Overlooked & Undervalued: The financial value of brand in M&A

No company today is solving a problem uncontested. Every company has to compete for market share amongst competitors, whether direct or latent. To succeed, differentiation is critical. Great brands know how to set themselves apart. And while unique technology or compelling marketing campaigns play a part, they cannot carry the weight of some of the bolder plays in a corporation’s strategic arsenal.

One of the more popular, bolder plays is undertaking mergers & acquisitions (M&A), to which companies spent nearly $4 trillion on in 2022 alone. This is especially relevant today, as a compressed market during a (pending) recession drives consolidation, creating a fertile ground for companies to invest strategically in bolstering or changing their brand perception, enhancing their product/service portfolios, or accelerating innovation efforts. While exercising caution around M&A in an uncertain economy is both prudent and important, history has proven that over the long term, those who can make bold moves during a downturn outperform those that do not (Bain, PwC, Ernst & Young). If your company is fortunate to be able to leverage M&A, this is a great way to demonstrate resilience and capitalize on increased brand differentiation and value.


Why brand needs to guide M&As

Sounds like a win-win, right? Well, not exactly. As multiple studies have proven, the failure rate of mergers is somewhere between 70-90%. More often than not, brand is not promoted or leveraged to provide unity, clarity, and solidarity during this critical inflection point, yet the brand can make all the difference between success and failure for the companies involved. That wasn’t a typo: 70-90% of mergers fail due to brand-related reasons. And failure means destroying shareholder value through significant asset and personnel losses, rapid divestiture, and even bankruptcy. 

However, when leveraged correctly, brand can guide the M&A process, communicate a clear vision, and create a sustainable competitive advantage. Over the last 20 years, I’ve helped several companies of varying sizes and complexities navigate the waters of M&A. I’ve provided brand-focused perspectives and insights to executives as they worked to onboard and integrate companies. Here are three ways a company can leverage brand in M&A activity and reap long-term benefits.


Brand unifies

“Never underestimate the value of the employee experience. An internal transformation defines the quality of an external one.” 

— Lou Fox, (former) Chief Technology Officer at Bluewolf


Cultural integration and alignment is critical to the success of a merger. Some 95 percent of executives would agree. Yet too often, it’s overlooked, causing 25 percent of those same executives to cite a lack of cultural cohesion and alignment as the primary reason integration efforts fail. And according to Bain & Co, 75% of acquirers still struggle with cultural integration issues that require serious interventions. So, how can you avoid cultural issues affecting your company’s long-term value?

There are two considerations I’d offer that threaten the success of M&A efforts. The first is many brands don’t have a clearly defined brand and culture of their own. If you don’t already have one defined, I’d highly advise you, “go work on yourself, first” before you explore adding complexity to it. Only when you have a clear understanding of your own culture (how people relate to each other through incentivization (financial or emotional), communication (personal or group), accountability (individual or collective), decision-making (top-down or bottom-up), etc. are you capable of properly assessing and integrating an outside entity. 

The second observation I’d offer is that companies, and executives, often talk about prioritizing cultural integration during the early phases of M&A activity (target identification, valuation, or due diligence), but most completely drop that narrative, and proverbial ball, by the time the deal closes. PwC’s 2020 M&A integration survey reports that only half of the executives they polled said culture was an element of their change management programs. And knowing a majority of companies—65 percent—complete a brand transition within 12 months of deal close, suggests they don’t leave themselves much time for ongoing cultural integration efforts. Properly addressing and aligning cultural differences will contribute to the company’s long term success. Executives must move beyond talk and lead by example, making cultural integration a strategic priority of their integration efforts, measured by clear culturally-focused goals and KPIs. 

Unfortunately, most executives don’t prioritize culture beyond giving it lip service and never really invest in how their employees’ day-to-day experiences will shape brand perception, and, ultimately, its ability to create additional value. To prove my point, 65% of acquirers say cultural issues hampered value creation in their last deal.

