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M&A Survival Guide

Daniella Bianchi, Executive Director, Interbrand São Paulo and Beto Almeida, Executive Director, Interbrand São Paulo

With confidence on the upswing and clouds that hovered over markets for years starting to disperse, merger activity is roaring back to life. From the multi-billion dollar American Airlines and US Airways merger to Berkshire Hathaway’s move to team up with Brazilian investors to buy Heinz, chief executives, boards, and investors all over the world are looking for opportunities to grow.

It’s no surprise that companies get a touch of “merger madness” when the kind of uncertainty that tends to hamper deal making begins to lift and opportunities to expand and consolidate loom large. In fact, since the late 1800’s, mergers and acquisitions deals have allowed many companies to become more profitable—but what happens to a brand in that process?

No matter what motivates a merger, all are trying to maximize value and gain greater market share—yet, sometimes, a merger can leave the business combination in a worse situation than the merger partners were in originally. While some brands will inevitably vanish, new ones will emerge, and still others will be transformed. Shepherding a brand through the transition carefully and strategically can ensure that valuable brands are enhanced, rather than diminished by the process.

Increasingly, branding consultants are called upon—and should be called upon—to offer guidance during major consolidations. Unfortunately, in most cases, we are called in after agreements have been signed and announced to the market. Despite the fact that brands are generally recognized as strategic business assets, brand strategy isn’t always deployed as a key tool at the negotiating table from the outset—and that can prove to be a costly decision. From our perspective on mergers and acquisitions at Interbrand São Paulo, we’ve seen what works to ensure a smooth brand transition and M&A success.

Avoiding an identity crisis

While most companies understand that their brands are more than just names or logos, many fail to make them living business assets capable of generating identification, differentiation, and value. For merged companies in particular, matters such as portfolio strategy, creating a unique culture, and defining corporate citizenship platforms can become key branding issues.


In the heated atmosphere of a merger, a branding project can be tricky. Given the record of equities built up by two or more brands, there may be many variables to consider.

When it comes to branding elements, the first and most fundamental task is to decide what to retain, what to consolidate, what to drop, and what to create. At the very least, the name, symbol, visual identity, culture, and communication of each entity involved in the merger must be examined to create a synergistic and complementary way to define the consolidated companies. Synergy, after all, is the logic behind mergers and acquisitions, and an effective brand strategy should reflect the combined strengths of the entities involved—not confusion or an identity crisis.


“Rushing an abstract, collective exercise like strategic brand development is bound to produce an inadequate identity, not least of all because emotion tends to rule the day when decisions are rushed—not logic. ”


The branding challenge is bigger than you think

Finding a clear definition that points to a single way forward is imperative, not least because the consolidating parties will want to avoid losing value while definitions are being discussed. Competitors may try to play a faster, more assertive game when a big deal goes through, seizing the opportunity to reposition or invest more. By focusing on integration, staying on top of day-to-day business and clarifying and defining the brands involved, loss of revenue can be prevented, competitors can be held at bay, and the merger can fulfill the promise each company had hoped for.

In the search for an identity—under pressure and with competing priorities on the table—strategy often falls by the wayside. Yet branding issues, which may not seem like the biggest priority to those holding complex negotiations, only become more complicated later on if serious discussions are rushed or delayed. Rushing an abstract, collective exercise like strategic brand development is bound to produce an inadequate identity, not least of all because emotion tends to rule the day when decisions are rushed—not logic.

While there are many complex issues involved in M&A, consolidation is ultimately about building a stronger company. Those who are caught up in the thrill of a big deal (or nervously reacting to a changing economic landscape) may think differently, but a successful merger is not a game that is won or lost in a single determinative event. It is the result of a process involving thoughtful planning and strategic action.

An integral part of that process, and a major key to ensuring the success of a merger or acquisition deal, is knowing how to build or maintain a brand that is greater than the sum of its disparate parts—and strong enough to withstand the growing pains that often accompany consolidation.

