Tomorrow I present the preliminary results of the research that I have been doing into whether there is evidence that certain types of corporate brand strategy are associated with abnormal post merger stock returns. The hypothesis is that the more nuanced forms of brand strategy (that is, those that do not simply involve rebranding the target company with the acquirer’s brand, or maintaining the target company as a standalone subsidiary) result in greater engagement from employees, customers and investors – and that this facilitates a smoother post merger integration process.
The initial results are encouraging – analysis of 215 mergers using the Fama French 4 factors revealed an abnormal monthly stock return of 0.4% on a portfolio comprising companies using the “sophisticated” brand strategies versus a portfolio using the two “expedient” strategies mentioned above. The number is not huge, but it is certainly enough to merit further investigation and an expansion of the data set.
We have now classified 350 mergers and the excess returns to the “sophisticated” strategies is still there. I say “seems to be there” as I have just done a simple comparison of the dividend adjusted returns for each company deflated by the relevant sector index. Based on a simple average of the results, it would appear that the average returns for companies using the “sophisticated” strategies exceeds the returns generated by companies using the “expedient” strategies by 5% over the two years following the completion of the merger.
I am looking forward to the session tomorrow and expect some great suggestions for how this analysis can be extended and enhanced.
