M&A: The brand as a common thread
Today’s brand map will change dramatically in the next 3 years
According to the June 2020 Global Economic Prospects, it is said that there is going to be a contraction of 5.2 percent of the GDP worldwide this year. Within this context, the European Central Bank announced its willingness to facilitate the consolidation of the banking sector in Europe, the tiles on the board started to move. The game in Europe begins, but it does not end here because this movement will replicate in Asia Pacific and the Americas as well.
We must not forget that the current business landscape in Europe is a product, in multiple sectors, of similar processes. If we refer to the Spanish market, the energy or the beer industry, just to put two examples, demonstrate how mergers and acquisitions drive the consolidation, growth and international positioning of our most valuable and strongest brands.
This is occurring in many industries, beginning with banks, and tagging along to more industries. We will go through examples of mergers such as bank as well as telecom, technology and even airlines as brands are leaning in towards that direction.
The future merger of Bankia and CaixaBank inaugurates a domino effect in Spain that does not have to be limited solely to the financial sector but can significantly change the landscape of Spanish brands. The 2008 financial crisis caused a jolt in the Spanish banking system, the landscape changed drastically in just eight years after a series of mergers and acquisitions that reduced the number of banks, consolidating a previously highly fragmented and localized sector. This merger would create the largest bank in Spain by assets (786,304,251.92 million dollars). But the possible merge of these two banks may promote the growth of other European banks.
Something similar is happening in Italy. Italian banks have been looking for a way to expand after the financial crisis facing other large European banks. There will be a bigger alliance between Italian banks due to the Italian banking group Intesa Sanpaolo, merger between Banca Intesa and Sanpaolo IMI, which made an offer of 5.3 billion dollars for UBI Banca, the fourth largest banking group in the country. According to Bloomberg, the deal would be the biggest European banking acquisition in more than ten years.
We consider this deal to be a unique opportunity to create a European leader that leverages on a strong Italian footprint.”-Carlo Messina, Intesa Chief Executive Officer
In the Americas, Morgan Stanley completed the acquisition of E-Trade Financial Corporation. As James P. Gorman, Chairman and Chief Executive Officer of Morgan Stanley said, “The addition of E-Trade positions us as an industry leader in Wealth Management across all channels and segments, and significantly increases the scale and breadth of our Wealth Management franchise, which now oversees $3.3 trillion in assets.”
Ever since the financial crisis in 2008, Truist, the merger between BB&T and SunTrust, became the largest merger bank in the US. BB&T and SunTrust approached Interbrand to carry on with the idea of investing more in innovation and progress, but also because they wanted to seek a greater purpose. Their strategy consists of being the main financial institution of the future, therefore, Truist invented a different way of banking. You can envision the purpose of the company simply by reading their name.
The telecoms industry has undergone many mergers, such has done AT&T, whom we have been partnering with for over 16 years and were transformed into a new company when they made a worldwide expansion. One of their greatest movements was in Mexico in 2016. The merger with DIRECTV became the largest pay-television provider in the world. Ever since the merger with SBC, AT&T continues as one of the main telecoms (media & entertainment) companies worldwide. AT&T worked with Interbrand due to its continued demand for growth on network speed and capacity at exponential rates; its innovations fueled new ways in which people live and play. It was a perfect opportunity to evolve the brand positioning to help constituents better understand AT&T’s role and contribution. The new brand positioning and identity breathed new life into AT&T. It gave the organization a clearer understanding of their role as an innovation company, instilled pride in all they do for society, and it became a source of inspiration for internal agendas and delivery of the customer experience.
If we take a look at Interbrand´s Best Global Brands 2020 ranking, we can observe that 5 technology brands, Apple, Amazon, Microsoft, Google and Samsung, have made the top 10 in the ranking. Seizing the opportunity of the liquidity and global growth, these brands decide to leap in and join the movement; brands from the technological industry are not the exception. There are some interesting acquisitions that have already been closed. Facebook completed one of the largest operations in its history. The social network will pay, for about 10% of the shares of Jio Platforms, 5.7 billion dollars. Back in 2016, Interbrand created and shaped the Jio brand and experience along with the entire customer journey. A global team of multiple experts worked closely together on-site in Mumbai, to create an ambitious brand that works across literally millions of touch points. A diverse country with 1.3 billion people and every area reflected in a Digital Life. Interbrand was part of this team and worked to create Jio’s visual and experience strategy, from a basic system to thousands of visual developments. Commercially launched in September 2016, the brand already attracted more than 100,000,000 customers making Jio the biggest data carrier worldwide.
