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Brand Integration Practices in Mergers and Acquisitions

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Brand Integration Practices in Mergers and Acquisitions

    Brand Integration Practices in Mergers and Acquisitions

    Dr Dũng Anh Vũ

    Faculty of International Economics

    College of Economics

    Vietnam National University, Hanoi

    Email: vudung@vnu.edu.vn

Associate Professor Dr Nhạ Xuân Phùng

    Faculty of International Economics

    College of Economics

    Vietnam National University, Hanoi

    Email: nhapx@vnu.edu.vn

    Brand Integration Practices in Mergers and Acquisitions

Abstract

    Purpose This paper aims to capture and systematise practices which have been proven good skills, tactics, methods, and techniques at effectively and efficiently delivering particular outcomes behind the integration of brands in various mergers and acquisitions (M&As). These practices can be shared and learned to improve the success of brand integration in future M&As.

    Design/methodology/approach The paper adopts the case-study method by interviewing

    companies which have been involved in M&As.

    Findings Twenty practices are identified and defined from ten M&A events within six case companies (those are multinational corporations MNCs).

    Practical implications The paper provides managers insights into good (or winning)

    practices that MNCs from various industries have adopted in integrating brands in their M&As by addressing a number of specific issues and corresponding solutions.

    Originality/value The twenty practices for the integration of brands in M&As are classified into eight major clusters according to the dimensions of brand and brand management these practices are related to brand strategic positioning, brand people, brand knowledge

    transfer, brand integration planning, brand integration implementation, brand disposal expertise, brand disposal negotiation, and brand due diligence. These clusters allow M&A and integration managers to accumulate their own brand integration practices from time to time systematically. These also help facilitate the adoption of learning approach by firms to their later M&As.

    Keywords Brand, M&As, Brand Integration, Practices, MNCs

    Paper type Research and Practical Paper

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1. Research Background

    Although mergers and acquisitions (M&As) have been becoming a dominant mode for pursuing corporate growth and value creation, the majority of M&As do not result in an increase in shareholder value (Brewis, 2000; Habeck et al., 2000; A.T. Kearney, 1998; KPMG, 1999; PR Newswire, 1999; BusinessWeek, 2002). A number of researchers constantly indicate

    that more than 80% of corporate combinations do not achieve their desired financial or strategic objectives (Davidson, 1991; Elsass and Veiga, 1994; Lubatkin, 1983; Carleton, 1997). While post-M&A integration is claimed to be vital for success (Child et al., 2001; A.T. Kearney, 1988; Haspeslagh and Jemison, 1991; Simpson, 2000; Appelbaum et al., 2000), research in this area has been rather limited (Shimizu et al., 2004).

    In a great number of M&As the role of brands is central to a firm‟s growth and value creation

    (Vu et al., 2009). Brands are not only major objectives in their own right in M&As but also the starting point for solving problems of overlapping resources in order to realise synergy (ibid). According to Vester (2002), „despite the evidence that most acquisitions fail to add

    value to the acquirer, an acquisition can be successful by following a disciplined integration program based upon best practices. The good practices of organisations who have been

    involved in M&As can provide useful knowledge about integration skills, tactics, methods and techniques which can help other companies to improve their own chances of successful future brand integration when involved in a M&A. The following example demonstrates the crucial role of the brand integration practices to the success of M&As.

    The merger between Guinness plc and Grand Metropolitan plc

    This merger, announced in December 1997, formed Diageo plc - the world‟s largest producer

    of alcoholic drinks. In our interview a senior executive of Diageo revealed that the compelling proposition was an astonishing brand portfolio created when the two companies merged. The integration was about growth. Every brand strategy Diageo employed in integrating the two spirits portfolios aimed to deliver this growth. One of the big issues that challenged the success of brand integration and the building of a world-class brand position was that initially both Guinness and Grand Met had their own brand building and marketing processes which were quite different to each other. Therefore, the newly formed Diageo organisation had no commonality and consistency of approach, with different sets of brand building and marketing processes underpinning individual brands.

