Buy, build or…?

The growing demand for new technologies such as artificial intelligence, machine learning, blockchain and ever-more eclectic data pools is a driving force behind the advantages of alliances, joint ventures and strategic investments as a preamble and additional approach to M&A.

In PWC’s 22nd Annual CEO Survey released in January 2019, 40% of US executives said their companies are considering new alliances or joint ventures in the next year to drive revenue growth, beating M&A by just a few percentage points.  The figure doesn’t change much when you ask CEOs worldwide.

Leaving acquired assets unintegrated

Last year saw US M&A activity reach post-financial crisis highs. The first quarter of 2018 had the highest quarterly volume total on record with over 1,300 deal registered worth over than $350 billion.

With high market volatility, US-China tensions in the headlines and the everlasting Brexit saga weighing on the EU economy, 2019 is seeing a slowdown in M&A (source:  Mergermarket April 2019) in spite of grand moves such as the US$27.9 billion announced BB&T + SunTrust merger that moves the new company to #6 in US banks or Bristol-Myers Squibb’s US$89.5 billion acquisition of biotech firm Celgene.

BB&T/SunTrust – Bloomberg

At Transaction Advisors M&A Conference in San Francisco earlier this year, there was an interesting change in tenor evidenced in a panel discussion between corporate development officers of SAP, Qualcomm, Jupiter Networks and Accenture – only integrate when you have to do it.

Interesting.

We know from the Landor M&A Brand Study, that barely half of the largest acquisitions ($1 billion and over) are transitioned, and we know companies acquired for less than $100 million are transitioned 78% of the time. That is a pattern we have seen with the most notable acquirers in the world – companies in the S&P Global 100.  In fact, our data going back 10 years suggests that while brand transitioning is becoming more creative in approach, it certainly isn’t leaning the other way and leaving brands alone.

While alliances and joint ventures have been around for a long time, they have been on the rise in recent years and, it seems, a creative alternative to the age old buy or build question. Technology innovation is top of mind for most business leaders who believe it is a critical element to position their companies for the future. While M&A is a solid solution for must-have enterprise capabilities, alliances, joint ventures and strategic partnerships enable companies to test the waters with lower risk and provides a level of transparency into an emerging technology’s potential for their organization before pulling out their wallet. Whether you buy or partner – or both – the same PWC report affirms that the business demand for tech likely will drive many deals in 2019 and beyond.

When to tie the brand knot

When S&P Global, a leading provider of ratings, benchmarks, analytics and data, decided to acquire Kensho, a machine intelligence company founded out of Harvard University in 2013, they did so knowing that it would systemically strengthen S&P Global’s core businesses across the enterprise and be rocket fuel to their emerging technology capabilities.  The acquisition was well-considered after taking a strategic investment in Kensho a year earlier as part of their S&P Global Ventures program.

Alliances and joint ventures are often compared to marriages, where partnership, collaboration and trust are essential.  They are also like an extended engagement for seeing if, how, and when the couple could tie the knot.  In 2017, S&P Global launched a Fintech Venture Investment program and successfully invested in several fintech companies including FiscalNote – a technology innovator at the intersection of global business and government that provides advanced, data-driven Issues Management solutions and Ursa, an analytics-as-a-service company that uses space-based data from radar satellites as the source of their reports. These types of investment programs are growing and help stay on top of technology developments.

The goal of S&P Global Ventures is to identify the people, technologies and business models that are driving changes in the S&P Global ecosystem, and to invest in key areas of interest for strategic exploration. According to Dan Seideman, Managing Director, Innovation & Strategic Development at S&P Global, “Innovation is a key enabling capability for our long-term strategy. The goal of the venture program is to enhance our company’s innovation, exposing more of our employees to passionate entrepreneurs targeting customer pain points with a novel approach. We regularly spur new product development by bringing our businesses and technologists directly into these partnerships, challenging ourselves to consider fresh and innovative approaches to customer problems.

Dan also notes that while S&P Global’s venture program is not specifically designed to be an acquisition pipeline, “it’s opened new opportunities for innovative growth, and in the case of Kensho, has led to a successful acquisition.”

These relationships have an interesting impact on brand architecture – how a company organizes its capability to talk to the marketplace clearly.  It is well known how brand architecture often suffers from serial acquisitions left unthought, but alliances, partnerships and JVs add a different level of complexity.  How should a company talk about the enhanced capability it doesn’t fully own?  How do both parties understand how to promote their brand reciprocally to add value?

Brand architecture has been traditionally defined as a choice of one of three iconic models that brand agencies have been using for decades – Branded House, House of Brands and Hybrid. (see chart) Increasingly, these models are struggling to be as relevant as they once were.  More and more brand architecture development is falling in the hybrid model or blended models.  For instance, a house of brands can exist under a branded house.  You see this often in asset management in the insurance space where a collection of boutique brands can sit under a master brand. This is now being challenged further by partnerships.

Landor has long been a proponent for including a brand lens in M&A due diligence, which is usually overlooked or left to last. The conspicuous absence of brand at this critical strategic moment in a deal means not knowing whether an acquired brand is likely to survive once the deal closes—a major problem for any business, especially consumer-facing ones.  The key is to review these alternative relationships with sound brand advice early in the process.

Four key takeaways:

  1. Capabilities matter. Not legal relationships. Capabilities annexed from alliances, partnerships and JVs are the same as those built or bought. The legal construct on how you arrive at the capabilities is a technicality that doesn’t need to cast a shadow over the real value it brings to your brand.
  2. Respect the partner brand. Acknowledge and respect brand in these relationships. Learn each brand’s value proposition and use its brand positioning.  After all, if you increase the value and recognition of the brand, your dowry will be worth more on the wedding day.
  3. Leave well enough alone. It can be highly beneficial to leave acquired companies autonomous and independent, so they can continue to drive breakthrough innovation and stay nimble without being hindered by corporate culture and processes.
  4. The ingredient is just as important as the finished product. Include the partner brand, not just the blinded capability in your portfolio architecture with clear principles on usage and message.

Just as the availability of better data on M&A informs brand strategy post-acquisition, awareness of the benefits from this partnership trend can create brand value.