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.

New name for your merging company sir? No problem. We’ll have one in the morning for you.

... as soon as the marketing team has opened a nice bottle of red wine, rolled up their sleeves, told their partners they’re going to be an hour or two late coming home tonight, got the dictionary and thesaurus out and sent out an invitation to that brainy girl from the typing pool who did Latin at university in the UK. Names are easy to conjure up aren’t they? Especially when the bosses of the two merging companies have finished their pre-celebration lunch and suddenly realised that they haven’t got a name for the ‘new entity’ and need it the following day.

Organisations have widely differing views on the value of names. Some company leaders think their marketing team can dream one up overnight. Other global brand leaders will happily invest tens of thousands of dollars creating a name and, over several months, engaging extensive testing to ensure its uniqueness, cultural appropriateness, multi lingual potential and ability to be registered around the globe. And it’s the same when it comes to creating a new identity for the merged entity. Some leaders think it just needs a new logo to replace the two old ones. “Get one from the marketing team, and tell them I want some decent colours, and I want it tomorrow to show the Board”.

For the ‘overnight name’ brigade, reality comes home when someone points out, usually rather late in the piece, that:

> the name is rather similar to another in their industry
> the URL is not available
> the lawyer cannot register it in ‘the other country where we operate’
> the Board thinks it bears a resemblance to a certain brand of dog food
> the bright young accounting graduate from Barcelona thinks that in translation it suggests some form of genital mutilation in Spanish
> the CEO’s wife doesn’t like it
> the CEO’s teenage son came up with something better

Such things are best left up to the experts. There are time honoured procedures that must be followed. Strangely enough it does help if your have some intellectual prowess guiding the process. Fancy name generation software is usually only useful to tell you what not to recommend. Consulting with an Oxford University Latin scholar can be a good start, but names like mensarum, dominus and castrati don’t always sit comfortably. Greek anyone? As you would expect, there have been plenty of blunders over the years – see my March 27 2008 blog post.

In the case of a merger two sets of decision makers can complicate matters especially if you’re not already past the “let’s use our logo because it’s better than yours” phase in the merger discussions. Consult an external expert... you know it makes sense. Would you change your own TV aerial?


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.

PS
Even couples celebrating their new addition to the family could take some advice. Years ago I remember meeting the daughter of Mr and Mrs Rainey from Texas. Struggling a little to comprehend the heavy Texas drawl, I thought she was introduced to me as Wendy. On later inspection in correspondence, I noticed her name was spelled Windy. Oh dear.

Common misconceptions and errors in post merger branding

Fuzzy short-term focus
How will additional brand value be created after the deal is done? How will the synergistic leveraging, repositioning, cost reductions, new territories, plant, products and resources balance out against employee disengagement, challenged loyalties, diminishing morale, scared suppliers, customer confusion, clashing visions, workforce duplications, IT systems that won’t talk to each other, payroll systems that are worlds apart, language challenges, distressed designers, boardroom clashes over brand relevance, stalled communications and too many people doing the same jobs?

Brand value... what goes up must come down... sometimes faster than you think
Brand value fluctuates. Its value pre-merger can bear little resemblance to its value post-merger. Customers may react adversely to the merger, so might employees, shareholders, suppliers, the media, general public, unions and general public. So might the contract staff cleaning the bathrooms. Not to mention the analysts who are looking for a field day. The tidy sum you paid the brand valuation company pre-merger to value your brand is short lived currency. It doesn’t last long. Particularly if you then go through a merger. Guess what? You need to spend it all over again post-merger to confirm to what degree brand value has fallen (or occasionally might have risen).

It’s how you use it (not how big it is)
If you are a company which is on the acquirer’s radar, of course you are going to do your darnedest to up its value by whipping your sales team into a frenzy, optimising internal systems, cranking up the PR machine, whispering sweet nothings to your shareholders, paying your designers a pittance for a spanking new logo, kissing your customers’ rear anatomy and reinforcing your commitment to disadvantaged folk, lame animals and the environment. It’s then all up to the acquirer to maintain this level of activity, determination and communication, or the whole thing will start to slow down and brand value will slide slowly but surely out the window and a big future write-down becomes inevitable.

Learn from the mistakes of others
More has been written about M&A disasters than any other topic on the planet. Just Google it to find out. How can you ignore the fact that more than a third of executives around the world who’ve been involved in major deals ’fess up that circumstances got the better of them. In the heat of the moment they got too caught up in the merger bidding/deal making process to put on their responsible hat and perform that ever so necessary due diligence on the past, present and future value and potential of the brands. Do you really want to end up starring with Bruce Willis in a brand disaster movie? Do the right thing. Come audition with me instead. You know my number. I promise I’ll whisper some sweet branding advice in your ear but I’ll stop short of the casting couch, unless you’re Claudia Schiffer hell bent on merging interests.


