M&A in 2018: Brand on the bottom line

The M&A market is looking forward to a bumper year in 2018, with transaction value expected to grow by 23 percent to $3.2 trillion according to Baker McKenzie. As the corporate focus on M&A to drive and supplement growth strategies increases, so too will the crucial role of brand strategy—in other words, what a company ultimately plans to do with a brand after it has been acquired.

This year, Landor released its M&A Brand Study, the first in-depth quantitative analysis of post-M&A brand activity based on the S&P 100’s transactions from the past 10 years. The findings revealed key trends in how companies transition, evolve, and grow acquired brands.

Landor MA Brand Study

When trying to establish key drivers of M&A, there are a number of factors often considered first, from the need for consolidation within an industry to the potential for future disruption to the impact of legislative and regulatory activity on the market.

Within this melee of considerations, brand equity has historically been overlooked, with attention tightly focused on financial and legal concerns. Landor’s study shows that this is set to change for M&A in 2018. The study asserts that brand strategy plays a pivotal role in fully unlocking M&A value.

Here are five key industries where this trend will be most prominent in 2018:

1. Fintech brands will enter the mainstream

Financial services is often characterized by clay-footed leviathans on the one hand, and nimble startups on the other. Nonetheless, the big players have been keeping a distant but watchful eye on fintech disruptors, hoping to identify future winners. With the escalating threat of digital disruption, 2018 may be the year they finally break cover and start snapping up the little guys.

Aldermore – Banking for the Bold

We have already seen the acquisition of Aldermore for £1.1 billion by FirstRand of South Africa, and others will soon follow suit. From a brand strategy perspective, it is likely that the Aldermore brand will be retained, as FirstRand has no retail presence or brand equity in the United Kingdom.

Across the sector, while emphasis has traditionally been placed on creating a master brand, this example shows how big players are becoming more willing to acquire and retain boutique brands to broaden their current market share.

2. Brand diversity in tech

In the past 10 years, the tech industry has witnessed a number of megadeals among consumer-facing companies, such as Google’s acquisition of YouTube. Looking forward, we are beginning to see megamergers throughout the supply chain itself, from SoftBank’s $31 billion acquisition of ARM Holdings to Broadcom’s hostile $100 billion bid for Qualcomm.

M&A in 2018 SoftBank
Image courtesy of Flickr user MIKI Yoshihito.

This shift is driven by the typical suppliers’ dilemma when faced with huge buyer power; after the destruction of Imagination, and the threat of ending its contracts with Qualcomm and Dialog, Apple’s muscle flexing has made the rest of the supply chain shudder. The response will be more consolidation in the supply chain with the aim of better guarding against disruption.

However, this does not necessarily mean brand consolidation. Historically, the tech industry is most likely to extinguish acquired brands, with 76 percent of acquisitions transitioned to the master brand after 7 years. However, it’s notable that ARM continues to be both a separate entity headquartered in the United Kingdom and a separate brand—a strong signal that its unique technology and name is its calling card, and an indication of the future of tech.

3. FMCG brands move into e-commerce

The FMCG (fast-moving consumer goods) sector has also been challenged in recent years: Supermarkets have applied unceasing margin pressure, FMCG brands have lost out to digital, and the specter of e-commerce continues to disrupt established routes to market.

For the big players, M&A has always been a part of life (witness Kraft Heinz’s bid for Unilever earlier this year) with continual renewal as they shed unprofitable brands and acquire those that can generate vibrant consumer franchises.

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Large FMCG players have been watching e-commerce for years, but fear disrupting existing relationships. Now, they are going to have to bite the bullet. This is likely to happen through acquisitions of internet-based FMCG companies (such as Unilever’s $1 billion acquisition of Dollar Shave Club), which then remain distinct business and brand entities. In this way they can build up e-commerce expertise and revenues complementary to their core businesses.

This future strategy is alluded to in the Landor M&A Brand Study, which reveals FMCG companies are most likely to retain acquired brands, with 44 percent retained after 7 years. With M&A in 2018, this trend will strengthen as FMCG companies look to acquire companies and brands to go direct to consumers.

4. Energy brands reach a tipping point

Over the past three years, the major energy players have been tidying up their portfolios to focus on high-quality assets. However, with oil prices finally on an ostensibly sustainable rise, profits are returning and M&A activity will follow suit. Such a change is significant for a sector that has historically been the least acquisitive.

M&A in 2018 Energy Sector Power Plant

Globally, green policies are being earmarked by governments and consumers, and energy majors will need to act quickly in order to future-proof their business models—with M&A providing a solution.

However, business models are not the only challenge. Energy brands themselves also need to be future-proofed. If this is not done quickly, they may soon find that only acquired brands can address future market opportunities, with current brands restricted to legacy business. Acknowledging this will require a significant step change for a sector that is most likely to transition acquisitions into the master brand in the first year.

5. Health care brands become patient-facing

Pharma has been pursuing consolidation for years, with a series of megamergers and attempted mergers taking place at regular intervals. Somewhat surprisingly, health care has in fact been one of the least acquisitive sectors historically, but this looks as though it is about to change.

In 2018, we will see an acceleration of the private sector scaling up to meet the health care challenges in developed economies caused by aging populations and a stretched public purse. In turn, as the sector shifts from focusing on health care professionals to patients, changes in M&A activity will result.

MA in 2018 Health Care CVS Pharmacy
Image courtesy of Flickr user Mike Mozart.

The recent agreement between CVS and Aetna presages things to come, not least the shift in health care away from product and into service, suggesting that the role of brand will become integral to M&A strategy.

Time will tell whether our predictions are correct, but whatever happens, 2018 promises to see brand strategy come to the fore for M&A decision makers.

 

This piece was originally published on ACQ5 (15 December 2017).