    To solve this problem Diageo developed „Diageo‟s Way of Brand Building‟ (DWBB), a tool

    which pulled together the best marketing and brand building management practices of the two firms. Mr Rob Malcolm, Diageo's President of Global Marketing, Sales and Innovation, highlighted the importance of developing this common approach (DWBB), as well as its costs and payback: We estimate the corporate commitment to DWBB in investment terms over the past four years to be in the order of ?35m. That includes the cost of the days invested as well as all the programme and training costs. That is a very big commitment, but once we feel that

    has an almost immediate payback. As a percentage of the total investment in marketing, advertising and promotion, that number is actually less than one half of 1% of that asset. If we increase the efficiency of efficacy of our marketing programme by only 5% per year, the payback is virtually instantaneous‟ (The Coverdale Organisation Ltd).

    In this example Diageo employed its own method (i.e. DWBB) to ensure the success of the brand integration in the post-merger. That was needed to overcome difficulties and challenges posed by brand integration. Capturing these should provide a valuable resource of „good

    practices‟ to support and facilitate successful brand integration in future M&As.

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2. Good Practices vs. Best Practices

    The term „best practices‟ is usually taken to mean the simplest available method that delivers

    the quickest and most desirable result (Taylor, 1911) or the one-and-only best way (Kanigel, 1997). Industry Week, a publication targeted at manufacturers, sees best practices as the

    stories from America‟s and Europe‟s best plants that can be shared and learned to improve

    competitiveness and productivity (Panchak, 2000). Therefore, the term „best practices‟ is

    normally understood narrower than (or as a part of) the term „good practices‟.

    In this paper good practices are defined as good skills, tactics, methods, and techniques (which are effective and efficient at delivering particular outcomes) behind the integration of brands in various M&As (such as the „DWBB method mentioned in the exploratory case

    above).

    3. Clarification on the Term „Brand‟

    By far and away the most commonly quoted definition of a brand is that given by AMA (1960) which states that a brand is a „name, term, sign, symbol, or design, or a combination of them intended to identify the goods and services of one seller or group of sellers and to differentiate them from those of competition‟. For nearly twenty years this definition remained

    unchallenged and is still in wide currency even today (e.g. see Kotler and Armstrong, 2008). However, by the late 1970s a number of authors had begun to suggest that a brand included not just the identifying marks created by a brand owner but also the perceptions of these marks by consumers (King, 1970; Cooper, 1979). de Chernatony and McDonald (1992) were able to show that there were at least twelve different brand definitions in use at that time, each one assigning a different role and function to the brand. The issue was further complicated when de Chernatony and Dall‟Olmo Riley (1998) showed that even Brand Experts did not

    share a common brand definition, although most did at least recognise some common elements within their various definitions.

    For the sake of this research study a commonsense and pragmatic approach has been adopted to this issue. As the respondents in the various case studies talked about brands it became clear that they also did not share a common definition. However, all did seem to agree that:

    ; A brand was a complex entity

    ; It was a mixture of both brand owner and brand user elements

    ; It contained both functional (= rational) and emotional components. They did not, though, agree on the relative importance of these latter two components. For

    example, Diageo and SABMiller both placed greater emphasis upon the emotional aspects of their brands. Sealed Air Cryovac (technical business), on the other hand, tended to see the functional elements as the more important ones. It seemed that the greater the complexity of the technology utilised by a company in creating its products, the greater the probability that it would emphasize the functional components of its brands.

    The authors have, therefore, allowed each case study company to define „brand‟ in its own terms, the primary source of inter-company variation being the degree to which they place greater or less weight on the emotional aspects.

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4. Literature Review on M&A and Integration Practices

    The existing literature has identified a number of practices during the M&A process and each phase of it (Table 1). These practices help to avoid pitfalls, overcome challenges and enhance the success rate for future M&As and integration phase.

