The urge to merge among companies has increased in recent years. High-profile deals like Bank of America Corp.’s $36 billion acquisition of credit-card issuer MBNA Corp. might have garnered the front-page headlines, but such blockbusters represent just a small proportion of overall activity. In fact, the total worldwide value of mergers and acquisitions topped $2.7 trillion in 2005, a 38% increase over the previous year. And based on current levels of deal making, that figure is expected to rise again in 2006, with further annual increases of 10% to 15% estimated beyond that. But the track record of M&As has hardly been stellar: More often than not, such deals end up destroying, instead of creating value for the companies involved.
A big part of the problem is that of all the myriad complex decisions that senior executives make before and during a merger, one is mandatory and critical but often given short shrift: the branding of the new corporate entity. That can be a huge blunder. With no solid brand platform to work from, company integration will often be mismanaged, and communications to key constituencies will necessarily suffer. In the worst of situations, the relationship between the two organizations becomes contentious; promised synergies remain elusive; employees become distrustful and disgruntled; and customers grow cynical and dissatisfied.
It doesn’t have to be that way. When handled properly, a corporate re-branding can play a critical role in communicating strategic intent and ensuring that a productive relationship is maintained and enhanced with three key constituencies: employees, customers and the investment community (shareholders, analysts, institutional investors and others). Each of these relationships is critical to a deal’s success and must be managed during the course of, and subsequent to, the M&A transaction. Simply put, the branding decision provides a singular opportunity for executives to leverage both firms’ corporate brands, set forth a new and compelling vision for the combined entity and, perhaps most importantly, send definitive and timely signals to employees and the outside world.
A Valuable (but Often Squandered) Opportunity
To investigate why that valuable opportunity is often squandered, we studied more than 200 M&As that have occurred since 1995, each with a transaction value exceeding $250 million (see “About the Research”.) In nearly two-thirds of those deals, brand strategy was deemed to have low-to-moderate priority in pre-merger discussions.