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Corporate takeovers

Merging two companies is a complex, lengthy and also emotional process. During that time, people yearn for clarity, orientation, meaning – beyond money and guidance. 

Corporate takeovers: Smart brand integration for a successful transaction

Article

Post-merger integrations fail all too often because a brand is not appropriately integrated and used as a change management tool. We name the 5 key factors for successful PMI using the brand.

You don’t need creative wishful thinking, but a sound brand strategy aligned with the company goals that takes into account all key information for the integration process.

As soon as a takeover has been decided, the companies involved face the moment of truth: Now they will find out whether the advantages expected from the merger are actually going to materialize. Unfortunately, the odds for success are stacked against them: Over 50 % of mergers destroy value. Two out of three companies lose market share during the first quarter, 90 % after the third quarter. 50 to 80 % fail to reach their targets after 1.5 years.

The reasons for these frequent failures are many. The core problem as we see it: The brand is usually neglected during the post-merger integration (PMI) phase, even though it is one of the key factors.

Our hypothesis: Faulty brand integration leads to failed PMI. In mergers & acquisitions (M&A) this defect causes projects to fall short of expectations – or even fail altogether – because the planned synergies cannot be implemented. Or, even worse, dis-synergies emerge.

5 golden rules of brand integration

How does this happen? Many top decision makers like financial and legal experts have a limited understanding of brands: They deal only with the communicative surface, meaning the brand name, logo or claim. With this narrow view of the brand, failure of M&A is a foregone conclusion.

So let's back up a moment: What is a brand? It describes, "brands" a performance with style elements in order to convey its origin and is therefore "communication". This branding gives customers, investors and employees orientation and triggers specific preconceptions. These result in trust, differentiation, relevance and loyalty. The brand ultimately acts as a value driver and can be used as a strategic management system. In markets of overabundance, the brand's added value and potential are increasingly important.

Companies plan their futures with mergers, but jeopardize their chances for success by censoring the brand. These are the 5 golden rules of M&A projects from a brand point of view:

  1. Well-known is not the same as desirable: Do not evaluate the awareness of a brand but its attractiveness (due diligence) and honor it (purchase premium).
  2. "How?" beats "How much?": Knowledge about the brand as an attractiveness and value driver and about its value adding potential – in other words knowing the "How?" – ensures synergies and minimizes the transaction risk.
  3. Brand is a change management system and not an individual work stream: Include the brand systematically in all phases of the M&A project – from strategy to transaction management all the way to PMI as well as synergy and project management.
  4. Brand integration means culture transformation: Use the brand to shape the identity of the target company. Turn everyone into proud brand ambassadors who support a common vision of the future.
  5. There is no such thing as "a little branding": A brand can't be managed as a sideline ("We do that too") or just a little bit ("We should get around to doing something for our brand one of these days"). The central value driver takes special skills.

Integration of the brand versus brand integration

A merger is a complex, lengthy and also emotional process. During that time, people yearn for clarity, orientation, meaning – beyond money and guidance.

Unfortunately, many integration strategies and processes are marked by the opposite: by management talk, strategic instructions, abstract targets, figures and generic statements. The result: Blockage rather than commitment. Subsequently, the integration is stalled, costs increase, synergies fail to materialize and key stakeholders lose their trust.

When you use the brand as a change management system, your reach the crucial people and critical mass from day one. You convince followers and avoid resistance.

These are the 5 key factors:

1st key factor: Knowledge transfer during the transition from M&A to PMI

You don't need creative wishful thinking, but a sound brand strategy aligned with the corporate strategy that takes into account all key information crucial to the integration process. In this context, the brand core works as a condensed expression of corporate peak performances and core competences.

The brand positioning summarizes those performances that set the company apart from the competition. It also reveals competitive advantages and attractiveness drivers. The brand-specific value drivers must be identified to secure sales, retain employees and tap into growth potential as quickly as possible.

2nd key factor: Decider-alignment and synchronization

The brand is a system of orientation and participation that motivates and defines clear boundaries. The brand message gives a company meaning beyond making money, everyone makes a specific contribution. Profitable growth is a result of brand-conform behavior.

The "Brand M&A Story" creates a relationship between the transaction and its target image. It increases acceptance among managers and employees of both companies. Customers and investors develop trust. This is expressed in the development of demand and stock price. It prevents suspicion of the takeover, as is the case with Monsanto/Bayer or with Versace/Michael Kors. People in the target company are not given the impression that they are 2nd class employees (Lufthansa/AirBerlin versus Deutsche Bank/Postbank).

