Branding Considerations During Mergers & Acquisitions
With mergers and acquisitions, there are many interlocking parts and pieces you have to take into consideration. Yet beyond the costs and logistics, companies often forget the important role of brand equity and how changes can affect your position and even your internal teams.
So what should companies think about when it comes to branding during mergers and acquisitions?
In this episode, our experts discuss key considerations for merging brands together, what to be aware of before, during, and after the merger process, tips for aligning cultures, and the importance of internal communication.
- Key Factors for Merging Two Brands
- How to Reconcile Merged Brands
- What Should You Look for in Acquisition Targets?
- The Role of Communication During Mergers & Acquisitions
- The Balance Between Qualitative and Quantitative Strategies
- Tips for Aligning Cultures
- Internal Communications During Mergers and Acquisitions
*This transcript has been edited and formatted for readability.
Key Factors for Merging Two Brands
Chris Wilks: What are the key factors to consider when you're merging two brands? Where do you start?
Jonathan Fisher: I think that you have to start with a solid evaluation of where the brands are in the marketplace. You have to look at what equity exists within those systems that are there, and you have to evaluate the cost of changing those systems. And measure that against your goals and the outcomes that you're hoping to achieve in that process.
So I think it really starts with a solid evaluation, looking at where the brands are currently in their life-cycles and what they've achieved, and what their legacy is and what it needs to change or evolve that legacy.
Bo Bothe: Yeah, and a key component of that is customer value, or what the customers value. One of the things we've found, especially in acquisitions and mergers, and maybe broadening that to all audiences, is your employees have an opinion of your brand. In this case, you have two sets of employees and you have two sets of customers.
And each of those brands may have a different value in the marketplace; one may be more commoditized, one may be more premium. Reconciling that, both internally and externally, is going to be a critical component.
So a key part of that assessment is going to be the sentiment of those that are involved, which is something that in many cases -- private equity, investment banking, those doing due diligence, even leadership in the different firms -- they overlook the power of understanding how that works.
How to Reconcile Merged Brands
Chris: So how do you decide what to do with the two brands? What steps do you take? Do you combine both of them into something new? Do you keep one? What's that process look like?
Elizabeth: Well, I think it starts with the corporate strategy and what the goal of the merger or acquisition was, to begin with. If it's one large company buying a smaller competitor because they want to expand into new markets, they have to decide how strong that brand's equity is and formulate a transition plan.
Whether their corporate strategy is to be a branded house or a house of brands, they are going to have to manage that transition and really decide what's in the short-term and long-term best interest of the company to achieve its goals.
Bo: Yeah, we've seen large enterprise brands that have acquired companies, and part of their strategy is to leave the brands intact because they're so local. The challenge there is that it's tough to manage that type of thing.
In the case of merging two companies together into one, there are strategies where you might want to keep a brand in the marketplace because it's more of a product brand, as opposed to two corporate brands coming together. If it is two corporate brands, you do have to look at which brand is going to best represent them in the marketplace for where the market is going.
I think that that's a key component to this. In most cases, the larger brand has greater equity, but in some cases, a larger brand is buying a smaller brand so that it can move quicker, or it's buying technology or it's going to change its business. In that case, I think companies are smart to look at, "should we take on the newer brand so that we can grow in a different way as opposed to carrying this old legacy brand that has baggage with it."
I think those are key things when you're thinking about, renaming or keeping existing names or keeping multiple brands in the market place. And how are those things going to impact the customer view of the product and service? Will it degrade? Will there be some cannibalization? Those kinds of things are all things to be considered.
Jonathan: When you're rolling up these brands or modifying them -- depending upon your approach or your strategy and your end goals -- you have to be cognizant of the costs associated with transitioning those plans. You have to be cognizant of the timeframe it's going to take to solidify and transition those brands, to establish that new name and to replace it into that consumer's mind, or that prospect's.
You need to look at what opportunities you open up for your competitors when you make this transition. There's often a lot of doubt. "Is this store even operated by the same owner," right? And so those considerations, those messaging sets have to come into play as you discuss what's the right approach.