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.

M&A confusion

A significant grey area is often encountered in merger deals where all focus is centred on the numbers while on the distant periphery lies intangible stuff like company reputation – an essential component of successful brands. Post merger failures frequently cite minimal discussion on brand planning and a distinct lack of strategic brand thinking in the lead up to the merger. There seems to be an inbuilt reluctance by deal makers to wheel in the branding experts until after the deal is done, the excitement has died away and a new reality sets in. Usually too late.

Brand mergers are frequently haphazard and unplanned. In the heat of the moment deal makers only see the potential for short-term financial gain which is often driven by personal agendas that inevitably lead to short term success and long term failure.

The full potential of mergers is rarely harnessed. A lack of pre-planning is usually the culprit. Mismatches or simple poor management of the resulting brand(s) often impact badly on customer and investor expectations and realise the worst fears in disengaged employees. Sadly many post-merger brands end up having a lower value than before the merger.

The path to M&A success is frequently seen as a risky and treacherous one and only for the brave at heart.

Here’s some simple and effective advice.

Communicate the merger benefits as soon as possible
Let customers, employees and investors know all the great stuff that the M&A can deliver. Win their support and make them feel part of the action, that their involvement is crucial to the future wellbeing of the brand.

Corporate reputation
Don’t just focus on the ‘hard’ assets resulting from the merger. Include the intangibles that contribute to brand value such as corporate and employer reputation.


Look for ‘deal makers’
Identify factors that will enhance the chances of success after the merger, such as the strategic use of the corporate brand, methods to deliver greater value post-merger to customers and how new market segments can be opened up.


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.

HR must make EB work well in an M&A. OK?

Employer Branding (EB) is one of the most critical factors in M&A success. In fact it’s probably stopped quite a few deals going down the toilet. Although M&As are not the flavour of the month right now, as vultures lay wasted by the roadside licking their wounds, there is talk in dark corners of corporate hallways that bargains will be grabbed later in the year. And it may be overseas buyers doing the grabbing, taking advantage of the declining Australian dollar.

The days of the ‘she’ll be alright with the bank and shareholders’ attitude to M&A deals are long gone, the likes of which will probably never be seen ever again. Deals will be much more closely scrutinised. Protection from downside risk and market fluctuations and huge demands on financial performance will place people issues firmly on the map as a critical consideration. In fact it is becoming increasingly recognised by Boards that an organisation’s ability to integrate people and cultures in M&A scenarios is a prerequisite to success and its ability to realise maximum value from the deal. 

So what does all this mean? It means that there is much pressure on HR Directors and Managers to be ‘on the ball’ and totally ‘au fait’ with all things relating to change, branding and employer branding before, during and after the deal is done. This is a big call, requiring much knowledge and insight, which HR departments are not always resourced to handle. They must also be able to articulate the benefits of the deal to their people and pre-empt all the people-related issues that will  inevitably arise. And this must be accomplished as early as possible before simple uncertainty builds into complex issues.

HR must work closely with the deal planners and brokers to understand what the real objectives of the deal are and how it affects both sets of employees. How will the integration of two cultures be handled and how will it affect employees? What will be the main issues identified by employees that may slow down or destroy the deal – pay, roles, leadership, training, promotion?

These are key factors in an organisation’s ability to maintain engagement and productivity and retain top talent.

Not all issues will arise before or during the deal making process. Many can arise after the event and can catch out the unwary – issues such as inequities in salary levels, reluctance to relocate and rising attrition.

My advice centres around HR adopting a proactive people management approach and relying on a tried and tested employer branding process – like my own company’s EmployerbrandGuidanceSystem – to build one cohesive and believable employer brand that can move forward the merged organisation and its people.

HR must be prepared to work with the deal makers to add value by applying effective people management, integration, communication and retention strategies that provide a clear path forward geared for long term success.

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.

2009: a flurry of merger & acquisitions about to happen?

An organisation’s brand touches its audiences in many ways emotionally and functionally. Years spent building equity in your brand and polishing the promise that it makes can rapidly disintegrate when M&A is in the wind and change scythes through your well laid plans for sector domination.

The really big challenge when undergoing an M&A is to maintain the positive perception of your brand in the hearts and minds of your customers, shareholders, employees, suppliers, analysts and more. Change can be a fickle mistress - stimulating one minute, destructive the next. Merger frenzy inevitably involves much behind-the-scenes deal making activity that distracts leaders and managers from their brand guardianship roles and causes them to neglect relationships with key stakeholders.

Constant communication throughout the M&A process is essential to ensure that stakeholders are kept up to date with developments, are aware of the reasons for the M&A and its potential benefits and risks.

A word of caution...

