition was relatively minor, chances are it will have an impact on your corporate brand narrative. When you look across your portfolio of products and services (or swim lanes or divisions), does it tell a cohesive story? Or are they siloed? This should be part of your corporate brand narrative.
- Seize the window of opportunity to create brand clarity at the offering level.The time of the M&A presents an unheralded opportunity to make tough decisions that, if not made then, only get more difficult and more disruptive as the two companies settle into their new existence. Consider each of the brands that each company has, whether they are product or service brands, or both. Draw out a logical structure for them that creates alignment beyond just pushing the two organizations together. Which brands should make the transition? Which should not? Which should be downgraded from branded status to non-branded, descriptive offerings altogether? This discussion will help drive the bigger conversation around the future business model of the combined companies. Clean your brand architecture up now.
- Focus on simplicity.The objective of brand strategy and brand architecture is to clarify and simplify the company's assets. Creating a structure that is simple will ensure that it will scale with the organization, while bringing the clarity that everyone so much desires, both internally and externally.
- Do not underestimate the impact that brand strategy has on company culture. Research shows that the tribal mentality that happens post M&A is a serious reason why they don’t produce the value that was hoped. Use your brand strategy as a way to drive a new unified culture and break down the inevitable walls that will arise. Internally, brands can do one of two things: create separate camps or bring teams together. You know which one you want.
Sorting out your brand strategy is never an easy task, add a merger or acquisition to it and it gets especially complex. Everyone internally, from both companies, has an agenda during this period. But don’t miss this great opportunity because waiting will undoubtedly cause disruptions and lessen the potential impact of the corporate growth strategy. Culling the portfolio is especially challenging and should be based on data, not emotions. This is where a neutral, 3rd party that conducts brand research and makes strategic recommendations can be an invaluable help.
If you’d like to have a discussion about your specific challenge, contact us today!