    “Take in Table (No.1)”

    Fundamentally, these practices can be grouped in some common ones such as leadership;

    communication; motivating and retaining key people; building commitment and trust; forming a joint team from the two parties; conveying respect for employees of the acquired company; managing acculturation; sharing goals, vision and norms; carefully planning; speed; measuring and tracking. However, most of these are more related to human and

    cultural aspects of M&As and M&A integration phase and valuable in helping employees manage M&A-related stress, crisis of combination, and culture clash and post-merger culture building. They are also quite generic and apply mostly to the overall implementation of M&As and, therefore, not specifically to the integration of brands in M&As. Although some research addressed the focus on continuously serving customers to boost sales and services (Galpin and Herndon, 2000; Nguyen and Kleiner, 2003; de Camara and Renjen, 2004; Papadakis, 2007) which are related to product and brand, these practices are neither enough nor systematic for the integration of brands in post-M&As. For instance, the practice identified in the exploratory case (i.e. DWBB) has not been mentioned.

    5. Research Aims and Method

    This research aims to capture and systematise practices which have been proven good skills, tactics, methods, and techniques at effectively and efficiently delivering particular outcomes behind the integration of brands in various M&As. These will help firms to benchmark and learn in order to improve the success of brand integration in future M&As. Case-study method (Yin, 1994) was used to capture these insights (i.e. good practices) because these could not be done through quantitative method. Top-level executives, M&A managers, functional managers and members of M&A projects who were involved in ten M&A events within six case MNCs were interviewed (Table 2). These case firms were

    selected because brands were the focus of their integration in the post-M&As. The size of these M&As also varied small, medium, large, and mega in order to allow generalisability of the findings.

    “Take in Table (No.2)”

    6. Research Findings

    According to Vu et al. (2009) firms may not only combine but also divest themselves of some of the merging brands in the post M&A integration process (especially in horizontal M&As that take place when two companies in the same industry with competing products and brands combine Stacey (1966)). Twenty good practices as the findings of this research fit into

    these two directions and, therefore, are divided into two distinct groups the combination of

    merging brands and the divestment of merging brands.

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6.1 Practices Related to the Combination of Merging Brands

    Each brand has its own identity and value and serves a set of customer groups. Integration of brands should be in line with the post-M&A organisation‟s strategic direction for the brands.

    At the same time it should give the merging brands the best opportunities for growth. 6.1.1 Always identifying strategic position for the merging brands

    When combining the merging brands one of the most important decisions the post-M&A organisation should make is resources allocation for each brand in the newly combined portfolio. Furthermore, the post-M&A organisation needs to create an effective management and communication system for each of those brands. Therefore, identifying strategic position for each of the merging brands is crucial. This involves decisions about the strategic direction for each brand in local and international markets in the integration process. In Cases 1a and 1b the post-merger Diageo classified its merging brands into 3 classes within each category: global priority brands with global market and global positioning (e.g. „Johnnie

    Walker‟, „J&B‟), local priority brand market units which are very strong in a particular

    country in terms of consumer preference, high sales and profitability (e.g. „Windsor‟ in Korea and „Buchanan‟s‟ in Mexico), and category brands which target niche segments with growth

    prospects and profitability in several countries (e.g. „Haig‟ in Greece and India and „Black & White‟ in a few countries). This categorisation is very useful for Diageo in building a portfolio that covers most of the consumer needs in terms of price point, consumer occasions, and motivations. It also helps Diageo allocate the resources and manage around the competitors efficiently and effectively.

    In Case 2 the post-merger GSK prioritised their resources and efforts according to three levels of healthcare brand classification global brand (marketed in multiple markets), lead market

    brands (marketed in a few markets), and enterprise brands (valuable local brands). This

    classification enabled GSK to enhance the growth for each brand and achieve the best performance through effective coordination among R&D, marketing and commercial operating functions.

    In Cases 5a and 5b SABMiller named and built „Pilsner Urquell‟, „Pernori Nastro Azzurro‟, and „Miller Draught Genuine‟ as its international premium brands after acquiring them from local breweries in the Czech, Italian and US markets respectively. This helped maximise the growth of these brands in international markets.

    6.1.2 Balancing between consistency and flexibility in applying the strategic model for

    merging brands in each market

    The post-M&A organisation needs to leverage effective and efficient management of merging brands, particularly those that have an international position. The management and building of each brand in the combined portfolio needs to be consistent around the world and needs to match its identified role. The resulting identity and value of a brand should be the same everywhere.