Chris: It sounds like it all centers around the corporate strategy. So, what's the goal of this? Why are you doing this? And then all those decisions dovetail off of that. So that makes total sense.
What Should You Look for in Acquisition Targets?
Chris: So taking a little bit of a step back, if you are a firm that is looking to expand it, and you have decided that an acquisition is in your best interest, are there any considerations that you need to look out for in target brands as you're going through this process?
Jonathan: Well, aside from their sales and margins, footprint, strategic fit, and product line or service, you want to think about cultural integration. That can be a huge source of conflict in these mergers and acquisitions. We've seen the Hatfields and McCoys get together.So, I think you want to really recognize culture.
They're obviously always thinking about executive leadership transitions, the roles, the restructuring. Those things are obvious in that process. But I think something that's often overlooked is really that culture. And then I think really an analysis, which is often overlooked so that that customer sentiment and loyalty factors.
A lot of times when you're merging these brands you have a chance to decide what is best in class. Company A may be good at one, three and five, and Company B may be good at two, four and six and seven even. And so acquisitions sometimes take the mindset that 'we gobbled you, you now do it my way.' Well, your way may not have been the best way in the marketplace.
So really deconstructing the different components of the merger from a financial, operational, technology, cultural, HR, training process and trying to figure out what makes sense moving forward.
Elizabeth: Really having that subjective view because a lot of times you see divides with subjectivity and loyalty depending on where they came from. So trying to step out of that and really look at it holistically. Decide what is going to be the best for our combined organization moving forward.
Jonathan: And it often takes a third-party to help be neutral in that process. We've done a lot of these where we've done thousands of voice-of-customer interviews and the customer has told us point-blank, "If they take Jim or Jane off this account, I'm done." And you'll see $10 million worth of business disappear in less than six months.
So, they won't always be completely honest and transparent. And, of course, the individual that's being acquired may be fearful for their job and afraid they're going to be taken off the account, so they might inflate their relationships with those accounts beyond where they necessarily are.
I think having that neutrality, that anonymity to the process through the quantitative and qualitative methodologies that they can use is something really key to be aware of. And the other thing that I think is important is the level of communication that you have to go through during this process.
The Role of Communication During Mergers & Acquisitions
Elizabeth: Right. There's so much uncertainty but at the same time, not everything's figured out along the process. Sometimes you can't talk about it at certain stages of the process. But as soon as you can it's better to at least say what you know than being silent.
Then, once you start to figure out your plan, it's better to communicate it along the way and just keep people informed. Because when there's no communication at all, the void is filled with assumptions and misinformation that can cause all kinds of havoc down the road.
Bo: Yeah. It's easy to figure out the financials and the contracts. And that's what a lot of organizations do. They say, "do we financially fit?" But then on top of it, assess from a cultural standpoint. The reason that these mergers and acquisitions typically fail is because the cultures don't align.
What I mean by that is, yes, all the clients look like they work. Yes, the service lines look like they're a perfect fit. Yes, the culture may have the same stated values. But in some cases, an organization may be commanding control, and another one, it may be very democratic.
Understanding that and understanding how those two things are going to work together, and communicating regularly on the fears that they have. Because all these people are afraid. Customers are afraid, the leadership's afraid, the rank-and-file are all afraid that this is going to fail. "What's it going to do to me? How's this going to change my relationship with this organization, customers, employees, and leadership?" There's a lot of fear in that.
And I think coming together with a solid strategy of not just how it's going to work, but how we're going to talk about it and how we're going to make it work together are critical. And quite frankly a lot of organizations miss that when they're talking about the actual doing of the merger.
Jonathan: We've seen attrition numbers double over traditional averages during these mergers because companies were slow to get their communications out. So the competitor is swooping in saying, "Hey, I know you've just been acquired, but if you don't know what your new executive compensation and pay is going to be, well here, let me offer you this." And I've seen it take six months, nine months, even after these mergers for these large corporations to get these benefit packages out. And their people are just getting cherry-picked right and left.
