For acquirers of businesses, either Corporate or Private Equity (PE), it’s not exactly a great time to be buying businesses and placing bets on new frontiers. A recent Price Waterhouse Coopers report found that the uptick in mega-mergers and acquisitions seen in 2019 will continue into the new decade. This means high purchase prices will remain in their stratosphere for the foreseeable future.
As a result of high purchase-price multiples and overly ambitious revenue growth plans, the landscape is littered with the remains of deals gone south or sour. In fact, more than half of intended acquisitions fail, and 80 percent fall short of expectations. To protect themselves against failed deals, Corporations and PE have responded to inflated purchase price multiples by doubling down on pre-acquisition and pre-merger due diligence.
While financial engineering of the balance sheet and identified operational improvement opportunities (lean, supply chain, etc.) have certainly helped mitigate purchase price risk, one frontier that has historically been ignored is marketing — specifically branding. While the reasons for this lack of understanding are many and various, we can share from experience that one recurrent factor continues to play a role in many of the sad M&A stories that we dissect – a lack of a branding strategy.
Devising and executing an effective pre-acquisition and/or post-acquisition branding strategy – one which captures and communicates that new story and increased value to the marketplace – in our view can make all the difference in achieving M&A success. Looking for synergies and complementary strengths to create new or enhanced value through branding has now emerged as the favored game plan to win.
An effective pre-acquisition due diligence brand assessment helps to validate or invalidate the acquisition thesis. We often see that it provides a better understanding of the target company’s intangible assets, increasing the accuracy of the company valuation. Likewise, it identifies strength and weakness in areas that may affect revenue potential.
However, analysts and managers involved in M&A activity tend to try to tell the value story by metrics alone. Skilled at operational optimization and best practices, today’s M&A experts tend to look at metrics that drive performance, including efficiencies from combining core functions, and the development of a leaner supply chain process.
But the story of a successful M&A plan today cannot simply be told by metrics alone – the brand must play a key role. Consider the obstacles faced in a recent acquisition by eFolder, an IT solutions provider in the managed services provider (MSP) space, which failed to emphasize brand in supporting the merger. The resulting confusion included:
Often overlooked, post-acquisition brand management is unfortunately viewed by many as an expense. Hence, the symptoms of the neglected or shunned brand management include a failure to ask, or confusion about the answers to, basic questions such as, “Who are we?” and “What are we selling?”
The resulting internal outcomes often include a nervous and confused work environment, low morale and poor employee retention.
Similarly, the external impacts of poor post-acquisition brand management arise from broad customer and marketplace confusion and concerns. A loss of brand equity, defecting customers and plummeting enterprise value soon follow.
For example, two years post-acquisition, eFolder and Axcient had merged on paper only. Each company operated independently under the name eFolder/Axcient, in the same market -- but with different target audiences and opposing corporate cultures. Some in the marketplace questioned the move.
One hurdle the new entity faced was that few of the larger MSP prospects knew eFolder. With fading industry confidence that the marriage could work, the merged company failed to meet its revenue and share goals.
As we observed here and elsewhere, the combined internal and external outcomes of poor M&A brand management have the potential to stall a corporate marriage and spoil stellar portfolio performance. Ultimately, they contribute to the high rate of M&A failures.
It need not be so. With an intensive branding effort, merged entities can realize their full potential. As we will see with eFolder/Axcient, “Rebranding the combined companies unlocked significant value that was not realized in the initial merger,” stated Angus Robertson, Chief Revenue Officer of Axcient.
Given the high rate of M&A failures and historical PE playbooks focused on financial and operational optimization, the role of pre and post-acquisition brand management should be examined. To be sure, every effort should be made to avoid the devastating internal and external outcomes of poor M&A brand management.
This post is the first in a series that will take a closer look at the impact of ineffective or unprioritized M&A brand management. In future installments, we will more closely examine internal and external impacts to demonstrate why brand plays a significant role in raising the M&A success rate and increasing exit valuation multiples.
Neil Anderson, Partner & CMO Chief Outsiders
Neil is a Chief Outsiders Partner and CMO. With a track record of executive management and marketing success, he helps early stage startups, mid-sized and large, publicly traded companies develop and implement comprehensive and integrated marketing strategies to accelerate growth. Neil’s holistic approach to marketing powers effective marketing plans, increased lead generation and conversions, product and services revenue growth, and improvements in corporate performance and profitability.
Peter Hlavin, Vice President Business Development Chief Outsiders
Peter has over 35 years of tangible business building experience, including growth, strategy, investment, and marketing/operational improvement. His marketing and operational consulting, Private Equity, and M&A experience is spread across a diverse variety of organizations and industries. In his role as Vice President, Peter leads the Private Equity business development activities for Chief Outsiders, helping create value for the portfolio companies of PE firms during their investment lifecycle, including pre-acquisition due diligence and post-acquisition assessment and implementation.
Chad Nelson, Brand Strategist/Creative Director The Basis Group
Chad has more than 20 years of creative experience in high-tech, B2B marketing, brand development and graphic design. He has been a founding partner in two successful marketing agencies and worked closely with clients such as IBM, AFS Technologies, Genesys Conferencing, Intrado, Digital Globe, CS Stars and CVS Caremark. In his role as creative director, Chad oversees all creative development and functions as corporate branding strategist. He has been a student of brand development for many years and played the primary role in the development of TBG’s proprietary branding methodology.