One in Four Merged Companies
Don't Reveal New Name/Identity at
M&A Announcement
European Companies Especially Likely to Miss Out on a
Multi-Million Dollar Opportunity
New York, June 26, 2000
A new study on M&A branding, by identity and image management firm Lippincott & Margulies, reveals that nearly one out of four companies do not unveil the combined entity's name during the merger announcement.
The Lippincott & Margulies study, which analyzed the 100 largest international M&A's over the last ten years, found that 24% of companies did not divulge their new name or identity during the initial merger announcement—a time when the new name can make the strongest impact.
29 of the top 100 M&A's were between European companies. Nearly half of those entities (13 of 29) did not reveal their new name or identity at the time of their merger.
Analysis shows that M&A announcements typically reach the front page or front-page business sections of major papers and are widely covered in news magazines and television news. In U.S. print publications alone (first two days of newspaper coverage and first three weeks of top business magazine coverage), the AOL-Time Warner merger netted an ad equivalency of $121 million, Pfizer/Warner Lambert netted $12.5 million and the United/US Airways merger netted $5.5 million in free advertising. Ad equivalency is the amount it would cost for a company to purchase ads of comparable length and placement from news outlets that covered the initial announcements.
"If companies do not come out-of-the-box strong with a name and strategic brand strategy at the time of the merger announcement, stakeholders will be confused and the company misses out on its moment in the media spotlight," said Suzanne Hogan, Senior Partner, Lippincott & Margulies. "The next M&A will be announced within 24 hours and the follow-up story on your new identity gets buried on page C38."
Unlike M&A announcements, follow-up media coverage on new names usually secures minor, back of the book coverage. One example showed hundreds of major hits in a two-day period surrounding the merger, but only dozens of minor stories covering the new name.
"It's like having a baby and not naming it until it's a year old—and then naming it John Doe. It's both anticlimactic and a squandered opportunity," said Hogan.
Stakeholders' first impressions of a potential merger or acquisition are hard to change and the most obvious brand implication of a merger involves the name of the combined entity.
The Lippincott & Margulies study further found that 67% of mergers retained the name of one of the companies to extend the strong equity of one brand to the other (ie, Vodafone AirTouch and Mannesmann becoming Vodafone AirTouch). Twenty-four percent used a combined name to leverage the strengths of two powerful brands (i.e., BP Amoco). Only 8% of companies created a new name, signaling a break from the past and a true "merger of equals" (i.e., Rhone-Poulenc and Hoechst becoming Aventis).
According to Lippincott & Margulies, the following steps should be taken to ensure a successful M&A announcement:
- Capitalize on Your Moment in the Sun—Use every ounce of press coverage to your advantage. Leverage the $5M-$120M coverage you may receive in support of the new identity.
- Elevate Brand Strategy to the Due Diligence Process—Brand issues are often not addressed until after the deal is done. There are reasons to elevate its status to the due diligence process. Waiting until the end can often result in an impromptu and inappropriate decision. Without a concrete plan, "brand" issues can become one of the final playing cards in the deal or an afterthought.
- Communicate, Communicate, Communicate—Prepare your announcement in a way that won't leave anything up to interpretation. If you don't shape the whole story, others will shape it for you. Deal makers often focus on shaping Wall Street perceptions. Albeit important, Wall Street will focus on soundness of the strategic intent. But research shows that most mergers and acquisitions do not result in greater total value to shareholders than the original two entities, and that most failures are due to lack of a sound integration plan. Make the integration strategy part of your communication plan.
- Don't forget, Wall Street is not the only audience watching—Customers and employees are intent on the real story and the greatest risk a newly organized company faces is mass exodus of key talent and customers. Furthermore, don't' forget "peripheral" audiences that can dampen your license to operate—regulatory bodies, special interest groups, competitors. Keep them in mind while forming your communication strategy.
- Establish a Two Way Communication Mechanism and be Proactive in Addressing Audience Concerns and Expectations—Don't just send information, seek it. Research with key audiences is critical. A quick hit, qualitative dialogue with these audiences can reduce the "exodus risk" and provide a reason to continue communication with customers and employees. Ongoing communication is an important success factor.
In essence, the critical question to address is "What does this mean to me?" i.e., for employees, what will my future role be, if any; and for customers, how, if at all, will this change the way I do business with this company in the future? Getting a good understanding as to how to relay this message in a way that is truly meaningful to these audiences can be the difference between a successful and unsuccessful communication strategy. Don't presuppose that you know the right answer. Get it from them.
- Realize the Role that Identity Can Play in Shaping Audiences' Perceptions—A company's approach to its new identity sends a variety of signals to key audiences—signals that management may or may not intend. Remember that your intended identity sends subtle messages about who's in charge, where the business is headed and how well management has thought through these issues prior to the deal.
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