Points to consider on the road to consolidation:

1. HAVE A SHORT-TERM GAME PLAN
Though brand strategy should be a direct reflection of business strategy, in some situations, giving brand strategy consideration before business strategy is consolidated, or even defined, can be a smart move. Brands are often the most visible or tangible aspects of an M&A deal for customers, employees, and other parties (such as the capital market), so working out a temporary brand strategy and launching it before the business strategy is fully developed is sometimes the best response. If done right, it will prevent a business from over-investing in a transition scenario, while allowing opportunity to adjust course as the business consolidates.

Brazil’s Nov. 2011 introduction of anti-trust legislation led to a tsunami of M&A deals in 2012 and prompted many companies to speed up negotiations. Naturally, brand strategy questions came up for these companies after they made an announcement to the market: What will Diageo do with the Ypióca brand? Will there be a change in its positioning or its visual identity? What will come out of the Azul -Trip deal? A new brand? Will they retain their current brands? Questions like these are part of a whole spectrum of possibilities that must be assessed.

2. DON’T RUSH
Often racing against the clock to meet legal requirements, executives tend to make the name of the new corporate entity the default name of the new corporate brand. Since contractually acceptable names for corporate entities don’t always convey a definite or differentiated message, they are typically not suited for the complex role that a corporate brand name has to fulfill. Remember that a brand name must have meaning for both internal and external audiences in order to serve your organization effectively. A corporate brand name only becomes more important as your organization evolves, so take your time and be strategic when developing one. If you rush matters, your corporate name becomes your brand name.

In Brazil, unlike most other countries, companies were once allowed to announce merger & acquisitions proposals before obtaining full authorization from the antitrust agency, CADE. Because the waiting process took up to two years, it was hard to know what could or should be built in the meantime. In this context, many corporate names became brand names. Recently, new antitrust legislation was introduced which requires prior notification of mergers & acquisitions deals and approval from CADE. This reform will make it possible for the parties involved to start gathering input from their employees, customers, and investors, right from the start.

3. TAKE STOCK
Because major conglomerates usually own numerous companies—and because consumers are paying closer attention to the relationships between parent companies and brands—a brand's stock ownership structure and its relationship with the controlling portfolio are increasingly matters for concern and analysis for brand managers. Previously restricted to shareholders and the watchful eyes of industry analysts, these relationships are now tracked by a much larger group of stakeholders. Developments related to corporate citizenship, for instance, can directly influence brand perception. Today, it is impossible to build and safeguard a corporate brand without examining how parent brands relate to other brands in the company’s portfolio.

4. BUILD ON YOUR CAPITAL
Brand strategy allows companies to communicate with key stakeholders more effectively, make brand or organizational changes more tangible, and offers real evidence that the company is implementing its business strategy. Because brands have the power to reach and influence the capital market (both analysts and investors), branding projects increasingly involve major investment banks and shareholders and play a role in boosting brand value. Given that brand value is a significant part of a company's net worth, boosting that value is essential to get better market valuations. Brands that consistently meet capital market expectations tend to post even more positive results and earn more preference in investors' minds.

5. CELEBRATE THE ENGAGEMENT
Just like weddings, mergers require planning and agreement between parties. Can you imagine getting married to someone you don’t know well or who doesn’t share the same values? Of all the assets in play during a merger or acquisition, the one that should be watched most closely is brand culture—and internal brand engagement can and should precede the wedding.

When cultures are being integrated, brand strategy can be of great assistance in avoiding a culture clash. In the initial stages of consolidation, employees may be misinformed, disgruntled, nervous, or confused. To ensure a smooth transition, it is helpful to assure people that the deal is being handled well and carefully. Employees will want to know that there are people keeping a close watch on each legacy asset, and that changes will be made at the right time and in the best way for everyone concerned. By officially notifying the internal public of decisions, management gets a strategic opportunity to put rumors to rest, allay concerns over decisions that have yet to be made, and establish a relationship of trust and transparency.

Over the last few decades in Brazil, we have seen several marriages that were unexpected given the history and cultures of the brands involved. The latest “odd couple” case was the Sadia-Perdigao deal. These brands were market leaders, direct competitors investing heavily in frontline retailing. To achieve their goals, each created a distinctive culture in the race for customer preference. One was more aggressive and primarily focused on numbers and results; the other was more concerned about building closer relationships with customers. The staff of each organization was proud of their companies’ respective approaches and each team saw the rival company as their chief adversary. This doesn’t sound like a match made in heaven, but BRF, the company that resulted from this deal, started off on the right track. The leadership stepped forth as “missionaries” prepared to work toward unifying the two companies, and a strategy to accomplish this was prioritized during the planning period.