With a clear positioning and a specific value proposition, the company's entire energy focuses on one goal, the way a magnifying glass focuses sunbeams. Every work stream knows the goal and contributes to it with its value-conform behavior. There is a sense of "We" from the beginning, with convincing incentives to participate and an inspiring action framework.

3rd key factor: First the compulsory program, then free style

Every PMI brings with it a host of changes. At the same time, customers expect the same brand experience they have become accustomed to. Hence, systematic management of brand perception along the various customer journeys is a top priority upper management job. It is a Herculean task, because it is about ensuring a consistent and specific experience at the various touchpoints for customers, employees, investors and other stakeholders. It is much more than the usual corporate communication.

During these turbulent times, the competition is just waiting for companies to make mistakes so they can entice customers and employees away from them. An experience journey, developed pro persona, reveals such moments of truth. Management of touchpoints can check if the intended brand experience is being offered. Managers take on the responsibility for their touchpoints and employees make the brand tangible from the inside out by applying simple brand rules.

So the brand provides transparency during complex times and ensures a firm commitment to the implementation. Brand attractiveness increases, which in turn boosts competitiveness and business performance.

4th key factor: "Power Point Dollar" or "Net Realized Synergies"

In saturated markets, a brand's attractiveness – compared with the competition – is instrumental for top line growth. The question is whether the merger can be an opportunity to preserve or even expand the brand's value premium. An attractive brand improves margins, stimulates cash flow and increases the loyalty of key stakeholders.

Brand perception affects not only customer behavior: Strategic partners accept different conditions and star investors like Warren Buffet are attracted. Hence, there is a direct correlation between brand management and the expected market synergies.

Also, the brand's impact on cost synergies should not be underestimated. Are the costs for rebranding or brand building included in the calculation, and is their impact on employee pride and thus personnel costs taken into account?

5th key factor: Preparation and mobilization of the organization

Every transaction is initially perceived as a loss, followed by a lack of orientation, before the reality of change is accepted. A brand provides meaning from the very start, gives clarity and orientation. It sparks motivation and takes on the role of the "helping hand" during the transition.

With a brand ambassador program, selected employees from all divisions are trained to become agile change agents. These employees become knowledge conveyors, culture ambassadors and touchpoint specialists. Managers are strengthened in their function as role models and ensure the intended brand experience in management situations and at the touchpoints. Brand experience journeys make the experience at the touchpoints transparent. Combined with the touchpoint management system they guarantee firm commitment to the implementation. Complementary brand communication creates a positive mood both internally and externally.

Brands give meaning during the PMI

When the brand is used as a change management system, the integration phase turns into joint ownership with inspiring incentives for participation and a shared identity. Willingness to take part increases, silo thinking is prevented. Everybody – from executive to manager to employee – knows what needs to be done to make the unique aspects of the target company come alive at all touchpoints and convince the other side.

PMI with a brand as management system means:

  • more clarity and orientation – and thus more security and efficiency in strategic decisions and day-to-day operations,
  • more acceptance and commitment from managers and employees on both sides,
  • a joint action framework with clear boundaries for everyone (brand core), aimed at a common goal (brand positioning) with emotional meaning,
  • more consistency and at the same time specificity at internal and external touchpoints – for the various stakeholder groups along their brand experience journeys,
  • more participation and competence at different levels and in all areas, for instance through the brand ambassadors (mobilization and enabling of an organization),
  • less complexity and uniform implementation systems for everyone,
  • more "we" rather than "them"; more individual responsibility and invitation to actively help shape the company's development from the beginning.

So you see: The brand is a value driver and change management system that you cannot afford to neglect. It decides the outcome of M&A projects – and thus often determines a company's sustainability.

 

This article was written in cooperation with Prof. Dr. Christopher Kummer. He is the founder and president of the Institute for Mergers, Acquisitions and Alliances (IMAA), a think tank for M&A. He also teaches strategy and finance at various business schools. The think tank supports companies and professionals with building and improving their M&A competences. In addition to his academic career, Prof. Kummer has been involved in a range of companies and transactions. He earned a degree in Strategy & Organization at HSG University in St. Gallen and his doctorate at TU Berlin.

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