This was the title of my presentation today at the town hall of a talented design and branding firm with which I have collaborated on a number of occasions.  Like so many others, they are grappling with the issue of how to respond productively to questions about ROI and the value of their work.

My mandate was simply to talk about the research and analysis I have been doing on a number of topics relevant to the business context and business impact of marketing.  I talked briefly about intangible value, brand valuation, the brand “bonus” and the relationship between brand strategy selection and post-merger financial performance (all topics on which I have shared topline results in this blog).

I hope I provided them with some interesting insights, and some confidence to engage in the discussion about the financial impact of marketing.  At the very least, I left them with a number of financial observations for use in their conversations with clients:

• Tangible book value represents only 21% of the value of US companies, and 33% of the value of Canadian companies
• Brand value represents an average of 15% of market value – but varies enormously by sector (ranging from less than 5% in energy and basic materials to over 40% in consumer goods)
• Strongly branded companies seemed to benefit from a cushion of 3 to 5% during the market meltdown of late 2008/early 2009
• In the two years following a merger, companies that used the more sophisticated forms of corporate brand outperformed those that used the two “expedient” forms of brand strategy by a margin of 5 to 10%

My parting advice to them was to use any request for ROI or brand value as an opportunity to engage in a discussion about the changes in customer and employee behavior that would result in signficant financial returns.  That would do two things:

• Convince the person asking the question that you are focused on improving the performance of the business
• Generate the working assumptions on which a credible model could be based

Tagged as: Brand Valuation, Business Strategy, Business Value, Causal Model, Intangible Value, marketing and finance, Marketing ROI, mergers

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I finally completed the classification of the M&A transactions over $500mn and have ended up with 897 transactions.   By the time I have eliminated transactions for which there is less than complete data, the final data set is just over 700 transactions.  These represent over $4 trillion in transaction value and $20 trillion of market value as at the merger effective date.

What is very exciting is that the observation I made back in May still appears to be true: based on a simple comparison of the changes in aggregate market value versus changes in the S&P index over a 2 year period since the merger became effective, the companies using one of the 8 “sophisticated” brand strategies outperformed those using the two “expedient” forms of brand strategy by 6%.

This is encouraging – but this analysis is crude.  It remains to be seen if this result will be replicated when the data set is subjected to a proper abnormal stock returns analysis.

Tagged as: Brand Strategy, marketing and finance, mergers

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It has been laborious – but we are now close to a “clean” data set for the M&A analysis.  The latest work has focused on winnowing the 1,000+ transactions down to a more narrowly defined set of genuine merger transactions in which it is conceivable that senior management might have considered any one of the 10 potential brand strategies.

After a number of false starts, the decision rules for what constituted a merger - as opposed to an acquisition - were relatively easy to specify in an objective, transparent way.  We have set the maximum discrepancy in revenue/value to be equal to the maximum observed discrepancy in a transaction that had adopted either a “best of both” or a “different in kind” strategy.

Using this decision rule, we have reduced the number of examples of strategy 1 or 10 from over 80% of the total sample to closer to the 65% figure observed in our earlier research.  By doing so, we have hopefully eliminated a lot of “noise” from the data – all of those transactions that were clearly acquisitions (the vast difference in size between the acquirer and target made it inconceivable that it would be regarded as a merger).

As a footnote, I have learned that the technical distinction between a merger and an acquisition is simply whether the target’s legal entity survives for legal reporting purposes.  If it does, then the transaction is a merger.  If it does not, then the transaction is an acquisition.

Tagged as: Business Value, mergers

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Following a positive reception at the Marketing Science Institute conference earlier this month, we have been working hard to expand our data set of mergers so as to be able to perform the analysis at a more granular level.

The MSI presentation was only able to divide the data set into three categories – firms that had adopted the “acquirer brand is the last man standing” vs. firms that had adopted the “business as usual” approach (leaving the acquired company to operate as an unendorsed subsidiary) vs. firms that had adopted any of the 8 more “sophisticated” strategies.

We have now categorized over 1,000 M&A transactions of greater than $500mn since 1995.  In some of these transactions the discrepancy in size/value of the two parties was so large that it is hard to imagine that there was any serious thought given to merging the identities.  So we are going to tag the transactions by whether they were “mergers” or “acquisitions” – the reason for doing so is to be able to compare the “sophisticated” strategies (any of which would only be considered under merger conditions) against a narrower peer set of merger transactions that adopted either of the two more “expedient” strategies.

The good news is that we have around 180 instances in which “sophisticated” strategies were adopted so can do some analysis about the relative performance of individual strategies.

Tagged as: Brand Strategy, Business Value, mergers

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Not exactly the punchiest title for a blog post, but this is the actual title of the paper I presented at the Marketing Sciences INFORMS conference today.  I contemplated using a snappier title like “Does the market care whose logo survives?” as my title but decided against it – after all, this conference is the annual get together of the quantitatively oriented marketing academics and they definitely want the steak, not the sizzle.

I found it both humbling and uplifting to be among people who want to know about how your research is constructed before they have any interest in what the result might be.  There is a purity of approach that is truly refreshing in comparison to the more cavalier “the data supports our line of argument – who cares about its robustness?” attitude that is so common in the commercial world.

As I had hoped, I got some very helpful feedback on how to articulate the motive for this research more succinctly, how to make the analysis as robust as possible, and what were the implications that could be drawn from the results.

Tagged as: Brand Strategy, Business Value, mergers

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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.

Tagged as: Brand Strategy, Business Value, mergers

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The past week I have been immersed in a deep drill into the role of brand strategy during M&A.  This is a topic I have written about from a qualitative point of view before (see the links to the published articles to the right of this post), but the time has now come to add some financial teeth to the analysis.

I am defining the question as “is there evidence from the capital markets that certain forms of brand strategy are associated with superior post merger financial performance and valuation?”

I specifically want to test whether the more expedient strategies (those  involve the least thought and/or work) are associated with disappointing post merger performance because they fail to address the human desire to understand how the merged company will be superior to its two constituent parts.

I present the preliminary results at the Marketing Science Institute’s INFORMS conference in 3 weeks so the pressure is on…

Tagged as: Brand Strategy, mergers

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The natural bias in pre-merger due diligence is to focus on identifying the factors that might jeopardize the success of the merger – the deal breakers. Inadequate attention is generally given to the factors that may contribute to superior post-merger performance – the deal makers.

Rich Ettenson and I are actively doing analysis to test our hypothesis that corporate brand strategy is one of the variables that can significantly influence the success of a merger. Brand strategy plays a vital role in ensuring that customers, employees and investors understand the reasons for the merger, and the future benefits that it will deliver to them. This communication is important because it is the behavior of these three audiences that ultimately decides the success or failure of the merger.

So far, our work has resulted in:

• Categorization of the 10 corporate branding options available to managers
• Classification of over 1,000 mergers into these 10 categories

Now we are looking into whether there is evidence from the capital markets that any of the corporate brand strategies are associated with abnormal shareholder returns over the 12/24/36 months after the completion of the merger. It will be exciting to see if the market is fully efficient in recognizing in the degree to which certain forms of brand strategy facilitate a more effective post-merger integration process.

Tagged as: Brand Equity, Brand Strategy, Business Strategy, mergers

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