Brands off the agenda again

Australian companies are once again on the hunt for...

– tasty acquisitions now the war chest has been replenished, or
– mergers with like minded businesses intent on the 'bigger is better' model.

They're looking for acquisitions that can fast track new growth in recovering markets. Sadly we're not seeing much evidence that brand is being considered as part of

a/. the due-diligence processes preceding negotiations or
b/. the integration activities that follow a merger

They're paying big bucks to expensive advisors to get the deal across the line. Why don't they invest some money and time making sure those valuable brands and the people attached to them are going to survive the journey?

Enter marketing department stage left. The good old 'we can do it all' marketing team are once again thrown headlong into the fray to manage the brand through the latter stages of the merger or acquisition, usually when it's too late, usually headed by people with little experience or little desire to be dragged away from their new designs for a multi-page pop-up direct mail piece.

Without a doubt customer brand allegiances influence M&A deals. Tamper with them at your peril. Customer and employee perceptions of the brands play a huge role in determining the smooth transition of the deal and the ultimate viability of your post-deal branding strategy. Ask them about it before it's too late.

Surely acquirers would have done their branding homework before approaching the target? Surely they would have included robust research to determine brand value and the true drivers of brand equity. Did they look beyond this to determine what role the brands might play in driving long-term business outcomes and the ultimate success of the deal?

I hope so!

Tony Heywood is a Fellow of the Design Institute of Australia, founder of Heywood Innovation in Sydney and London with affiliates in Melbourne, Gold Coast, Singapore and Mumbai.

The odds are 1 in 5 that your M&A will succeed! You want to question that?

One important question that tends to be asked by listed companies in a M&A scenario is – “will the M&A enhance shareholder value?” Well, will it? This however is only one of many questions with which you will be faced in the journey to M&A.

Surely this is the primary goal of any listed company? But how is it measured, when many companies are sceptical of measurement methodologies and the integrity and accuracy of the results? It is reasonable to hope that most M&As will result in an instant raising of the company’s share price, and that company boards, rightly or wrongly, will use this simple indicator as a measure of success. But is this rise simply a short term moment of excitement? Surely the long term impact is a more important measure of the potential and ultimate sustainability of the newly formed entity? Will the two sets of shareholders see the upside potential or wallow in confusion as the two brands come together. Harmony or conflict?

Will the new entity gain new market share or even market domination? Will it become the new leader in the market segment? Will your M&A master the science of 1 + 1 = 3 or, as happens in 80% of cases, fail its elementary maths lesson with 1 + 1 = less than 2, or even 1 + 1 = 0 and never graduate from branding university?

Will the post-merger period be a reactive minefield or proactive where synergies are aligned with the pre-merger planning? The path to successful integration requires two approaches – internal and external.

Are the two brands compatible? Will they operate in perfect harmony surrounded by a warm shareholder glow, or fight tooth and nail to protect their interests fuelled by employee and customer concerns? How much brand-related groundwork was commissioned before the M&A was seriously considered?

Internal
Will the newly formed rock band Culture Clash raise its collective voice? Are the two sets of employees compatible? Are they moulded by a strong allegiance to their present employer’s culture and about to feel deceived by the obligation to transition to a totally different or compromise one?

External
What are the marketplace perceptions of the M&A? What exactly have you told your shareholders and customers about all this? Will they believe your predictions of success and compatibility? Have you told them what the new brand model will be – one brand, two brands or new brand – and why?

1. Will you adopt the brand of the acquirer, because it is the market leader and you want to consolidate its position and possibly remove the competition?
2. Will you combine the two brands? Are they equals in regards to similar market presence, reach and brand equity? Or is it simply that you can’t decide which one?
3. Is it preferable to adopt the formula a + b = c where a new combined entity with a new name and identity is born?

How will you fare in the transition? Will your organisational capabilities integrate? Will the employees, resources and brands do likewise?

Time to call in the branding/integration/compatibility coach.


Tony Heywood is a Sydney-based brand guidance counsellor, founder of Heywood Innovation in Sydney Australia with affiliates in Melbourne, Gold Coast, London, Singapore and Mumbai.

State of Play in M&A

There is no disputing the fact that in Q1 2010 we are still in a low growth environment. A new Ernst & Young report reveals that 49% of Australian companies believe this may continue for another 12 or 24 months. This is prompting renewed interest in acquisitions as a means to secure market share, as businesses see little growth potential in the recovering markets.