Airlines are not the exception when it comes to M&A. Many brands will disappear in the world of airlines, while others will merge to survive. When LAN and TAM airlines merged, Interbrand’s economic market sizing model gave them the confidence to make a bold move: they would drop two highly successful national carriers and re-brand to a single unified voice. This would create a bold new flagship intended to showcase the best of the region to the world. They created LATAM Airlines Group, the greatest in Latin America. LATAM is now transporting one of every two passengers in South America.
Bringing together a local and global perspective, according to research, there are some managers with important conclusions for this year; 47% have indicated that they plan to carry out a merger or acquisition in 2020/2021. Increasing their international presence is the main reason for purchase according to 54% of managers. A 55% indicate that strategic fit is key to creating value in the post-deal. Cultural alignment and personal issues were identified by 85% as the most delicate aspects of integration. Another 52% point to the complexity of the integration of IT/technology systems. For 42%, Private Equity is a real alternative to finance inorganic growth. Finally, 72% point to economic uncertainty as the main obstacle to tackle M&A operations.
Achieving a prosperous Merger
It is well known that a merger is not a bed of roses. Although an M&A process marks one of the most exciting moments in any organization (because it encapsulates the promise of “more and better”), the reality is that, after analyzing dozens of cases, more than 50% do not end up being relevant in the long-term.
There can be multiple reasons: lack of clarity in brand and business strategies; absence of a clear strategic plan to build an operational brand in the market; lack of in-depth understanding of the risks associated with consumer loyalty and sources of income; overlook the risks of cultural integration; failure in the identity of brand equities and sources of future growth, or poor evaluation and consideration of the relationship between consumer expectations and the brand experience delivered.
All these risks, which cross-affect the companies that are part of a merger, can jeopardize the objectives of the merger, whether they are to expand market share, improve the customer experience, increase shareholder value, attract better talent, reduce costs, increase revenues or expand into new industries.
The role that the brand plays as an intangible asset is fundamental in increasing the chances of success. Firstly, because its correct financial valuation is crucial in an ecosystem whose type of buyers has changed, since no longer only companies play, but also new players, such as investment funds, venture capital or hedge funds. A scrupulous analysis of the brand value must be a fundamental part of the total valuation of the business and, therefore, of the final investment of the operation.
On the other hand, when two or more companies, with different brands and cultures, merge, it is necessary to identify and activate synergies. Whether it is creating a new denomination or defining a new brand architecture, the future of the operation will depend on careful consideration of which brands remain, what role they play, which ones disappear, etc. When making these decisions, there are multiple factors to consider, such as evaluating individual brands, in addition to their relationships with each other and the ecosystem around them. This would then imply in transcending commercial concerns and analyze cultural, legal, and logistical considerations, and those related to customers, without forgetting the influence of brands in the various markets or regions where they operate or want to operate.
It is a complex process that requires a deeper review of the conditions related to the market, the brand and the consumer. Being very clear that the objective is not only to gain size and market share, but to build a new entity that can survive, stay relevant, respond quickly in a context of multidisciplinary competition. If we take the case of the financial sector as an example, the brands that result from mergers or acquisitions will have to face, not only their peers, but players such as Apple Pay or Google Pay, which are more attractive and flexible alternatives for young consumers.
The knowledge and deep analysis of all these conditions will allow us to travel a path full of milestones and that, above all, depends on a clear articulation and an alignment of the purpose and ambition of the business and the brand of the new company. Without this fundamental ingredient, it will be difficult to evaluate and quantify brand architecture scenarios, develop a migration strategy with its corresponding transition plan, manage a new internal culture, measure costs, or define governance principles.
Stages of a stony path that shows that, ultimately, the brand is the common thread that connects employees with customers, as well as being the only differentiating asset over time. One more reason for brand and business to align as a catalyst for a profound transformation in search of growth also when facing a merger or acquisition.
Looking at what is happening this year due to Covid-19, it is expected to see many mergers and acquisitions. Large brands need to merge to create something bigger to seek greater results with the capabilities of two or more different brands coming together and their solutions to their customers. It is always important to look towards the future and seek for new challenges and to continually renew.
It is not always easy because it is important to take into consideration the different cultural aspects and the way of working of each company. Sometimes it is challenging to come together, but it can be done with time and ambition. The combination of understanding its customers, a clear ambition, a well-defined trajectory, and a thorough planning integration strategy and purpose is what makes these mergers a success. It is a decade of possibilities; every brand should look ahead and broaden their horizon.