How Can M&A Expose its Most Valuable Commodity?
Invisible to the P&L balance sheet—and often overlooked during the pre- and post-M&A transaction—is the merger’s impact on branding and marketing. What will the new company be about? What will the transaction mean to its customers? How will it distance itself from competitors? By inserting branding and marketing early on as part of the due diligence process, key stakeholders will be positioned to leverage their most valuable commodity and to dramatically improve the chances of the investment’s success.
As investors prioritize the strengths and weaknesses of an acquisition—e.g., the financial health of the business, sales, operations and HR—overall brand health and marketing are very rarely part of the conversation, but are acknowledged by leadership as a “top priority.” However, this study shares a different view: “The process for making brand strategy decisions doesn’t always reflect this importance. Most companies—80 percent—complete a brand transition within 18 months of deal close (65 percent within 12 months).”
This same study suggests that by keeping the customer front and center, “marketing should lead the conversation and recommend how the full complement of products, services and solutions will better meet customer needs. Marketing should also evaluate how its operating model and organization should evolve to support the refreshed market perspective.”
“Marketing should also evaluate how its operating model and organization should evolve to support the refreshed market perspective.”
The Argument for Brand Due Diligence
To gain a comprehensive understanding of an acquisition, investors would greatly benefit from looking beyond the financials to really understand what’s driving or negatively impacting the current value of a potential acquisition. Has the brand lost its relevance with its customers? Is its website prohibiting lead gen or sales opportunities? Does the brand need a bit of a refresh to create excitement in the marketplace? The latter doesn’t always mean a complete overhaul is necessary; small tweaks can make a powerful difference in perception, value creation and growth.
“To gain a comprehensive understanding of an acquisition, investors would greatly benefit from looking beyond the financials to really understand what’s driving or negatively impacting the current value of a potential acquisition.”
This Deloitte whitepaper makes a compelling case for this: “M&A offers a significant opportunity to establish a fresh, future-facing vision for the new organization. There is potential to establish a market-leading or market-disrupting position as a business, while also communicating direction and inspiration to employees of both brands—creating something that people want to be a part of.”
For private equity and M&A to get a comprehensive understanding of the balance sheet, it would be advantageous for investors to conduct a brand due diligence in parallel with the financial review. This will enable the business strategy to be in lock-step with the brand strategy and will increase the financial success of the merger or acquisition and long-term growth post-transaction. This brand due diligence will also have the effect of empowering investors with an added level of insight into the brand, its distinction in the marketplace and how this knowledge can serve to address any gaps in the P&L.
ROI that’s Accountable to the Bottom Line
The first question ScheinerInc. is typically asked after sharing a proposal is, “What is the ROI if we do this?” Everything we propose is grounded against our clients’ business goals and, wherever possible, increasing customer lifetime value. For one direct-to-consumer (DTC) client, we identified that over the course of the year, they had over 1.3MM unique site visitors. However, despite this traffic, one-third of all visitors abandoned the home page. Based on the most conservative estimate, if we could decrease this loss by 10%, it would significantly result in sales and up-sell opportunities and would also increase the lifetime value of the brand. Within the first month of the site’s relaunch, sales increased by 34%, average order volume was up 45% and more than 1,000 inbound leads were captured.
“Your marketing program is not only affecting sales and profits this year, but also strengthening your brand equity and customer relationships over time.”
For a SaaS technology company, we were able to reposition them from a professional services company to a software solutions company. This has enabled them to define their position within the insurance sector, while expanding their global reach through numerous acquisitions that have rounded out their offerings. The underlying ROI here allowed this company to gauge how it is performing against its competitors.
As explained here, “The key is to remember that while marketing expenditures hit the P&L immediately, every dollar you spend today is building your brand as an asset for the future. So, ideally, your marketing program is not only affecting sales and profits this year, but also strengthening your brand equity and customer relationships over time.”