6. HONOR THY FOUNDER
When owner-managed companies become professionally managed companies, employees are often unable to differentiate the brand they work for from the personal brand of the entrepreneur who founded the company. Complicating matters, if the company founder stays on as an executive, it makes it hard for employees to embrace change. However, by showing respect for the origins and legacy of all parties and getting founders involved in the creation of a new brand strategy, you’ll gain a great advocate and ease the transition.

7. GIVE BACK TO GET AHEAD
Weighing corporate citizenship during a merger can bring philosophical misalignments to the surface or simply take a backseat to issues that are considered more critical to corporate governance. The good news is that when the philosophies of two corporate cultures naturally align, the consolidated scenario will show gains in terms of robustness and visibility. By taking an integrated approach to these assets and involving brand managers and those responsible for corporate citizenship initiatives, launching the merged entity with a corporate citizenship platform in place will bring cultures together, and generate goodwill for the development of post-merger strategies.

Beginning in 1995, Unibanco—recognized as one of Brazil’s most socially responsible corporations—agreed to sponsor one of São Paulo’s popular cinemas. Over time, Unibanco expanded the initiative, opening numerous theaters in its name to bring art, culture, and entertainment to the public. When Unibanco merged with Itaú in 2008, the cultural importance of Unibanco’s emblematic initiative was acknowledged and not only continued, but also became a positive symbol of the merger. The name of the movie theater chain was changed from Espaço Unibanco de Cinema to Espaço Itaú de Cinema and the experience of these venues was aligned with Itaú's brand identity—without obscuring or diluting the meaning, purpose, or identity of this significant cultural platform, and reinforcing the bank's commitment to communities and cultural renewal.

8.THINK GLOBAL, RESPECT LOCAL
Historically, Brazil has been a land of opportunity for international companies and brands. Like most “developing” countries, Brazil has been economically colonized by foreign powers for decades. But over time, Brazil has learned from those who once called the shots and has come into its own as an economic player. As such, Brazilian companies are extending their reach, growing through mergers and acquisitions, and buying up operations in other countries. However, doing business in foreign markets is not without challenges, specifically, adapting the Brazilian approach to new markets and learning how to be a parent company. Rather than merely exporting the tools, processes, and ideas that have shaped successful brands in Brazil, Brazilian brands that are looking to acquire or merge with companies abroad must be transparent and signal a long-term commitment to make a successful entrance, create synergy, and foster employee trust and engagement.

Brazilians doing M & A deals in other countries have, in many cases, been careful to retain local brands, allowing them to be distinguished from parent brands and the operation itself. However, being new on the international scene, not all situations have been handled sensitively and strategically. Coexistence between brands requires active management from day one—if only to mitigate risks in the medium term. For example, what unfolded when ABInBev bought Budweiser in the United States epitomizes situations in which a lead company’s actions elicit unease and antipathy among the locals. A tactless approach to the legacy of the iconic Anheuser-Busch brand led to a liability that will be hard to settle. After arriving in America, ABInBev imposed an unfamiliar style of management on executives and a local community whose lives have been linked to the company for decades. In a country like the United States, where people mobilize around issues that trigger strong nationalist sentiment, the market's quick-fire response may well be reflected in financial numbers.

9. BREAKING UP DOESN’T NEED TO BE HARD TO DO
The urge to grow, gain market share, and boost revenue may be the key reason for consolidating, but business units and their brands may be wound up or hived off for the very same reasons. Business strategy adjustments—such as ending a joint venture, a decision to specialize in certain offerings over others, or simply the lack of synergy between very different businesses—can all lead to fragmentation. When brands start to travel separate roads and seem to have nothing in common but a name and logo, brand portfolio organization and management should be a top priority. The process of separating brands and defining new ones is not always straightforward, but a great brand can and should always go back to its DNA and defining features. Reviving and revising a brand’s true purpose and function, reorganizing brands in a logical way, and communicating the advantages of a split will smooth the deconsolidation process, clarify the new brand scenario, preserve brand equities, and maintain employee morale.

