Private equity can be a messy business. Mergers and acquisitions are fraught with all manners of complex details and nuanced contingencies—from cost rationalizations to operational integrations. In all the back and forth of a deal, however, one critical element is often overlooked in private equity: branding.
When it comes to private equity, branding is one of the most important assets in every transaction. As we’ve said many times before, a company’s brand is its most valuable asset.
Beyond the financial value of the brands involved in a deal, though, there are a number of other considerations at play when it comes to private equity branding:
- What is the brand equity of the company or companies in consideration?
- How strong is each brand’s connection with its customers?
- What are each company’s most valuable brand assets?
- What are the brands’ value propositions and—in mergers—how will they be combined?
- How will deciding which assets to retain from each brand impact your projected revenue?
The answers to these questions will ultimately determine the success of any private equity transaction. For private equity firms, the power of a brand-driven approach can’t be overstated.
Let’s take a look at the benefits of a brand-driven approach to private equity, the brand factors to consider in every transaction, and a few important keys to success when it comes to branding in private equity.
The Advantages of Branding in Private Equity Strategies
Time and again, research has shown that strong brands are more profitable, grow more quickly, and sell at higher multiples. That’s because strong brands are more than just sleek logos and clever taglines. They are purposefully and strategically positioned to dominate their market.
The fact is, markets today are highly competitive and woefully undifferentiated. So, it should come as no surprise that strong brands come out on top. Let’s look at a real-world example: Apple.
It isn’t superior functionality or performance that allows Apple sell the iPhone at three times the cost of comparable Samsung models. It’s the strength of the Apple brand and the loyalty of its customers that drive the company’s profits.
Many brand-loyal Apple customers wouldn’t use a Samsung phone if you paid them to, despite the fact that Samsung phones outperform iPhones in many important areas.
Not only are brand-loyal customers willing to pay more for the products they want, they also buy those products more often. This means they offer greater lifetime value and protect against market volatility. Brand-loyal customers are the reason Apple continues to outperform the market and realize astonishing financial returns, year after year.
The competitive advantages of brand loyalty aren’t exclusive to global consumer brands. They extend to even the smallest B2B organizations. Strong brands dominate their respective markets, revitalize underperforming assets, and insulate against competitive threats. Robust brand positioning drives growth like few other market factors.
Brand strategy and ongoing brand alignment and management should be seen as requisite, prudent costs of doing business for every private equity firm. And yet many firms continue to overlook brand in their M&A strategy, preferring to focus on more traditional metrics like market dynamics, liquidity, and cash flow.
While financial metrics are useful snapshots of an acquisition’s current worth, a brand-driven approach shows shareholders a commitment to strategic and sustainable asset growth.
So, how do private equity firms take a brand-driven approach to their transactions? Let’s take a look at some of the most important brand factors to consider.
Branding Factors to Consider During any Private Equity Transaction
A brand-driven approach to mergers and acquisitions is simply smart business for private equity firms. But what does such an approach look like? By considering a number of essential factors before, during, and after any transaction, private equity branding can be seamlessly integrated into any firm’s strategy.
The success of any merger or acquisition begins by aligning business strategy with brand strategy. This means understanding at a deep level why the transaction is financially beneficial for each company involved and developing a powerful narrative around this understanding that resonates with internal and external stakeholders.
This is to say that the business strategy behind the merger or acquisition must be the foundation of the new brand’s positioning. A strong brand is one that embodies sound positioning, post-merger or acquisition, as well as growth trajectory.
When it comes to mergers, for a newly merged company to become a world-class brand, it must be informed by the prior companies’ DNA, and tell a compelling narrative of their combined value. Brand strategy informed by the respective purposes of the previous companies is the best way to ensure the new brand is powerfully differentiated within the competitive landscape.
A measurement of the value of a brand as determined by things like loyalty, awareness, quality, and associations, brand equity should be front of mind when it comes to branding in private equity. Let’s take a look at the five specific components of brand equity and how they relate to private equity branding.
1. Brand Loyalty
Brand loyal customers impact a company’s bottom line in significant ways. These include lowered marketing costs, increased trade strength, amplified customer acquisition, and extended time to respond to competitive threats.
2. Brand Awareness
The more brand awareness a company has, the easier it is to both attract new customers and retain existing ones. Brand awareness is influenced by positive associations, familiarity and regard, commitment to buy, and top-of-mind consideration.
3. Perceived Quality
Perceived quality refers to the degree to which customers perceive a brand as superior. Customers are willing to pay more for brands perceived as superior—regardless of whether the brand’s products outperform competitive alternatives.