    Identifying the strategic position for each brand in the combined portfolio only provides managers with a general guide to the consistent management of each brand. Since consumer behaviour may vary from market to market, no single model is applicable to every market and the implementation of the brand strategic model should, therefore, be flexible. In Cases 1a and 1b Diageo applied its strategic brand positioning model globally but allowed some flexibility on a country by country basis. Diageo did not in fact apply the global priority

    brands model to each country because of the wide variation in brand standings across these markets. For instance, „Johnnie Walker‟ is a brand leader in many large markets around the

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    world but not in the UK (where the brand was withdrawn in 70s/80s because of internal European competition and pricing problems). Therefore, „Johnnie Walker‟ is low priority for the UK whereas the „Bell‟s‟ brand is a big player. The global positioning and size of the brand would drive decisions about „Johnnie Walker‟ but local strategies would drive decisions about

    Bell‟s or other local priority brands that are only strong in a few local markets such as Spain, Portugal, France, Korea, or Mexico. Focusing on „Johnnie Walker‟ in the UK would produce little sales growth for Diageo as a whole.

    In Cases 5a and 5b, SABMiller has a so-called „brand mutual perspective‟ when acquiring a

    local brewery; which means they tend not to impose their international brands on local managers, believing instead that the local acquired portfolio should provide the major contribution to the value creation in the acquired business. Hence SABMiller gives the local team the opportunity to build and develop the local brand portfolio first before bringing in their international brands. As an example, when entering the premium segment gap in the Latin American market, SABMiller‟s local management team decided to use „Club Colombia‟,

    an existing brand of GEB, as their premium brand. However, for some other local markets such as the US and some European countries, SABMiller deployed its two international brands „Pilsner Urquell‟ and „Pernori‟ in the premium position. SABMiller recognises that insisting on building the international brands would be counterproductive in some markets. 6.1.3 Organising human resources in integrating and managing the brands

    Effective organisation of human resources for brand management enhances the effectiveness of the implementation of the strategic model for merging brands.

    After acquiring Jaguar, Ford formed a group called PAG (Premier Automotive Group) which is in charge of its premium brands. When Ford acquired a new premium brand (such as Land Rover or Volvo) later, this team was responsible for managing and integrating the brands (Cases 3a, 3b and 3c).

    In Cases 1a and 1b, in order to facilitate brand management and streamline the assignment of the integration task Diageo split its global teams into:

    ; a Release Group in America, that was put in charge of the brands in the „release‟ area

    of the consumer need segmentation (people go out for party): e.g. „Smirnoff‟ (Vodka)

    and „Cuervo‟ (Tequila).

    ; a Guinness Group in Dublin, that was in charge of Guinness beer.

    ; a Whisky, Gin and Reserve Brand (WGRB) Group based in Amsterdam in the

    Netherlands: these are all based on „status‟ (drinking to show status) and

    „discernment‟ (drinking 'the best brand', the brand as an element of 'good living')

    categories and include „Johnnie Walker‟, „J&B‟, and „Tanqueray‟.

    ; a Baileys Group which was responsible for the „contentment‟ core consumer need

    (people drink to relax).

    When acquiring a new brand Diageo immediately knows which team is in charge of integrating and managing that brand and how the new brand should be positioned in comparison with other brands. For example, when „Captain Morgan‟ brand was acquired,

    Diageo positioned it in the „release‟ core consumer need. Therefore, „Captain Morgan‟ was put under the management of the Release Group. Generally speaking the global brand teams take care of the global priority brands while local teams are in charge of the local priority brand units. The global brand teams are in charge of global marketing and innovation and concerned with the growth and development of the global brands.

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    6.1.4 Being equal and treating people with respect and fair financial benefits in

    implementing brand integration

    Many M&As are at the corporate level. Once a deal gets announced to the market what typically happens next is related to 'people' issues. In many M&As the idea is to get 'the right people' and they will figure it out what to do with the business. In other M&As laying off people is inevitable. „How to integrate people?‟ is perhaps the most common question that

    managers usually have to deal with. One common response from the managers in the case studies is that human resources embedded within particular cultures are difficult to integrate. In a regard to brand integration three important rules drawn from the case studies are: select the best brand people equally from both sides; Integrate people quickly and with sensitivity; Treat people with respect and ensure financial benefits are fair.

