By Braun Jones, Partner, WWC Capital Group, LLC
When you think of big brand mergers and acquisitions, a few come to mind. FedEx and Kinko’s. HP and Compaq. Microsoft and Hotmail. Procter & Gamble and Gillette. US Airways and American West. As well as the infamous TimeWarner and AOL.
Unfortunately, developing a brand strategy is often overlooked by dealmakers. But, according to a recent article in Mergers & Acquisitions, brand strategy is a powerful lever in supporting a deal’s objectives, as well as adding to the value created by the deal. The article defines four options that business leaders use to choose the brand:
- Create a new name for the new entity (such as Bell Atlantic and GTE becoming Verizon Communications Inc.)
- Using one brand for the new entity, abandoning the other brand (such as US Airways/American West becoming US Airways)
- Use both names together (such as MorganStanley SmithBarney)
- Use both names separately (such as TANDBERG, now part of Cisco)
These brand options can be determined on a continuum between how tightly or loosely the dealmakers want to integrate the two companies. According to the article, on one end of the continuum is a very tight integration of the brands, with new goals, etc. that will emerge following the deal. On the other end is very limited integration with little change in either entity. Across this continuum, there are four branding options as outlined above. These include:
1. At the tight integration end of the continuum, a brand new name is in order for the new company to signal its new future.
2. Next on the continuum is the brand strategy that promotes one of the companies over the other. With this approach, the name of one of the companies is adopted as the name for the newly combined entity. This is also a common strategy if one of the brands is tarnished such as JP Morgan Chases’ acquisition of Bear Stearns or Barclays’ acquisition of Lehman Brothers.
3. Further down on the continuum, the brand strategy for a looser integration involves keeping both of the previous names but joining them somehow. This is the case when it is a “merger of equals,” the two names might simply be combined in a co-branded approach. A similar approach that is used more with acquisitions is when the more established company brand endorses the other company, as in the TANDBERG/Cisco example. This is also a common approach when the two entities are in different as opposed to similar businesses.
These dual-name approaches are sometimes used as transition strategies; such was the case with the FedEx Kinko’s brand which is now FedEx Office. With this approach, a company’s long term plan is to adopt one of the names, but dealmakers postpone the dramatic change to increase the likelihood of their eventual acceptance of the combination.
4. At the loose integration end of the continuum, the new entity may continue to use the two brands. With this approach, dealmakers need to determine whether or not there will be confusion or other detriments with customers. If not, it might make sense to keep the brands names in tact.
If you’ve worked on an M&A transaction where the resulting brand was an issue, drop us a comment and let us know what the considerations were in determining the final approach to brand for the newly formed entity.