Several years ago, two Brazilian business schools operating under the Ibmec brand started to diverge. The Rio de Janeiro-based for-profit operation was interested in extending its scope beyond business management, adding new courses such as journalism and advertising, while the non-profit operation in São Paulo preferred to focus on business and economics. The two schools had little in common beyond the name and logo—which no longer represented either brand adequately. Ibmec decided to separate the brands so they could operate and evolve independently. After revisiting Ibmec’s founding values, the solution became obvious: the school that was more closely aligned with the brand’s DNA would use that name. So, the for-profit Rio de Janeiro school retained the Ibmec brand name while a new name, Insper, was adopted for the non-profit institution in São Paulo.

10. FORGE A CLEAR IDENTITY
The process of deciding which logo remains after a consolidation is often so contentious that, as the date for the official announcement of the deal approaches, many companies end up with meaningless acronyms and symbols representing their brands instead of defining powerful, resonant identities. While consolidating companies have several options—maintaining one of the identities, combining both, or creating a totally new one—the decision-making process often triggers a real identity crisis. With pressure ramping up, the final decision is often determined by emotional factors as opposed to rational ones. Of course, a name or a logo alone cannot transform a new company, but a strong verbal and visual identity can be crucial as these elements are tangible symbols of the merger and can effectively set the tone for a new direction. Few companies realize that this tumultuous period is actually a valuable opportunity to evolve and reconnect with their employees, stakeholders, and communities, and reflect on the heart and soul of their brands.

Doing M&A deals right can help brands go further

With the financial crisis increasingly shrinking in the rearview mirror, global economic conditions slowly improving, and banks increasingly willing to provide corporate loans, it’s no wonder mergers are making headlines once again. Can Brazilian brands benefit from this upswing? Absolutely—if those brands take the right approach.

In the midst of merger mania, M&A deals are not intrinsically beneficial. Their success depends on the objectives and strategies, market conditions, the inherent potential in the situation, and how the process is managed. In the worst-case scenario, two struggling companies come together to create a larger struggling company. In other cases, a buyout can save a company from going under. More often than not, there is a period of identity confusion and an initial loss of efficiency as the companies involved try to figure out how to meld their cultures and forge a common vision. Some never succeed; others become more successful than ever.

Brazilian brands have the benefit of knowing in advance what multinationals that went global long ago have known for years: branding paves the way to a successful entrance, creates synergy between cultures, fosters employee trust, and informs and guides the transition to a new identity and a new path forward.

In the United States, “The Great Merger Movement" spanned a decade of major consolidations in the United States, from 1895 through 1905. More than a century later, Brazil is undergoing its own process of major consolidation. While there are some concerns about the outlook for certain sectors, “bankers have expressed confidence that a revival is brewing,” Reuters recently noted. “There is a long-term commitment from investors,” JPMorgan Chase Brazil investment banking head Patricia Moraes stated, “which should ensure that M&A in Brazil continues to do well next year and for the years to come.” Whether this is the beginning, middle, or end of Brazil’s “Great Merger Movement” is not known, but one thing is certain: companies will change dramatically, whole industries will be shaken, and consumers will have to adapt. Several Varigs will vanish, many telecom companies will be transformed, and next-generation Brasil Foods and Ambevs will emerge. Some of these processes will be rushed, some will be developed more strategically, and only time will tell which brands will survive and thrive.


FYIQ

  • ABOUT THE AUTHORS
    Daniella Giavina-Bianchi is Executive Director, Interbrand São Paulo.

    What’s one thing you would change about the world if you could? Daniella answered: "I’d slow down the pace of our lives and reconnect each and every one of us with three simple things: beauty, harmony and pleasure." Daniella.Bianchi@interbrand.com
    @afrancesca
  • Beto Almeida is Executive Director, Interbrand São Paulo.

    What’s one thing you would change about the world if you could? Beto's answer: "Have you ever dreamed about flying? Imagine how cool it would be to fly yourself to wherever you want, whenever you want. That would be the ultimate freedom!" Beto.Almeida@interbrand.com
    @BetoAlmeida70
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  • Fast Moving Consumer Goods/Consumer Packaged Goods