I saw this firsthand as we were brought on to help an enterprise technology company acquire a highly successful competitor focused on small and mid-size businesses. Our client was aware enough to understand that the acquisition would have a cultural dynamic. So, in addition to our team, who was focused on the strategic integration and development of a unified brand strategy, narrative, architecture, and personality, the client hired a separate consultant to oversee the cultural portion of the integration. We encountered contradictions between the two cultures during our research phase, cited by multiple internal and external sources. In nearly every dimension we investigated, the two cultures were complete opposites. We surfaced this concern with our client but were never allowed to engage with the team overseeing the cultural aspects of the integration. While the strategic work we completed around brand narrative, architecture, and identity was helpful, it couldn’t address the biggest threat to the integration: the massive difference in cultures. While the newly combined company was acquired a couple of years later, I can’t help but imagine their valuation would have been much higher with a more unified culture.

If you fail to meaningfully address how your companies will integrate at a cultural level, the salience and longevity of your company is at risk. By prioritizing cultural alignment during an integration, companies can make the most of their efforts today, and positively influence future outcomes tomorrow. 


Brand clarifies

“People do not buy goods and services. They buy relations, stories, and magic.”
— Seth Godin


Great brands clearly communicate who they are and what they offer. And to be clear, this isn’t ever an easy pursuit. I, and a whole market of brand consultants, have made our livelihood helping companies navigate change and communicate more clearly. But things get especially complex as companies undergo M&A, as adding additional employees, integration partners, customer verticals, and product/service lines add layers of abstraction. Left unaddressed, you could confuse the market and stunt your growth. But by properly defining and organizing the brands & sub-brands within your company, you can effectively transfer the equity from an outside brand into yours and make it easy for your customers to understand who you are and your portfolio of offerings. In fact, the consistent presentation of a brand has been seen to increase revenue by 33 percent. Managing the perception of your brand is not only prudent, but it’s also financially beneficial.

To properly manage your brand’s perception, you’ll need to invest in developing a clear brand architecture. Brand architecture is most often conveyed through individual brand names, messages, and visuals. It can also be expressed through a marketecture;: a visual representation of your suite of offerings, how they relate to each other, and how customers can make sense of everything you offer. But how do you get there?

There are multiple approaches, each with its benefits and drawbacks. And, depending on the brand strategy, the approach taken will differ. (This is highly contextual. And, there are benefits for both, not to be described at length here. My point is to get you to consider the need for undertaking it, not discuss the deeper intricacies of which model to choose and when.) That said, there are three primary options by which you can organize your company and your acquisition(s). 

  • Branded House: brings acquired brands in clear alignment under the parent brand (e.g., Workday: Workday Peakton Employee Voice (formerly Peakton), Workday Adaptive Planning (formerly Adaptive Insights)
  • House of Brands: lets individual brands stand alone (e.g., Meta: Facebook, Instagram, Oculus, Whatsapp)
  • Hybrid/Blended House: combines multiple models (e.g., Salesforce: some acquisitions like Salesforce Marketing Cloud (formerly ExactTarget, Radian6 and Buddy Media) or Salesforce Commerce (formerly DemandWare and CloudCraze) follow the branded house; where other acquisitions, like Slack, Heroku, or Tableau follow house of brands and are endorsed, and co-branded as “a Salesforce Company.”

Deciding upon which path to embark requires understanding how and why your brand brings tangible value to your customers’ lives — how your culture fosters better relationships; how your strategy instills trust; how your story creates advocates. These come together in how your products and service offerings are positioned and presented, creating an experience that is greater than the sum of its parts — magic. 

I experienced this firsthand when I was fortunate to be part of a strategic team that helped a communications arm decouple from their larger, parent company, tp form a completely new company that rolled up more than 25 acquisitions they had amassed over the years. You can imagine the level of confusion that created internally alone.

We used the branded house framework for the new combined company, and repositioned the 20+ additional brands as supporting pieces in the overall platform. This allowed us to go to market as one brand, with one story and one suite of products. We were able to showcase the end-to-end platform they had built and they were able to more easily sell the full suite of services to new customers, both cross-selling and up-selling solutions to existing customers who’d only historically used a single product. The branded house model clearly communicated the holistic value to customers and prospects more tangibly than using multiple individual brands. And internally, we were also able to symbolize cultural change and mark a new way of doing things – inspiring pride and ownership in the employee base to bring the new brand promise to life.

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