Why marketers should have a key role in M&A

The start of 2015 has seen a flurry of mergers and acquisitions – and not just of the kind politicians are wrangling over as they attempt to form the next government.

M&A activity among UK businesses was worth $62.4bn in the first three months of the year, with BT, Three, Net-a-Porter and TSB among the brands involved.

But when businesses merge, get acquired or do the acquiring there are implications beyond the financial. There are also inevitable consequences for marketing strategies, company cultures and reputations; and marketers have a key role in ensuring that when brands come together, they solve each other’s existing problems rather than creating new ones.

This lesson has been crucial at Naked Wines, which was bought by Majestic Wine in April for £70m – although the businesses will continue to operate as separate brands and combine Majestic’s store network with Naked’s ecommerce expertise.

Protecting brand values

“The biggest concern with customers was that it would become a big, boring publicly traded company, the obsession would be about profits and the Naked ethos would go out the window,” says Rowan Gormley, founder of Naked Wines, who has become chief executive officer of the merged company.

Naked Wines is a crowdfunded online retailer that aims to cut out the middle man. Customers pay £20 a month, which goes towards funding independent wine makers, and in return they can buy the produce at wholesale price. Majestic, meanwhile, specialises in selling wine by the case and has over 200 stores across the UK.

Gormley says: “That is the challenge, how do you keep what made the two companies great and get the benefit from putting the two together?”

BT, meanwhile, is currently in the process of signing a deal to buy mobile operator EE, as it looks to enter the ‘quad-play’ market along with Virgin and TalkTalk, offering TV, landline, broadband and mobile (see further analysis here). BT has said it will keep the EE brand in the short term.

However, rumbling underneath the debate about whether the EE brand will survive are the issues surrounding what it will mean for customers. EE has certainly faced these challenges before, as the brand was formed a result of T-Mobile and Orange merging back in 2010.

In an interview with Marketing Week last year, EE chief marketing officer Pippa Dunn said the transition phase was relatively brief and that the continued existence of the three brands within the EE umbrella company provides consumers with different options in the marketplace. However, plenty of Orange’s and T-Mobile’s customers expressed concern and confusion about the brands’ relationship to one another (see Q&A, below).

Whether BT eventually simplifies the offering remains to be seen, but because two-year contracts are common for mobile customers and because the EE brand has differentiated itself by selling 4G services only, there are many interwoven threads for marketers at the new parent company to unpick if the deal goes through.

Combining complementary services

The first quarter of 2015 was the busiest for M&A globally, according to research by Towers Watson, which has recorded activity since 2008 in association with Cass Business School.

The study tracks completed deals with a
 value of at least $100m and shows that 186 deals completed within the first quarter to 16 March. In addition it reveals that the financial performance of acquirers has continued to be strong during this period, with companies who closed deals outperforming global stock markets by 2.5 percentage points.

Steve Allan, practice leader for EMEA at Towers Watson says: “What we find in general is that the standard headline in a lot of the papers about M&A being a slow-motion train wreck is no longer true. In general, companies who close deals outperform the market.”

But he warns that M&A is not a guaranteed recipe for success.

The best way to get the right outcome is to ensure that the two brands’ offerings complement each other rather than competing or conflicting, something that marketers should be directly involved in after the deal, if not before. Majestic and Naked, for example, complete each other’s retail picture, bringing together bricks and mortar with ecommerce.

“The two companies together have all the right ingredients to build a strong business and to have created it from scratch would have taken years of learning, millions of pounds and lots of mistakes,” says Gormley.

He adds: “We [at Naked Wines] were going to have to build stores and a delivery network and Majestic has already got that. For Majestic, there are now so many places you can buy wine you need to give people a more compelling reason why they should buy it with you rather than those other places.”

M&A in the tech industry

In the technology industry big M&A deals are business as usual. Companies such as Facebook, Google, Twitter and Yahoo constantly look to snap up start-ups to add new services.

“What we have had in digital over the years is consolidation,” says Donald Hamilton, senior vice president of advertising and operations at video search company Blinkx, which announced that it is bringing its brands together under the name RhythmOne last month.

Hamilton adds that big tech companies such as Google and Yahoo have been trying to create a single “technology stack” covering as many points of contact as possible between the consumer and the digital world. The aim is to understand a consumer well enough to know in real time when to target the right messaging towards them, and through which channels.

Facebook has made three acquisitions in 2015 so far in 2015, bringing speech recognition, video compression and ecommerce capabilities in-house from Wit.ai, Quikfire and TheFind, respectively. Yahoo’s purchases, meanwhile, form part of its move to add video and mobile to its technology stack. In November 2014 Yahoo announced it would acquire video advertising company BrightRoll for $640m (£417m), and also bought mobile ad-tech firm Flurry last July.