     The post-M&A organisation should select the best people equally from both sides without trying to impose one culture on the other. The focus is on what talent the firm wants to keep. Both Diageo and GSK prioritised human integration as the first thing to do because appointed people decided the integration plan.

    In Case 1a the first thing Diageo did was senior management appointment: We started with

    an executive committee where around 12 people were appointed from the previous total of about 20 in the combined Guinness’ UD and Grand Met’s IDV spirits businesses (a Vice

    President of Diageo); or I was marketing director at the IDV of Grand Met. Both I and the

    marketing director at the UD of Guinness were considered equally for the job. Our goal was

    to keep the best people, not to impose one culture on another (The Global Innovation

    Director at Diageo). Once Diageo had the executive committee in place, they were able to interview managers in charge of each country and make appointments.

    Similarly, people integration was the first thing GSK did (Case 2). The deal was an equal merger with the best of both combined. An executive board of 16 people was appointed from the 25 in the combined boards of the two firms. The number of members of each side was equal. GSK also formed an integration planning committee drawn equally from the top management boards of both GW and SB.

    Treating people with respect involves not only fair financial benefits but also communicating with them. People need to know in advance what is going to happen (to them and to the company) and if and when the firm is going to lay them off. This kind of information also helps to stabilise the best people the firm really wants to keep. The post-M&A organisation should make sure that everybody is informed as soon as possible about expected changes. According to the Global Innovation Director (Case 1a), if Diageo is going to make a decision that is related to human resources in the next few months, Diageo lets people know immediately because it is very important for people to be kept informed. Another good practice Diageo adopted in regard of treating people with respect is to have the person who is not appointed helping the person who is appointed for the integration.

    In the pharmaceutical industry GSK also seemed to employ similar practices together with appropriate financial benefit and communication (Case 2). The integration planning committee was made of both appointed and „retired‟ people: e.g. Sir Richard Sykes of Glaxo

    Wellcome, who agreed to step down as the CEO to clear the way for the merger was the co-chair in the integration planning committee. Several other ex-members of the executive boards of GW and SB were also a part of the integration planning committee. 6.1.5 Providing training to brand people where necessary

    Brands are managed by people. Firms very often acquire not only a brand but also its

    marketing and brand people. Different firms have different ways of brand building and use

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different brand „languages‟ (or terminologies). Getting people to speak a similar marketing or

    brand „language‟ and to do brand building in a common way is a very important part of brand integration. Training can be a useful tool to achieve this.

    Diageo (Case 1b) owns Diageo’s way of brand building (DWBB), a complete way of doing

    marketing which consists of tools, processes and practices for brand building. When Diageo buys a brand with associated marketing and brand people, they are immediately sent on the DWBB training course which is a two-week training programme to get people to understand and speak in DWBB. Diageo insists on all marketing and brand staff using the same language and the same techniques around the world.

    In Cases 3a, 3b, and 3c people at Ford, Jaguar, Land Rover and Volvo designed cars in different ways. Ford‟s resources had evolved independently over time and the result was Ford could not build, for example, a Land Rover in a Volvo factory because they work in different ways. Apart from integrating all the tools and processes together Ford has been trying to train people in order to get them to work on common or sequential process structures and tools (e.g. the same product architecture) for new product development and other aspects of manufacturing. Up until 2008 aspects of the way Ford has designed cars may vary significantly between one car family-type and another, and between one brand and another. 6.1.6 Empowering brand people by assigning tasks to them

    M&As especially the horizontal ones usually result in the acquiring firms gaining additional resources and capabilities such as new technologies, new processes, and the supporting systems under new brands. However, people are key to realising the potential of these capabilities and expertise. Therefore, managing people is critical, particularly leadership skills and the ability to motivate people towards achieving common goals. Empowering people can help to enhance leadership. The benefit of empowerment in brand integration is not only to give authorisation to people but also to make people more confident about their expertise and thus enhance their contribution to the organisation.

    Ford‟s growth by M&As gained them a number of product development centres (or so-called centre of excellence‟ CoEs) but none of them took on a central role (Cases 3a, 3b, 3c).

