Riding the waves of uncertainty

One of the most overlooked and undervalued transitional challenges during M&As and acquisitions is around brand equity and maintaining brand strength. With all the complex regulatory, operational and integration challenges, it is very easy for organisations to overlook the importance of ensuring strength and longevity of expanded brand portfolios.

We have seen some significant M&A and acquisition activity across industries at a global level. Coty’s acquisition of P&Gs beauty business, AB InBev’s acquisition of SABMiller, the Starwood and Marriott merger, H.J. Heinz’s acquisition of Kraft foods, the ongoing acquisition saga of Virgin America by Alaska Air are some of the few notable examples.

All these acquisition and M&A activities are accompanied by significant transfer of branded assets between owners. The estimated value of Coty’s buy out of P&Gs beauty business was $12.5 billion. AB InBev acquired SABMiller in a deal worth £71 billion. Asahi, who bought the Peroni, Grolsch and Meantime brands from AB InBev reportedly paid close to $2.9 billion. The Starwood Marriott deal is estimated to be between $12-$13 billion.

Let’s look at the number of branded assets that changed hands also. AB InBev acquired 56 brands in the SABMiller global portfolio. The Kraft-Heinz merger resulted in a combined portfolio of 24 global and regional powerhouse brands, with numerous others operating at a country level. The Starwood Marriott merger involves 19 brands, with significant amount of overlap between them. These numbers are only a proverbial drop in the ocean if we consider the number of private equity backed M&As and acquisitions that have happened in the last 5 years. In short, the brands that have changed ownership or are now part of expanded portfolios are sizeable assets from the point of view of contribution to company balance sheets and also from the point of view of global and regional market share.

One of the most common, but crucial, mistake that is committed in M&A and acquisition scenarios is putting brands as the last priority in the business integration agenda and roadmap. This is one of the biggest ironies as brands / branded assets are the primary triggers for a majority of M&A activity. Merging entities look at the combined value or market share of their aggregated portfolios. Acquiring entities identify targets for acquisition again through the strength of branded assets. For example, AB InBev’s interest in SAB Miller was generated due to the success of SAB Miller’s African brand portfolio.

The above facts hold even for private equity driven acquisitions wherein the value of the acquired business is primarily based on the target organisation’s financial and operational viability, future outlook and strategic competence. All these factors are influenced by the health of an organisation’s brand portfolio.

Ensuring that acquired brands continue to have a strong equity in a post M&A scenario is a challenging task. In many instances the control over brand development is diluted or changes many hands. As I write this piece, Marriott’s CEO has expressed the desire to keep all the luxury hospitality brands from both Starwood and Marriott. Easier said than done, but arguably an industry where launching brands targeting every imaginable sub-segment is not a new thing. The Starwood Marriott merger still keeps the expanded portfolio within a single management, which should, lead to more practical and sensible decision-making on portfolio optimisation.

Other M&A scenarios are more complex, especially when there is multiple ownership changes. Consider the following scenarios:

  • Global acquisition happens but acquirer has to sell-off multiple branded assets in different regions for regulatory approval
  • Acquirer sells multiple branded assets in different regions but to different owners (a mix of competitors and private equity but not a single buyer)
  • Merger of equals happen and the decision is taken to kill brands that have significant overlaps
  • Merger of non-equals happen and brands from the smaller organisation are killed at the expense of brands from the bigger organisation
  • Acquisition influences rapid (and potentially damaging) endorsement of the corporate brand of the acquirer

The above are just a few of the numerous scenarios that can happen in complex M&A scenarios. In short, M&A’s have the potential to do serious damage to brand portfolios in terms of equity, positioning, architecture and strategy. Quaker Oats’ handling of Snapple post acquisition is a classic example. More about how Triarc revived the brand can be read here:

https://hbr.org/2002/01/how-snapple-got-its-juice-back

In the world of M&As, the concept of who is going to have final control over a brand is a very fluid one. Due to the long winded process of anti-trust and regulatory approvals, brands can remain in limbo for extended periods of time before anyone takes charge. These are precisely the periods when significant damage to brand equity happens and brands completely or partially lose their strategic direction. Regulatory protocols also require proverbial walls need to be built wherein the entity that has sold a business operation not allowed to have any communication with the sold-off entity and the new owners slowly trying to come up to speed with their new reality.

So what are some of the possible solutions for safeguarding brand equity in situations of flux and uncertainty (as created by most M&A scenarios)? Some of these solutions can take the following forms:

  • Appointing an independent brand custodian group – This custodian group can include internal brand stakeholders who have at least a medium-term opportunity to work with the brand(s), creative agencies who have been involved in brand building, media agencies or anyone with relevant experience (who can be nominated by senior stakeholders)
  • Creation of a Special Interest Group (SIG) – A SIG can own, implement and monitor key work streams that will effectively ensure smooth transition of brands (and associated strategic plans) between owners
  • Integrate brand portfolio optimisation as one of the key elements of business integration – Related to the first two options, an independent group or a SIG can ensure that brand portfolio optimisation is a critical element of any business integration programme in a M&A scenario
  • Cross-owner knowledge building programme – In the case of mergers, designing and implementing a cross-owner brand knowledge building programme can be of immense help. If brand managers from both sides gain knowledge of brands from the other side entering the expanded portfolio, there is a greater sense of ownership and engagement. This again can be done by an independent custodian group or a SIG
  • Minimise fragmentation in ownership and control – Again this is a critical aspect of business integration, but brand management hierarchies and control processes in merged entities or in acquirers should stay close to original hierarchies / control processes. Strong brands are built through disciplined effort in a structured manner. In a new organisational structure, this disciplined effort should not be disrupted

The above proposed solutions can be used in conjunction or as individual solutions for protecting brand equity. The key factor that will influence whether brand portfolios maintain their strength in M&A scenarios is ‘management desire’. If strength of branded assets is the key trigger behind a majority of acquisitions and mergers, then it is a shame if these same assets are not protected afterwards. Strong brands in an expanded portfolio also ensure commercial viability of the new organisation and also help in the design and implementation of a strong long-term strategy.

Image courtesy: Patrik Jones

 

 

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