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Acquisition maths: how do you make 1 + 1 = 3?

Post financial crisis, and with life slowly returning to the mergers and acquisitions market, the subject of how to successfully integrate two (or more) separate entities and brands has become - once again - a hot topic.

In which case, it’s prudent to remember that success is rarely a certainty.

During the heady days of the pre-crisis boom, there were as many M&A 'failures', as high profile 'successes'.

More so, if The Economist is to be believed when it concluded that, 'Study after study of past merger waves has shown that two out of every three deals have not worked'. Insights that were echoed from within the Intelligence Unit that, 'Less than half of those involved in M&A considered them a success in retrospect'. The Sunday Times also weighed in with statistics showing that, '61% of deals fail to cover their cost of capital' and 'fewer than 25% generate economic value for the buyer'.

Off the back of these depressing figures sprang a lucrative opportunity for management consultants to market post-merger integration services focused on helping new businesses achieve clearly measurable KPI’s in: finance; process quality; customer satisfaction; growth and innovation; and people commitment.

Yet, perhaps surprisingly, amongst all the measures identified as being vital for success, the one most frequently over-looked was brand and communications.

To be fair, no one is going to claim that it's not important to have a clear vision for a new organisation. Nor that it needs to be driven by a leadership blueprint and set of values that can help create a cohesive internal culture and compelling external business case.

Yet, in the melee of pre- and post-M&A 'noise', considered evaluation of these all-important 'brand' issues more often than not gets swamped by the need to address more pressing operational imperatives.

Which is surely to attach insufficient importance to one of the potentially most powerful tools available to management... not only in winning over the hearts and minds of internal (and external) audiences, but also energising and motivating?

Furthermore, given that decisions made during the early days of any deal will almost inevitably form the basis for a company's future brand position...
if ill-considered, they may well adversely colour perceptions for the long-term.

In other words, it's essential that management give themselves the time, as early as possible in that process, to assess carefully the various communications and brand solutions available. To borrow an old adage from the world of recruitment: ‘You never get a second-chance to make a good first impression’.

Usually the first instance of this 'pressured' thinking comes when the Board is confronted with the following questions: 'What shall we say in the Press Release? What do we now stand for? How will we position ourselves - to our customers? To staff? How will we integrate, or streamline, the various products and services we’ve acquired?’

And whilst to many executives the answers may appear obvious, beneath these simple questions lurks a myriad of complex ownership and/or image and communications’ considerations that can cloud objective evaluation:

  • if an acquisition, does it automatically follow that the dominant partner has the strongest brand and marketing/communications approach?
  • will the merged ‘new’ entity be a mirror of what already exists within the two businesses (albeit larger)? Or a ‘new, improved’ firm - re-invented?
  • or should it also embrace and reflect somehow the unique characteristics of the acquired? For which, presumably, a significant goodwill premium has been paid? If so, to what degree?

Put another way, how best to reflect the combined benefits of the partners in their new, united totality? More than just scale. More than just synergies.

One of the ways to ensure that the new, evolving organisation aligns itself behind a clearly defined sense of 'future self' is to begin communications and brand thinking at a sufficiently early stage in the strategic process. Just as early planning is key to success in the creation of new financial and organisational structures, so is that equally true for values, communications and cultural ‘structures’.

In which case, how can companies strengthen their chances for integration success? And what can be done to ensure that the emerging entity is seen as more than just the sum of its individual parts?

1. Clarity.

One of the main drivers for success is the need for a clear vision for the new entity.

Ideally, this must go beyond pure business logic and ‘operational synergies’ to encompass broader, value-added, even emotive characteristics and aspirations. 'Changing the game' may be too strong a term, but it certainly needs to reflect a positive step-change in direction and image, especially in relation to evolving industry dynamics.

2. Values.

Included alongside financial and operational targets should also be other measures regarding reputation; image; brand; corporate culture; and ambition.

Whilst being sensitive to any restructuring and rationalisation underway, the emphasis needs to be on a positive set of values and behaviours that can help drive a new, or evolved, sense of identity and direction.