The same goes for their customers. The customers may be uncertain about whether a branch or office is going to close down because part of the strategy was consolidation. Or their reps are going to go away or they think the pricing is going to go up because they know the company they're merging with is larger and has a historically higher price than who they're used to dealing with. And they're worried about price sensitivities.
So, I philosophically always like to tell companies to expect to triple your normal level of communications and budget for that as such, because often they think they can just consolidate or put out a memo or say it once and it's heard. That's not the case. It requires quite a bit more communication both internally and externally. And I think that that's something that's often overlooked, going back to your original question.
Chris: Two key points I want to bring up there.
- I think it speaks to the need for strategic planning as you're doing this. Making sure you know what every step looks like, every phase. Jonathan, you mentioned preparing for poachers essentially to come in and try to take your business or your employees and have a plan and have some sort of defense against that.
- But also one thing that I think the three of you all mentioned that I thought was really important is that the quantitative stuff seems to be what gets all the attention. "Hey, let's run the numbers. Let's look and see what we can expect financially from this sort of thing." But it's important to consider the qualitative piece of it as well.
The Balance Between Qualitative and Quantitative Strategies
Bo: I think it's getting more interesting because the quantitative vs. qualitative explanation that you just had, there's a financial quantitative that's done typically, but then there is a lack of cultural quantitative that's done. And I think that that's something that we've been successful with recently, is really starting to define what the key drivers are and then being able to actually measure it.
What are the issues that this organization is going to have, based on their customer sentiment and the brand-gap between their customer sentiment and their strategy? That brand-gap that comes up can be critical in the success of the endeavor. And so, how do you look at that both the financial output and quantitative, but then also the quantitative around what the customer sentiment is?
And even the employee sentiment, how did they feel about the organization? To be able to say, "Okay, these are the 10 things I need to work on, and they're measurable. I know that they're going to have this much impact on brand value." That's the thing that's missing. The qualitative is great, from a standpoint of giving you color around how we can communicate, how these organizations feel, the depth around the way they interact with the brands.
But again, quantitative on the culture side and quantitative on the customer experience side becomes a critical component. I think what firms that are guiding these activities tend to do is they go all qualitative on the, "How do the customers feel?" And that can be measured just as easily as the financial side now with the different processes and methodologies that have been developed.
Jonathan: Using the data science, to build on what Bo is saying, we can take basically all of that guesswork out of what levers you need to be focused on most during this process. And we can break that down to a percentage of 27.5% versus another lever that's 19%. We can do that across 80 to 100 actions and factors that are critical through this process.
Furthermore, we can tie those percentages to things like the loyalty metric of likelihood to refer, or likelihood to stay, or likelihood to leave or likelihood to say something negative. And we can further tie that to the financial performances. When we go look at the CRM data for customer transactions, and we can say one margin of satisfaction's incremental improvement is equal to X millions of dollars in new sales.
And what that does is it allows for the executive team, steering committees or the CEO or President to really focus their initiatives, because you have to prioritize, through these mergers, all of the transactional changes that you're going to go through and what change management is going to happen first, second, third. Or frankly what you maybe need to ignore or not really worry about.
So showing the gap between what people are satisfied with and what is important and that relative weight in comparison is what's critical. And so essentially, our goal is to reduce the confusion, reduce the things you're working on to reduce the distribution of fundings. Only direct those funds to things that are most valued by the customer throughout this process.
Chris: Yeah, I think it's so cool what we can do with data science these days. Because I mean, rewind 15, 20 years ago, maybe this stuff wasn't as available, all this quantifiable data wasn't available back then or the processes just hadn't been developed. So, that's really cool.
Tips for Aligning Cultures
Chris: I want to talk a little bit about the qualitative piece of it because I think we've talked a lot about the quantitative piece pretty thoroughly. So how do you align two distinct cultures and combine them into one? Are there any tips, strategies, tactics?