Highlights of the report include:

• 29% of Australian companies are likely or highly likely to acquire other companies in the next six months.
• 80% of companies expect consolidation in their industries over the next 12 months
• 36% rate the M&A outlook as very favourable
• 41% would like to use potential opportunities for inorganic groth over the next six months
• 3% of companies are presently focused on survival
• 46% of companies are ‘very well positioned’ to make a quick acquisition within 30 days notice

It would appear that in Q1 2010 Australian M&A activity is back on the agenda. Obviously the less well capitalised companies will become targets. In a low growth environment companies using acquisitions to get ahead will perform better than those relying only on a market return.

I am hoping that executive boards will place more emphasis on effective integration of company brands pre- and post-acquisition and will allocate funds accordingly to seek external help and reduce the risk of failure – which remains at around 20% for all mergers. The big distractions of 2008/09 did little to improve investment in M&A branding.

So which sectors will experience the most M&A activity moving forward? According to the latest semi-annual survey of 921 investment professsonals by the Association for Corporate Growth (www.acg.org) and Thomson Reuters...

• 23% of respondents named the healthcare/life life sciences as the most active area for merger activity in Q1-2 2010. 
• closely following this is manufacturing and distribution - 18%, and financial services - 14%. 

It also revealed that...

• 94% believe strategic investments will accelerate in the first half of 2010
• 54% are actively pursuing distressed companies
• 48% expect more than one in four deals to be with distressed companies in the first half of 2010
• 34% identified manufacturing and distribution as the best opportunity for distressed investing
• in November 2009 there was a drop of 33% in announced deals compared to November 2008
• 87% describe the Q4 2009 M&A environment as fair or poor
• 82% expect an increase in merger activity over the next six months
• 80% expect to pay no more than five times EBITDA for acquisitions over the next six months
• 37% identify the main M&A obstacle as the gap between the price at which a company is willing to sell and the price a buyer is willing to pay

Valuations will not return in any great hurry to what they were pre-downturn. Buyers realise this and are patiently awaiting sellers to come to grips with the new valuation structure and be more realistic.

Perhaps only then will M&A activity start to surge?



Tony Heywood is a Sydney-based brand guidance counsellor, founder of Heywood Innovation in Sydney Australia with affiliates in Melbourne, Gold Coast, London, Singapore and Mumbai.

Your company is considering a merger or acquisition

You’ve explored the financial and legal ramifications. But do you know what will happen to your brand – will it flourish or die a death shortly thereafter?

Why do mergers and acquisitions take place?

They are serious business decisions based on expanding geographically to enter new markets, diversifying your product or services range or simply having a desire to grow and leverage your brand. There are many associated legal and financial issues which frequently divert attention from managing the brand, making your M&A efforts vulnerable to failure and preventing you from leveraging the full value of the surviving post-merger brand(s).

What are the implications of neglecting your brand during the M&A process?

>  Management and staff send mixed messages, creating confusion among customers
>  Customers lose confidence and look elsewhere
>  Competitors steal your customers
>  Employee engagement suffers leading to talent loss
>  The brand loses market value
>  Share price drops

Why does this happen?


>  Companies fail to commission professional help
>  Addressing the role of the brand is ignored or happens too late in the process
>  Company executives are too distracted
>  Deal makers are only focused on getting the deal across the line

Most companies in M&A scenarios do not have the internal resources nor expertise to manage the brand at this critical point in time. It’s all about making the process easier and optimising the potential for the brand(s) to emerge stronger when the M&A is completed. The ultimate test is maintaining loyalty from customers, shareholders, employees and the public.

A robust and well considered brand management strategy will ensure that your business can withstand the M&A challenges. Working with an experienced brand management team can help you assess and manage the challenges based on experience and application of best practice methodologies.

Remember that the pre-planning stage is just as important as the M&A announcement and post-announcement stages.

What we can achieve for you:

>  Create and manage all M&A-related communications – both internal and external.
>  Ensure that all employees have a clear understanding of what is planned before, during and after the M&A.
>  Understand your business and determine the post M&A potential.
>  Develop a ‘masterplan’ brand strategy to determine what is achievable with the merged brands and how to extract maximum value.
>  Identify the strengths, weaknesses and opportunities associated with each brand and assessing their impact on the ‘new’ entity, stakeholders and business in general.
>  Determine whether the new brand is relevant to present and future customers.
>  Help you decide whether to maintain only the present brand, adopt both brands or create a new brand – there are obvious cost implications attached to this decision.
>  Establish brand guidelines to help employees understand, manage and communicate the new brand.  >  Develop a strategy and procedures for merging the two cultures.

So what are the benefits?