4. Brand Association
Brand associations are the mental connections consumers make between a brand and other concepts. These associations represent what the brand stands for and imply a promise to consumers. Apple, for example, is associated with creativity and great design.
5. Proprietary Assets
Finally, proprietary assets include trademarks, channel relationships, and intellectual property rights that give brands a strong advantage against the competitive landscape.
In the case of mergers and acquisitions, each of the five components of brand equity should be given serious consideration. Brand A may have fewer proprietary assets than Brand B, but it might have superior perceived quality. In a case like this, despite being less valuable on paper, Brand A could have a greater impact and influence on the post-merger positioning.
A coherent brand architecture is critical to the marketing and sales performance of any company, but especially those involved in mergers and acquisitions. Ensuring optimal relationships among brands, products, and services prevents redundancy, inconsistency, confusion, and cannibalization—costly inefficiencies that can undermine the ultimate value of a merger or acquisition.
Too often we see companies that have grown through acquisition—buying up market share and extending into adjacent markets—but paid little to no attention to integrating the brands they acquire into their existing brand architecture.
The result is a frenetic portfolio populated by redundant or contradictory offerings whose disparate names and logos are confusing enough for sales teams to understand, let alone bewildered customers left in the wake of the parent companies’ unfettered growth.
Taking the time before a transaction to assess existing brand architecture and implement a logical, intuitive system that will accommodate continued growth can save private equity firms the significant amount of time and money it takes to reorganize an unruly brand architecture after the fact.
This includes strategic decisions as to whether to consolidate complex brand portfolios that are often the result of multiple acquisitions. Many factors should be considered before retiring an existing brand, but a careful strategic examination may reveal benefits from consolidation, such as precluding stakeholder confusion and reducing marketing costs.
Marketplace dynamics should always be considered in private equity branding, especially when assessing the brand implications of a merger or acquisition. Such events often represent opportunities to strategically reposition the brand or brands involved, or even create a new entity that can more effectively respond to market trends.
Mergers are often prime opportunities to stand out in an industry that has become stagnant and safe. With deft positioning and combined value propositions, the new brand can peel back conventions and make a bigger impact in the category than either of its previous entities.
If both brands target similar markets and audiences, there may be synergies that can be leveraged or marketing efficiencies that can be realized now that the two brands are one.
A competitive brand audit can reveal which opportunities exist for the new brand in the market landscape. Any combined entity will have a broadened scope and be competing on new fronts, bringing new—and often unanticipated—competitors into the fold.
With new audiences and new competitors also comes an opportunity to unite an entire vertical behind the new brand. When strategically executed, new positioning that fills an existing void or resonates with audiences in new and unexpected ways has the potential to reshape an industry.
As business management legend Peter Drucker once said, “Culture eats strategy for breakfast.” Now more than ever, company culture should be front of mind for private equity branding.
With acquisitions, it’s important to keep in mind that customers these days are more attuned to corporate values than ever before. Purchasing behavior is increasingly driven by customer alignment with brand purpose and values. Private equity firms that fail to consider the impact of a company’s culture on its growth potential do so at their own peril.
With mergers, culture is even more important. If the respective cultures of two merged organizations are incompatible, the transaction may be doomed from the outset. No amount of well-intentioned human resources initiatives after the fact can heal a fractious melding of disparate company cultures.
To prevent against ill-advised cultural matches, private equity firms are advised to do a thorough assessment of both the stated values of each company and the real-world implementation of those values across divisions. The best way to accurately assess company culture is with internal brand research including qualitative interviews with representative stakeholders from across the organization and quantitative initiatives like company-wide surveys.
Keys to Success in Private Equity Branding
Beyond ensuring the effectiveness of branding and marketing, a brand-driven approach to mergers and acquisitions enables private equity firms to unite stakeholders and accelerate growth for all entities involved. There are a few keys to success when it comes to private equity branding.
Start with Purpose
As we saw in the previous section, one of the biggest challenges in any merger is melding two distinct cultures. But brand can be a great unifier, aligning disparate teams and philosophies under a shared vision.
The key is building the new brand’s positioning on purpose. Purpose is the answer to the most profound question an organization faces: “why?” It’s the reason employees get out of bed in the morning to go to work and as such, a well-defined brand purpose has a way of uniting even the most distinct factions within a company or companies.
Purpose-driven brand positioning aligns cultures and values with a compelling story about the value a company offers to internal and external stakeholders. When positioning is driven by purpose, it embodies the DNA of the combined enterprise and sends a powerful signal about the brand’s future trajectory.