Elizabeth: Well, so going back to what we said at the very beginning, it starts with an evaluation and a true understanding of each individual one and what the gaps are. But then it's also what is the vision, the mission, and values for this new entity moving forward? That can't really be decided in a vacuum with a couple of executives sitting in the room. They really need to engage key people throughout both organizations, and for everybody to have some input and have their opinions heard so that they can all buy into the future direction of the new entity.
Chris: I was going to say, just getting ownership outside of the boardroom. You get ownership at some of the lower levels and that gives you advocates throughout.
Bo: I think that's important. The inclusion of people's opinions and thoughts is key to this. Something we've learned over the 15 years of building the organization was that the process is great and we get good information, but sometimes just the fact that we ask outside the organization could lead to new opportunities. Like, "Oh wow, they care about us." And the same thing internally. But then when a brand rolls out they feel like they own a piece of it.
And I think the second thing is a qualitative example. We went and studied this recent customer that's in the software business. We found out that customer support was critical. And that the product quality was going to be critical too. Of the eight key drivers that we usually look at, those two make up 70% of brand value.
Well, that's great to know when we start to get into the details -- timely updates and those kinds of things. But when Elizabeth actually talked to the customer and the employee, the customer was able to qualify, "Well, they pushed things down the road too much. I've been waiting for a while to get this done." But then when we talked internally, the qualitative, and talked to the employee, "Yeah, of the 10,000 or 20,000 bugs that are launched whenever we launch a new product, I can only, by the time I get to 10,000, we're launching a new release. And so they just keep compounding."
So we can see the internal brand issue, the operational issue with the brand that's causing internal problems and challenges with their employees going to extraordinary effort, and then understand how that's transitioning to the external brand, the client's experience with the brand. Then we can say, "Okay, here's where the issue is. We may be releasing too early or with too many bugs. Or we may not have enough people to fix them in time and development. Or they may not have enough time to actually test the product."
So we can get to things that aren't just, here's the brand message and here's how to communicate about it. We can get to the critical actions that the organization provides that are causing brand degradation or brand trust. And I think Elizabeth is great at uncovering that in the qualitative, because you can get into depth on, why support's an issue, or why product quality is an issue, and what is it about product quality beyond the key driver? What's driving them?
Jonathan: Think about it as the business strategy and the brand strategy. And those are intimately connected because the brand strategy is a promise. And if that promise is not kept operationally, that's the worst thing you can do is to market a broken promise. Because that's what builds a brand is the consistency of delivery of that promise over time.
So one of the things I think that is important to identify through the quantitative and qualitative processes is also understanding who are the champions and who are the naysayers. There are always individuals culturally within an organization, whether they have the title or not, that everybody turns to in this process and looks for answers from. And that can be homegrown.
And you want to get those people on board with you and you don't want those naysayers, which can have heavy influence in the marketplace internally or externally just saying, "Ah, well, don't worry about it. Don't pay attention to it. We're going to get sold again in two years or three years."
We've seen these companies that just get flipped and flipped and flipped and flipped. It's that mindset of, "Oh, well, that's just the new CEO. They're going to bring Jim or Jane in, or whoever it might be, and they're going to last another year and a half because the board fires everybody after a year and a half. So don't bother trying to learn the new technology or adopting new processes," or whatever it might be.
We see that consistently in these organizations that are being flipped and managed by different equity or investment partners or are going through a lot of executive transitions over and over again, trying to get it right and can't seem to get it right. That's why they're being purchased in some cases, because their devaluation is soft and somebody that understands how to fix them is truly going to come in and do turnaround work.
So, looking at that cultural representation and where they sit and stand on that side of the fence, being an advocate or a naysayer, if you will, is important to understand as part of your communication strategies.
Chris: Yeah. And I guess there are two distinct approaches to the naysayers versus the people who are going to be your advocates. You want to use those advocates to try to, for lack of a better term, show those naysayers the light. And you want to, I guess, ease the naysayers fears in these transitions.
And I think a lot of that, is the role of internal communications. A lot of that has to do with what you're communicating, when you're communicating, and how you're communicating.