>  Reduced risk of M&A failure
>  Successful integration of two companies, cultures and brands
>  Increased brand value
>  Reduced brand management costs
>  Increased stakeholder loyalty
>  Enhanced employee and job candidate confidence in the company
>  Higher profits

Companies who fail to address the branding aspect of their M&A activities are likely to severely hamper their chances of success.



Tony Heywood is a Sydney-based brand guidance counsellor, founder of Heywood Innovation in Australia, United Kingdom and India, and joint founder of BrandSynergy in Singapore.

Well, it looks like the media and a few well intentioned politicians are blowing the trumpet of economic recovery. Interest rates are going up soon we’re told, so I suppose it must be true that things are all well again. Companies have just been through the capital raisings stage and are now about to enter into a frenzy of M&A activity, or so we’re told.

Looking back on the last 12 months of financial trouble and strife, it remains a mystery to ordinary folk like me how these things happen. This was recently summed up most wonderfully by one of the Australian Financial Review’s better writers Peter Ruehl.

‘Those of us with minor to moderate intelligence are still trying to figure out how we lost so much money while we were just sitting around having a few beers. Not only will we never get it all back; we’ll have to pay the government for the money it borrowed to cash up the people who lost it for us in the first place...
Then you realise it means using money nobody’s actually earned yet in an attempt to reverse a situation caused by people using money that was also never earned – and didn’t really exist to begin with’.

Magic.


Tony Heywood is a Sydney-based brand guidance counsellor, founder of Heywood Innovation in Australia, United Kingdom and India, and joint founder of BrandSynergy in Singapore.

Branding consultants make great marriage guidance counsellors

So the two love birds have plighted their corporate troth. The bride cares not one whit for her loss of name and even less so for her loss of virginity in the matrimonial stakes. What a reception. The bride and groom are looking resplendent in their new livery. Thompson Epicyclics and Robinson Ratchets are now merged into a new darling of the stock market - Episylinus. Or so they think. The corporate advisors seemed pretty happy with things during the pre-nuptials, but now they seem noticeably absent (in the south of France). Your HR director has just informed you that there have been a few senior management resignations in the past few days, but that was to be expected. What can possibly go wrong?

Those branding consultants have been knocking on the door for a few months now – trying to get their hands on a new logo commission no doubt. They even managed to push a piece of paper under the CEO’s door. Its tone seemed a little sombre and not in the spirit of the moment. It warned of dire consequences if a strategic approach to post merger branding was not addressed and a competent communications program put in place. “That’s a marketing function isn’t it? Just as if the Board needs another admin consideration to distract them right now! ” announces one of the directors in passing. Your PA gives a discreet cough as she peers round your office door “I thought I’d better inform you... there appears to have been an alarming drop in our share price today”. The consultant’s note painted a dark picture:

> brand equity will suffer
> customers will be confused
> competitors will steal them
> employees will fear for their jobs
> analysts will see the writing on the wall
... and the share price will drop

Somewhere in the distance a bell started to ring.

In the note those ‘branding people’ also quoted some sobering merger statistics:

> 70 percent of merger objectives go unrealised – Booz-Allen & Hamilton
> Productivity drops off 50 percent overall in the first 4-8 months and only 23% earn their cost of capital – CFO Magazine
> Revenue drops in the first three quarters after a merger – McKinsey Consulting
> Merger failure is not a western phenomenon – this year, only a third of the mergers and acquisitions by Chinese companies were considered successful – China Council for the Promotion of International Trade

In these recovering markets, cashed up companies are scrutinising competitors which are low on funding and strategically positioned for growth. Low acquisition price and elimination of a previously troublesome competitor can be compulsive drivers that corporate advisers are once again excited by. Who needs incremental and cautious growth steps when you can make one giant leap for mankind, or at least for your own business (and ego)?

Building a business is not easy. Tell me about it. It’s difficult enough to put together from scratch (and hold together) a talented team, build a culture of excellence and apply leading edge technologies and processes. Try and do this with two existing groups who may have been sworn enemies, who have their own beliefs, values, ways of doing things and their own unshakeable view of the future and how to get there... and you may just have yourself a few challenges, which may just cast some doubt on your own future.

So you’ve probably now got two of everything. And this tends to be expensive. You reach into the cupboard and dust off your grip reaper outfit. Cost cutting looms large. Who goes and who stays? Swoosh goes the scythe. Do we need two brands? Of course not. Swoosh goes the scythe again. Branding consultants. Definitely not. Swoosh. Feels good doesn’t it? Corporate cleansing. Your PA hands you an impressive looking document with the new Episylinus logo emblazoned on its cover. The inside pages are manna from heaven. “Look at the money we just saved”. Back into the cupboard goes the outfit. Out with the Armani. You have yourself some analyst presentations to give.