3. Differentiation.

Extending that thinking, how can the new organisation be more clearly positioned in its market place and in relation to competition.

Is it simply about being 'the same, but bigger' (hardly compelling)?
Or 'more impactful, different, and smarter'? If so, what is the core differential? Importantly, how can that be expressed in a uniquely motivating way?
How can this be reflected through the overall corporate narrative and messaging? Design ‘look & feel’; imagery and tone-of-voice?

4. Organisational structures and subsidiary / brand portfolio management.

At this stage, consideration needs to be given to the various brand and organisational relationships that will exist in the ‘new’ firm: either integrating existing operating company and business names, product or service brands; or rationalising the portfolio into a more streamlined structure.

What to keep, merge, or de-list will depend upon respective historic, quantifiable brand/image strengths and their roles within the new scheme of things. The key is to be clear about where the parent brand is heading and how these individual constituent elements fit into and support that overall strategy.

Depending upon the nature of the deal, now may also be the time to review the name and/or visual identity for the Group... bearing in mind that this is a significant step for any organisation to consider and one that is likely to be more relevant to an organisation that is merging than acquiring.

5. Customer and external stakeholder satisfaction.

Given the internal focus of much of the acquisition process, it's essential that the 'voice of the customer and external stakeholder' be heard throughout.

Whatever structures are put in place, products or services developed, or marketing messages promoted, they need to be managed in relation to helping the company better deliver against its promises in meeting customer needs. Maintaining an external perspective is vital throughout the integration process.

6. Cultural alignment.

Delivering against one's promises requires a company to be fully aligned behind customer needs and that means ensuring that staff have an implicit understanding of expected service standards. Essential for service-focused businesses and the more challenging for consultant-based firms, where gaining consensus behind a new direction is all the more difficult... ‘Herding cats’ being a phrase often quoted!

More than just internal communications, this needs to be a process of internal marketing and engagement with a set of strong cultural values at its heart. Importantly, the process itself can be used to symbolise and drive integration.

Inevitably this takes time; it also requires commitment at every stage of the programme.
When Balfour Beatty, the global infrastructure services business, merged two of their oldest and best known industry brands - Balfour Kilpatrick & Haden Young - they brought them into the corporate brand under the Balfour Beatty Engineering Services name. One of the many aspects that helped in this integration process was a commitment to place ‘brand’ at the heart of BBES from Day One.

In fact, ‘brand thinking’ pre-dated Day One... as StrategicFusion was asked to play a privileged role in working with the new BBES senior team to help define the very ‘essence’ of the business before the merger was announced. That role entailed helping define the ‘new’ vision, values and culture for the company; its core proposition and, importantly, how to gain maximum value from its association with the broader Balfour Beatty Group ‘family’.

‘Single focus; Total service’ became the expression for their integrated business promise, supported by a distinctive visual language reflecting their new collective strength. A full suite of communications materials was created, particularly focused on internal audiences, with one of the key challenges being to help unite two sets of employees who - historically - had been passionate competitors!

The results were immediate. BBES rapidly established a strong profile, whilst understanding and appreciation - internal & external - of what it was, what it stood for, where it was going, and what made it unique were rapidly cemented across the organisation. This helped align the business behind one corporate 'cause' and began the process of embedding the agreed vision, mission and values.

This not only re-enforced a sense of strong leadership, but also gave a focus to those issues deemed important, leading to faster decision-taking and the realisation of initiatives that helped the organisation deliver against its promises. Importantly,
it helped management place brand and communications right at the heart of the business, actively shaping policy alongside the traditional functions of finance, HR, operations, distribution and IT.

What was more impressive was that this was achieved by a B2B company, rather than consumer-focused entity. So in that regard, perhaps the improbable mathematical calculation featured at the start of this piece is insufficiently aspirational...

Can 1+1 ever equal 4?


Delivering against one’s promises means ensuring the company is fully aligned behind customer needs