Mergers and acquisition are on fire.
The total hit $3.6 trillion (with a T) globally in 2020 according to the Financial Times. And this was after deal-making in the first half of 2020, due to Covid, came to an almost screeching halt. So the second half of the year was truly exceptional and reflects what’s to come.
There are a lot of financial reasons for this, interest rates are low, equity markets remain high and companies are stockpiling cash.
If you look more closely, though, the reasoning and rationale behind the spurt of M&As is evolving. Whereas the typical key driver was once related to augmenting organic growth or attaining intellectual property or technology, many of the M&As are being driven by the shifting state of business—and even more so by the introspection created by a global pandemic.
While some acquisitions purely expand a customer and technology base—take Grubhub’s acquisition of Just Eat Takeaway, for example, others reflect something else that’s happening which has a major impact on Brand Strategy. 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 and more in not so traditional ways.
Take the acquisition of Salesforce and Slack, CVS of Aetna, or Amazon and Wholefoods. All 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, redefine an approach to their market or simply be on the defensive.
But here’s the rub: according to research led by 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 – more often than not – M&As don't produce value. Most often, the culprit is shortsightedness—focusing too narrowly, and often unrealistically, on cost savings and financial synergies. 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, technologies, processes, vision and encompassing it all: brand strategy and architecture.
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 punted for later, and usually for all the wrong reasons.
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. Marketing will sort it out.
But what really happens is nothing. Companies end up with a confusing mix of brands and product lines that make little sense internally, and even less so to their customers. This is true even years after the M&A.
I call these amalgamated messes “brand goulashes.”
The period just after the M&A presents an unprecedented gift to the leadership of the company. It’s a time to make changes—and 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 and it will get exponentially harder. And an ideal reason (M&A) for making the changes fades away.
This, in turn, saps the company of clarity and simplification and allows “brand tribalism” to take over the culture.
Your new combination of corporate brand and product/service level brands need to work together in a way that tells your new, and complete 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 need this badly and the market wants to understand who you are becoming.
But 2021 will also present an additional, heightened challenge to M&A brand strategy: the changing and evolving needs of your market due to the impacts of reevaluating almost everything brought on by the global pandemic.
Before you can determine what the best brand architecture strategy will be, you need to get inside the evolving mindsets of your customers. Companies frequently make the mistake of not taking a more data influenced approach to understanding the real equity that corporate brands hold and rely too much on internal points of view. In an M&A situation, this immediately sets up two entrenched camps of thought, with the acquirer usually calling the shots leaving a bunch of confusion, disillusionment and hard feelings in the wake.
By taking the first 90 days of the M&A to conduct deep dive brand market research, you can determine exactly what the perceptions, awareness and intent-to-buy levels are for all of the brands in the new portfolio.
Additionally, you can determine if the target persona’s reasons for choosing one brand over another—the associated Value Drivers—are changing. Assumed value drivers, from my experience, are almost always created by internal teams based on their experience or third-party analysts’ reports. As a result, companies find themselves off the mark when these assumptions get translated into marketing and sales messaging.
M&As further complicate this matter. In a study of over 220 marketing leaders conducted by Brandigo, 72% stated they have no or only limited confidence that their organization understands the unique and changing pain points of their target audience.
Add all of this together, and you can see why many M&As from a brand perspective just don’t deliver.
So, what’s the best-practices-approach to getting the brand M&A right? Below are steps that will lead you in the right direction.
- Take an outside-in approach. After an M&A, emotions are high and brand tribes form overnight. To help bring a more scientific and data-driven approach to tough brand strategy divisions, conduct quantitative research with target buyers. This will tell you which brands in the portfolio have the strongest equity and highest levels of intent to buy and will give you the data you need to do the necessary culling of brands right out of the gate.
- Focus on simplicity. The objective of brand strategy and brand architecture is to create clarity and simplicity to 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 desires, both internally and externally. Data and insights will help this tremendously—while also helping to soothe internal brand tribal sore spots. One of the biggest mistakes companies can make is having too many brands without a strategic rationale for them all to exist.
- 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 should 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 product/services level. The time of the M&A presents an unheralded opportunity to make tough decisions that, if not made then, only get tougher and more disruptive as the two companies settle into their new existence. Consider all of the brands that each company has, whether they are product or service brands or both. Draw out a logical structure for them that goes beyond just pushing the two organizations together. Which brands should make the transition? Which should not? Which should be downgraded from brand status altogether? This discussion will help drive the bigger conversation around the future business model of the combined companies. Cleanup your brand architecture now.
- 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 and brand architecture is never an easy task. Add an M&A 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 most certainly cause disruptive issues and lessen the value of the corporate growth strategy. Culling the portfolio is especially challenging and should be based on data, not emotions. This is where a neutral, third party that uses brand research to inform a set of strategic recommendations can be an immense asset.
But, most importantly, take on the challenge as soon as possible. The odds are against you if 90% of M&A’s don’t deliver on their planned value. So make sure this won’t be the case for you. Nothing good will come from letting it “play itself out,” and, in fact, it might be the number one reason that will determine if the M&A is a strategic win.