Those branding consultants just won’t give up – another letter lands on your desk. They’re telling me time’s running out. It is quickly consigned to the bin. A pity, as the crumpled piece of paper asked some pertinent questions:

> do your people clearly understand whether this is a merger or an acquisition? – sounds silly, but get this one wrong and you may have a lot of explaining to do.
> do you really know who your new partner is – did it come out in the due diligence – have you met with them yet?
> you did do a SWOT on their company and yours didn’t you?
> did you confirm what the new brand promises to customers, shareholders and employees – and whether you can keep that promise?
> is the merger the only growth you’re likely to experience? – if so, you’d better invest in some organic growth fertiliser.
> are you focused on how customers are going to react? – yes, both sets!
> are you ploughing ahead doing it all your own way or consulting with ‘the other party’?
> how are you going to judge merger success? – new sales, profitability, growth, employee retention or a slap on the back from fellow directors?
> you’ve decided on the name and identity of the ‘new’ entity haven’t you?
> is your brand implementation team working to a plan? – if so, are you aware of it?
> is your senior team fully briefed on and motivated by the changes? – do any of them have doubts they haven’t shared with you?
> what changes are necessary to your marketing and communication activities? – are the relevant teams on top of all this?
> did you thoroughly test and register the new name(s)?
> who’s in charge of rallying the troops and telling them about the brave new future? – I guess it must be you!
> did anyone remember to tell the PR company what an important job they have to perform?
> are your employees as engaged and raring to go to the same degree as before the merger? If not, why not?

So what are you going to get out of all this hard work? You could probably...

> gain loyalty – from those really important people – customers, shareholders and employees
> integrate into one success story two companies, two cultures, two brands and two sets of employees
> drive new cost efficiencies
> motivate your workforce like never before
> enhance your bottom line
> write your name in the history books
> stay away from the divorce courts   


Tony Heywood is a Sydney-based brand guidance counsellor, founder of Heywood Innovation in Australia, United Kingdom and India, and joint founder of BrandSynergy in Singapore.

Post-merger kerbside damage – more than your paintwork can get scratched

Some of the most monumental post-M&A disasters have happened in the car industry. One that comprehensively undermined reputation and brand value was the takeover of Bentley by Rolls-Royce in 1931 as a result of the company’s finances collapsing courtesy of the Great Depression. Where’ve we heard all this before GM and Chrysler?

Up until this point Bentley cars were positioned as the epitome of exclusive and expensive luxury cars which achieved a sporting heritage that comprehensively shaded the racing ambitions of the Germans and Italians. Following so shortly after the emergence of the company’s first production car in 1921, the Le Mans victories of 1924, and 1927-1930, notably with the legendary Speed Six, secured the Bentley name in the annals of motor sport history.

Up until its takeover by Volkswagen in 1998, Bentley’s sporting ambitions went out of the window, no doubt influenced by Depression-era cutbacks, and under the marque’s new owner Bentley cars became little more than rebadged Rolls Royce luxury saloons with a less distinctive radiator grille. Sporting heritage seemingly meant very little to the board of Rolls- Royce whose singular ambition was to build the best car in the world – and that meant a luxury saloon or limousine, not a sports car. Volkswagen had different ideas. The current model Bentley Continental GTC Speed released in 2003 and capable of 202 mph, has arguably bestowed on the Bentley brand the title of ‘maker of the world’s best high performance luxury car’. The 6.0 litre, twin-turbocharged W12 engine, producing 552 hp (412 kW) has come a long way since the legendary 84 mph Speed Sixes.

Under more visionary and more financially stable ownership, the Bentley brand has now regained the sporting ambitions it began with 80+ years ago. The purchaser of a new £153,000 Bentley Continental GTC is buying it for the perception it creates of the high speed luxury sports grand tourer. The buyer of a T1 Bentley saloon back in 1966 would have other reasons... quite possibly viewing it as a (slightly) less expensive way to fool the neighbours that you had hit the big time in the luxury saloon car stakes.

It took Bentley 72 years to regain its rightful brand status. How long will it take Chrysler’s new owner Fiat to return the brand to its former glory, to cast aside the negative perceptions that have all but destroyed its credibility in recent years and return it to the former glory days where innovation and style were paramount?

 

 

Let’s hope it won’t take until 2081.


Tony Heywood is a Fellow of the Design Institute of Australia, founder of Heywood Innovation in Australia, United Kingdom and India, and joint founder of BrandSynergy in Singapore.