Internal Communications During Mergers and Acquisitions
Chris: So with that as the backdrop, what part does internal communications play in mergers and acquisitions?
Elizabeth: I think internal communications are critical before, during, and after to manage the process and set expectations. It's like we said, the more communication the better. As much as you can. Being as honest as you can in those communications. And also, like we mentioned earlier, being proactive in those communications.
So having it all outlined with what we need to communicate at different periods of time and deciding the cascade of information so that we're developing managers' tool kits with talking points and all that they need to know to communicate both downstream and upstream and having that two-way communication. So that you have people throughout the organization imparting information but also listening for key concerns and other things that need to be addressed in future communications.
Bo: When merging two brands, as we talked about earlier, everybody's scared. Everybody's afraid. They're not comfortable, and it's messy. Who's going to be the leader? How's that going to affect me? What's going to happen? How are we going to put our process together? What technologies are we going to use? I'm used to SAP, and now they use this other weird German software, and I don't know what to do. There's all that craziness that goes on.
So to Elizabeth's point, and Jonathan alluded to it earlier, over-communicating with clarity is going to be key. And I think the other problem that leadership has in these situations is, either they are one email a week or a month, or they throw up all over their employees and then they just spew everything.
And the problem with that is people just go, "I'm already overwhelmed. It's already messy. I don't know who I report to. I don't know what's going to happen. I don't know how it's going to affect compensation and benefits." All that stuff that Jonathan was talking about.
Then all of a sudden you get this massive email with 5,000 words that leaves you with more questions than answers. So being direct, being honest, being open, and being frequent, become critical for leaders in these organizations to calm their teams while they're making the hard decisions behind the scenes. Because they still have to operate in the middle of this.
Jonathan: Having a good structure for the platforms, whether it's intranets or extranets, having a good strategy for the type of communication, -- "Is this an action that I need to do immediately or is this something that's just nice to know?" -- levels of information. They'll still be putting out the baby announcements and the birthday announcements at the same time they're putting out the HSE announcements. And they're shoving all those down the same pipe with the same labels, with the same email templates or PowerPoint Presentations. It's going to get lost in that process.
So understanding that framework, understanding what those platforms are, understanding how to use these microsites within these communication systems to take feedback, to process that feedback, to have listening systems in place to know what's brewing or percolating in the employee's minds that might cause concern or eating at the customer's mindset, is really helpful. And I know I'm getting a little bit tactical here, but we've gotten down to the deeper level of the conversation now.
Elizabeth: Well, and I think Jonathan, you bring up a good point. It's really all about the planning. And it's having a clear plan that outlines what communications are happening when, through what channel, and what the topics are. And not only just having the plan, but coordinating with and consolidating all of the various communications that are happening throughout the organization.
Because a lot of times, especially in these really big mergers and acquisitions, all these different departments are working on their own key initiatives and ways to integrate. And they're all needing to communicate as well. So if you don't have a task force or a lead that's managing all communications, it just adds to the chaos. You might not know all the answers, but at least having that framework that Jonathan mentioned is crucial in just keeping everybody within the guardrails.
Jonathan: Yeah, and you've got situations sometimes where it's more than two brands being merged. We've done roll-ups with five brands. We've done roll-ups with 50 brands simultaneously.
They can be wildly different sizes. They can be in wildly different geographic locations, with different cultural sensitivities, with language considerations. You may be dealing with ex-pats around the world who may be in different time zones. And maybe using even different technology platforms because the company they were with isn't even on the same technology platform that you've been using. And you're expecting them to port over and adapt to your communications. So making sure those are neutral and work across all of these issues is really critical in looking at this process that Elizabeth is describing.
Chris: So all in all, there's a lot to consider and I think we could have this be a two-part or a three-part episode, but I think that's a good stopping point.
So I really, I want to thank you guys for joining us today. I appreciate the time and insight. This was extremely insightful for me and I hope everybody else out there found it insightful as well. So, thanks, guys.