    Consequently, product and engineering design was different from one centre to another although they might have been working on the same type of car. However, Ford could not shut down some of its CoEs, retaining only one or two major ones, because people would go, losing Ford the strengths, capabilities, expertise and uniqueness of each brand. Ford retained different CoEs but employed a virtual-centralised approach for product development by assigning different technology areas to different brands. Each centre would take a lead in their own area of strength: Volvo for safety and premium; Ford Europe for efficiency, good powertrain, and good driving dynamics; Jaguar for premium, emotional experience, driving dynamics; and Land Rover for off-road or 4-wheel drive capability. These solutions would be shared among the different CoEs. One of the benefits of this was that different brands „felt‟ that they were particularly important in a particular area and their leadership roles would get more integrated because each brand shared their expertise across other brands. Therefore, empowering people helped the integration process at Ford, particularly the integration of technology.

    6.1.7 Learning from the acquired brands

    In parallel with the selection of the best people from both acquirer and acquiree, it is very important for the post-M&A organisation not to assume that its existing knowledge about the brand management, market and customers is adequate for the brand integration process. The firm may need to consider further, new, consumer research and other ways to determine the

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    best opportunities for the newly acquired brands; moreover, the firm needs to study and make use of the brand and market knowledge possessed by the acquired firm.

    In Case 1b, Diageo tried to not assume that they had better knowledge of the Seagram brands

    simply because they were bigger and were the acquiring firm. When integrating the „Captain Morgan‟ brand, Diageo revisited its consumer research on the brand to establish the best need segment for the brand. In addition they called upon the heritage and knowledge of „Captain Morgan‟ as critical input when establishing the current brand identity in the consumers‟ mind.

    In Case 1a the senior executive at Diageo revealed that brand strategy had been much more a centrally managed activity in the IDV division (Grand Met) than it had been in the UD division (Guinness). Diageo ended up with a central governance on brand positioning and advertising, but with most of the marketplace authority and capability given to local market and regional teams.

    6.1.8 Codifying the brand management and integration practices and transferring them

    through different ways in the integration

    M&As are frequently involve international issues (Child et al., 2001). Moreover, the M&A process can be viewed as a learning process (Very and Schweiger, 2001). When a firm has been involved in one M&A, they can use the learned knowledge and practices to promote successful integration in later ones. In addition there is always a transfer of brand management or integration knowledge, skills and best practices between the firm and its acquired business. Codifying such knowledge and making it available it in various ways should enhance the success of brand integration (like Diageo in the exploratory case). Sometimes, transferring or introducing codified knowledge and practices can be more effective than training in assisting integration.

    SABMiller (Cases 5a and 5b) used to be a small local brewery in South Africa back in the 1980s and 1990s. At that time SAB split the country into five regions with a local managing director (MD) in each region. The local MD‟s responsibilities were to run the brewery, to manage the distribution system, and control the sales force (marketing and finance was centrally managed in Johannesburg). When SABMiller started to acquire overseas breweries, it sent these MDs to run the acquired businesses (e.g. the acquired brewery in Hungary). The organisational capability which had been generated internally was exported with the transfer of managers to the businesses it took over.

    However, it is not suitable for SABMiller to continue this approach because the company becomes too big now (by acquiring many breweries around the world). Moreover, the transfer of skills, knowledge, methods and technologies around the group to enhance growth and efficiency becomes more frequent for SABMiller. SABMiller, therefore, codifies its best practices and transfers these in a variety of different ways. The codification is called „the

    SABMiller‟s Way‟ and it covers practices in marketing, brand building, and other functional

    areas. In each functional area it describes how a particular function performs its role and it seeks to achieve standardisation of best practices worldwide. SABMiller seemed to think that integration is not so much about training, development and long-term in thinking but more about meeting aims quickly their processes aim to drive behaviour to match issues identified in their integration plan. Therefore, SABMiller tends to introduce and use its codified best practice (SABMiller‟s Ways) for integration in the short-term instead of longer term training. 6.1.9 Being informal sometimes when planning brand integration

    Very often a firm acquires a much smaller local firm and puts the acquired brands into its existing portfolio. Because the size of the acquisition is rather small and the acquisition is less strategically important, getting the top senior management involved will not have a great

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