It is well documented that 20% of mergers fail outright and 78% fail to meet shareholder expectations. With these statistics you could well understand that many companies experience pre-nuptial nerves and harbour some doubts over the long term prospects of the exercise. Yet many plough on regardless driven by the prospect of huge gain.

Merger mistakes to avoid

> Too much focus on the deal and not enough focus on the welfare of the brands in question.

> Inability to understand and cater for people’s reaction to change.

> Acquirers believe that it is only the target brand that will require adjustment.

> Branding assistance only happens after the deal is signed off.

When brand value can account for one third of company book value and almost 10% of a company’s market cap, it makes sense to protect brand value and not underestimate it. Brand value usually has to be identified and optimised in a relatively short space of time - typically 60-90 days between the decision to sell and evaluation by equity firms and acquirers. We work with investment bankers and M&A advisers to implement brand and marketing improvements with the express objective of increasing the company’s value pre-sale.

M&A black hole effect...

If issues are to develop, they will do so in the six months immediately following the merger or acquisition deal is finalised. The usual culprits are market pessimism and resistance to brand realignments, poor communication with investors, confusion over brand loyalties, duplicated workforces, incompatible marketing and sales teams, leadership wrangles, criticism of the merger process and managers - all can easily form a black hole that sucks away the value of both brands.

The damage caused by an M&A failure can be immense and impact across all stakeholders - employees, investors, suppliers and the general public. Reputations can be severely tarnished with greed and mismanagement seen as the root cause.

Best avoid it at all costs by seeking expert help and guidance.

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.

M&A DEALS TO RISE IN 2009

When companies struggle in a downturn and their value plummets, it is inevitable that bargain hunters will be there doing their sums. Cashed up companies looking to grow quickly, increase market share or take out the competition are in a holding pattern waiting to pounce. The barriers encountered last year that scuppered mergers and acquisitions – plunging markets, volatility, uncertainty and high valuations – are no more. Change has scythed through these restraints and opened up opportunities rarely encountered in the healthy markets of the last few years.

When there’s M&A activity in the air, which I predict there will be in late 2009 in big numbers, it is inevitable that it will also create uncertainty if not downright panic among employees. We will witness competition among them to be best positioned on the ‘value to the company’ scale for when the crunch comes and change singles out the weakest and the best. Recruiters will receive many enquiries. Promotion plans will be temporarily shelved. The inevitability of duplicated roles will cause restless nights. Mortgages, car repayments and school fees spring to mind. Family holidays move off the radar. Commercial real estate agents venture a call.

The concept that people are crucial to the success of M&As and ultimate brand value has not exactly been respected and managed too well in the last few years. And there are plenty of examples I can quote for you. I believe this will now change in these stressed times, as companies wrestle with the pressing need for greater efficiency and ‘bang for buck’ from expert consultants.

Most employees on average will be subject to two or three mergers or acquisitions in their working lifetime, and as a result will experience the emotional ups and downs of uncertainty, stress, lethargy, extreme camaraderie, isolation and many others. Although the popular press and the more prominent business consultancies will tell you that M&A processes have been cleaned up a lot of late, it has not been my experience, and certainly not at medium-size enterprise level.

There are cases where employees first hear about an M&A affecting their company by reading about it in the press. Timing and open communication therefore are very important.

The much quoted statistics of rampant M&A failure caused by greed and the inability to manage brands can be so easily repeated in this ‘mid-recession era’ we find ourselves in. These statistics will continue however, unless the companies involved and their respective advisers make a more determined effort to understand how brands work and the role they play in M&A success.

Employer brands in particular have been misunderstood and ignored in too many cases. I would like to think that company advisers in particular now recognise the important roles employer branding and communication play and the necessary investment in time, effort and dollars to make it work and help protect the deal and make a better company.

Remember this – people make M&As work and it is people who make better companies.

Who do you want to protect most in an M&A – customers, investors, employees or suppliers?

I’d recommend you start on the inside, because the inside affects everything on the outside. Once you have the inside fixed there’s a much better chance of success with your external audiences.

Human capital risks therefore are the most important... but they can be the most difficult to manage, particularly when emotions are high, when change happens, when retrenchments begin, job roles change and new working conditions are inevitable. Trying to integrate two cultures is one of the hardest jobs and will inevitably lead to natural attrition regardless of how well the process is handled. The more you invest in employer branding, the less likely this will be the case.

If you are faced with organising or managing an imminent M&A, I strongly recommend you read about our employer branding workshops – February in Sydney and March in Singapore.

So where does this leave the branding consultant? It sounds like he/she, apart from being able to advise on M&A corporate branding issues and related communications, has to also be an employer branding consultant. Now I wonder where you can find one of those in the Sydney, Singapore or Mumbai area?

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.