Mergers have a way of raising profound questions about the integration of two often seemingly immovable entities. What will the new company be about? How will it be different? How will it win? How will it create value, and how must it be aligned to do so?
Purpose-driven brand positioning enables a private equity firm to answer these questions early and simply and prevent the costly confusion that can arise from large and complex mergers.
Be Strategic with Names and Visual Identities
Both the name and visual identity of a newly merged or acquired organization are powerful beacons for the positioning and future trajectory of the brand. Too often, names and visual identities fall victim to politics and short-sighted emotional decisions.
A brand’s name and visual identity should be viewed strategically just like any other asset in a merger or acquisition. A rigorous, data-driven process that considers business strategy as well as brand strategy is the optimal approach.
Factors to consider in naming include strategic signaling, existing brand equities, and investment implications. Strategic naming options include:
- A dominant strategy when there is clearly a stronger brand (Delta over Northwest)
- A combinatorial strategy leveraging the best of both companies (ExxonMobil)
- A transformational strategy marking a new beginning (Verizon emerging from the Bell Atlantic and NYNEX merger)
A thoughtful approach to naming strategy in mergers should be truly dispassionate and rooted in data to determine which brand’s equities best match the future drivers of choice in the market.
When it comes to visual identity, the design of a new logo often seems deceptively simple and apolitical. But symbols are powerful signifiers, and logos embody the new brand’s positioning and personality in a concise and visceral way.
A new logo is an opportunity to pay homage to the legacies of the previous entity or entities or boldly assert a new vision for the combined organization.
Beyond names and logos, taglines, slogans, and photography are all tools in the branding toolbox that can be strategically leveraged to signal new ideas and directions.
Align Employees and Other Internal Stakeholders
Uncertainty is the order of the day for employees involved in a merger or acquisition. As mentioned earlier, integrating different personalities and cultures can be as challenging as integrating incompatible systems. To achieve the enviable state of internal brand alignment, it’s critical to bring employees into the process as early and with as much transparency as possible.
Employees that feel invested in the development and positioning of a newly merged or acquired brand are most likely to gel under a shared purpose and vision. Incorporating representatives from across the organization into the brand strategy process helps to ensure that the employees underneath them feel seen and recognized.
When employees feel like they are part of something bigger than themselves, that something is brand. Strategically developing that brand to embody the cultural DNA of the previous entity or entities allows for a more seamless transition toward a shared future vision.
Employees are paying close attention during a merger or acquisition, so it’s important to take full advantage of this attention with brand engagement programs that are exciting, inclusive, and clearly articulate the values and vision of the new brand.
By definition, brands are emotional. Transitioning employees from a familiar brand to a newly merged or acquired entity requires intention and sensitivity. In asking them to walk away from a company they helped build, it’s critical that you give them something to walk towards that is just as emotionally compelling.
Don’t Forget the Customers
Last but certainly not least in private equity branding, it’s critical to understand how customers will react to any merger or acquisition. It is often just as likely that customers will be skeptical of the new deal as they will be thrilled to see it happen. It’s important to know which to expect so you can protect the revenue they bring into the new brand.
Thorough customer research is the best way to get your head around the implications of a merger or acquisition. Wide-reaching quantitative surveys enable you to check the pulse of a large contingent of customers, but qualitative initiatives, including one-on-one customer interviews and broader focus groups, are the best way to get nuanced insights into the perceptions of the individuals the company or companies serve.
Of course, understanding customer sentiment is not the same as integrating it into a purposeful strategy for private equity branding. The new positioning that emerges as the result of a transaction should be laser-focused to meet the needs of customers. It’s critical that everything from messaging to design to experience aligns with positioning that is itself informed by insights gleaned from rigorous customer research.
When it comes to mergers, the best practices of each legacy company should be systematically identified, preserved, and applied to the integrated brand experience.
A merger or acquisition is always a prime opportunity to reengage customers in new and exciting ways. Leveraging private equity branding to bring a new brand’s purpose and personality to life in unique and memorable customer experiences is a powerful way to establish differentiation from the outset of a new brand’s existence.
Research shows that strong brands are more profitable, grow more quickly, and sell at higher multiples. They are purposefully and strategically positioned to dominate their competitive landscape. And yet many firms completely overlook private equity branding in their approach.
By carefully considering important factors like brand equity, brand architecture, brand identity, and cultural synergies, private equity firms can better ensure the strategic and sustainable growth of their mergers and acquisitions well into the future.