Focus on brand value is key to potent mergers - Emirates24|7

Focus on brand value is key to potent mergers

HP-Compaq kept both names initially and later migrated to just HP, as the brand became synonymous with personal computing hardware. (GETTY IMAGES)

Brand identity is often neglected during a merger or acquisition, endangering the ultimate success of the transformation, according to experts.

Mergers are riddled with risks and challenges – such as integrating all aspects of the businesses, dealing with staff redundancies while maintaining morale and realising the cost savings and synergies that the merger is based on. Branding faces the same potential pitfalls and can be a major issue during the consolidation, though it often does not receive the proper amount of attention.

Though M&A branding is like any other branding, it can be a thorny and emotional issue and often requires a mix of consulting, strategy development and creativity to deliver a robust and sustainable solution.

Hermann Behrens, CEO of The Brand Union in the Middle East, told Emirates Business: "Merger branding requires time and investment to get it right. M&As are all about creating future value that is greater than the sum of the merged parts. Brand value is the key intangible asset that contributes most of the value to M&A deals yet brand strategy often takes the back seat to the corporate motivations for mergers.

"This is evident from the fact that mergers and acquisitions are notoriously unsuccessful in delivering the value expected. McKinsey and Co report that 80 per cent of mergers don't earn back the costs in the deals themselves. Still, merger branding is not difficult if you are prepared, resourced and responsive to change."

Straightforward as the issues might appear, in reality, branding often becomes a tricky situation to handle.

Karen Attyah, strategist at Landor Dubai, said: "It is difficult because emotions come into play, especially regarding the name of the new entity. There is always a feeling among employees that they will lose their identity to someone else – particularly if only one of the names is chosen."

Mich Bergesen, global director, financial services, Landor, said: "Even CEOs are understandably reluctant to give up part or all of their brand identity in favour of the acquirer's brand. This can make it hard to objectively assess the right course and develop a new brand for the company.

"However, the name is key and must address multiple audiences, including the management and employees concerned over loss of identity. It must also signal the new entity to investors, business partners and regulators and it should help retain relationships with key client groups of each business."

For example, HP-Compaq kept both names initially to signal the union of personal computer and peripherals businesses, and later migrated to just HP, as the brand became synonymous with personal computing hardware in its own right. Compaq, meanwhile, remains a product sub-brand on certain lines of laptops.

As a result of this creative strategy, HP has rapidly gained market share to challenge Dell, the former market leader, in personal computing hardware. It is also continuing to be successful in the business-to-business computing sector, which was a traditional strength of Hewlett Packard.

Other problematic issues that arise are securing customer loyalty, vision, integration and culture.

Behrens said: "There are some thorny issues that do come up and these depend on the nature of the M&A. Is it hostile or friendly? Is it a merger of equals? Is it a corporate monolith subsuming a minor competitor, or a challenger punching significantly above its weight? Aligning vision, values and communication and talent retention are at the heart of brand building, which is also at the heart of successful integration."

Bergesen agreed: "Vision is a key issue. What does the new entity stand for? What is the overall brand position and what are the key differentiators for the merged group? All these have to be clearly defined."

Attyah added: "The other issue is securing customer loyalty, which is always dangerous in merger situations. Customers fear their service or experience will change for the worst, even if the merger will actually benefit them. In general, customers just don't like change. Finally, culture is the next big issue. Remember that 'brand' is important internally and externally. Bringing two corporations together will affect the internal spirit. We've seen examples in which employees, even after five years, have associated themselves with their 'old' organisation; it is like an us vs them mentality. On the other hand, the best examples are when a new 'one culture' spirit evolves that is built on the heritage of the two old organisations but comes together into one, dynamic spirit."

Bergesen said: "Then comes integration. Which business units overlap and are likely to be consolidated under fewer brands? What architecture is the most efficient, achieving maximum impact at lowest cost? How can the company make it easy for clients and customers to navigate the offers of the combined group? Can the company achieve cost savings from supporting fewer brands? These are all very important issues that have to be addressed."

So how do branding companies resolve the host of issues that crop up?

Behrens said: "Resolving the branding challenges associated with mergers and acquisitions needs to be done on a case-by-case basis but a few actions can dramatically help. Being able to take tough decisions and put the health of the future brand at the heart of key decisions will ensure that many of the above issues are avoided.

"Corporations need the appropriate partners to help guide and steer them through these kinds of processes, at a corporate level and with regard to brand communications. These partners must be truly aligned with the businesses involved, and with their objectives plans, and people, in order to manage change effectively.

"We suggest companies consider the brand impact of a M&A early on, working out what each company brings to the fore and what can be used for the future."

Duncan James, strategy director, The Brand Union in the Middle East, gave an example of what can happen when companies fail to do this.

"In terms of actually not creating value, we know that Ford Motor Company bought Jaguar in 1989 for $2.3 billion [Dh8.45bn] and Land Rover for $2.7bn; a combined figure of $6bn. In 2007, Ford received $2.3bn and still had to contribute a significant amount to the companies' pension funds. Sales never rose hugely and from a financial point of view Ford never realised their potential. The perceived reason for this 'failure' was simply internal culture and a lack of skill set to overlap and run the different car marques because they existed in different segments of the market," he added.

Attyah advised: "Reassure the customers about the benefits they can expect from the new merger and you need to let them know what is happening and when.

"Next, internal branding – effectively trying to engage employees – is a useful tool in building one culture in a merger. Brand engagement helps inform employees regarding the new brand, the rationale for the identity, as well as expectations from employees in the new organisation. This ensures all employees understand and participate in the new future of the organisation."

An example of successful M&A branding is BP-Amoco, which created a shared vision around Beyond Petroleum. The new "green" BP brand rapidly rebranded their petrol stations worldwide and invested heavily in employee training and development to ensure everyone embraced the goals of the merger.

Bergesen said: "The goal must be to redefine the corporate brand to reflect the integrated business and rationalising the brand architecture to reflect the most efficient organisation of products and services that can be clearly navigated by customers."

Attyah added: "What is critical to merger branding is that you are 100 per cent thorough, and that you have a strong, cross functional project team that works closely with your branding agency to ensure the new brand is deployed as effectively and holistically as possible."

Bergesen said the new management team has to be ready to lead.

"The CEO and senior management must be the most visible champions of the new brand. Next, the vision must be translated into a clear statement of brand purpose, describing the company's points of differentiation in the marketplace as well as its relevance to the full range of audiences. Specifically, the brand should serve as a unifier and rallying cry for employees, a signal of market strength to investors and remain a reassuringly familiar brand for customers.

"Brand implementation must address the type of organisational structure and culture the CEO envisions – ie, centralised or decentralised, one marketing group or many across business units.

"The other key consideration is speed. Make sure the merger stays on track, the organisational structure and product line changes must be clearly announced and rapidly executed, along with rolling out the new corporate and divisional branding, and any changes to the look and feel of retail environments and customer brand experience."

The experts told Emirates Business that for UAE firms opting for M&A, the guiding principle should be engaging customers and employees as that will ensure their loyalty. Also, firms should make sure leadership of both organisations are clear on their shared business vision and goals. This will provide a foundation for objectively assessing the strengths and weaknesses of each partner's current branding and developing the best solution that maximises the impact of the merged company's brand in the marketplace.

Setting out a clear statement of purpose at the beginning of the process also helps communicate the company's direction to employees, business partners and customers, which can avoid much of the turmoil that many mergers face.

James summed it up: "Our advice is that companies choose their targets carefully, taking careful consideration of the brand implication and opportunity that comes with the merger deal."