The brand believes the BrightRoll acquisition created “the world’s largest programmatic video platform”, which allows Yahoo to use its data to place ads across the web.

For Yahoo it was a “strategic acquisition”, which Patrick Albano, vice president of EMEA advertising solutions, describes as a an effort to focus on “key areas that we know are investments for the industry, marketers and for us as a business”. It was a “key investment” for the brand as consumers and advertising spend shifts to both video and mobile.

“It’s not just the money,” says Albano. “But also how that business helps accelerate the rest of the business. BrightRoll has a well-known name in the video space and great technology, so those two things are a benefit.”

Indeed, the money spent on deal doesn’t always fully reflect the benefits of a merger or acquisition. Putting a price on these is a fraught process and nowhere more so than where the value of a brand is concerned.

Marketing Week columnist Mark Ritson recently highlighted research by trademark specialist Markables, which claimed that brand valuations by specialists such as Millward Brown, Brand Finance and Interbrand are much higher than the sums actually paid for them.

While Ritson sees this as a criticism of the valuation firms, they argue that in fact brands are often undervalued during M&A deals. The implications are that marketers could do more to impress the financial value of a brand on their organisation – and particularly the financial function.

Preserving company culture

Talent is another intangible asset whose value becomes crucial for marketing departments during M&A, as they are tasked with determining the future strategic direction for their brands, and the internal culture.

Each company will have a certain amount of talent they have built up over the years, alongside working habits that staff are accustomed to.

Allan at Towers Watson, which deals with integration issues for clients including retaining talent, says: “The people in the acquired population do tend to get worried – it’s always unsettling.”

He adds: “The key challenge you are going to face is [maintaining] that talent base – those key people you need that are good at what they do, and your competitors know they are good.” Allan advises companies to act fast, motivate and retain key talent before deals close.

Yahoo’s approach is to merge staff where it compliments the business. Albano says: “All acquisitions are different. We always have a strategy and a plan so integrating talent into the organisation in areas where it’s complimentary is key.”

He says with BrightRoll the brand has been able to “move fast around integrating technology along with the team integration”.

But it’s not always necessary to move people around when brands merge or when businesses are acquired.

For Naked Wines and Majestic Wine there will be very little movement of people but the companies will share knowledge in other ways. Gormley believes it is worth having internal networks and shared discussion groups and boards.

This is because, while both companies face similar customer issues, the propositions are different and by sharing those discussions electronically they will each pick up and benefit from the other’s knowledge.

Merging staff would also change the cultural set-up of those businesses, which Gormley wants to avoid.

“We want to keep separate companies, their own supplier basess, their own ranges and their own culture. Majestic has a £300m turnover with 1,000 people and it needs to have a robust culture which is able to support that level of sales, and there is a degree of complexity.”

He adds: “Naked is much more of an agile, rapid, test-and-learn kind of business. I think you want to keep those characteristics different. You can’t suddenly turn Majestic into an agile business.”

Towers Watson’s Allan adds that cultural clashes are a key reason why deals go wrong. He says: “Everyone is different, and when people work in an organisation they have chosen to be there because they fit with how it works. As an acquirer you come in with your own culture and that is hard.

“You have to think: are we going to meld them into our culture, have the best of both or separate? It’s fundamental to how you keep people.”

In the technology world, Hamilton at Blinkx also believes people are key. He says: “Businesses in a media industry like the one we work in today are built on people. No matter how we move technology on or sew it together, the idea is that it’s people that make and run businesses, not just tech, so spend a lot of time making sure your people stay on board.”

Whether it’s staff, mutual business growth or consolidation of technology, if the merger or acquisition clearly communicates the coming together of common values, it is likely to make the outcome much more successful.

Q. What are the branding implications of mergers – particularly in creating a coherent and cohesive brand and communicating this to customers?

Pippa Dunn: In a merger, you need to decide on how best to work with your existing brands. Keeping Orange and T-Mobile in the market worked well for us and meant we had an offer for everyone. When you’re integrating two businesses, you have to make sure the customer experience is right first; you can’t leave your existing customer base behind.

Creating EE gave us permission to go beyond people’s expectations of Orange and T-Mobile and create a whole new brand based on network supremacy, speed and innovation. Once you have defined that brand and what you want it to stand for, you can be bigger and bolder in its advertising, taking a disruptive approach because there are no rules to break.

Q. How do you deal with consumer backlash from mergers when services are phased out, for example Orange Wednesdays?

Pippa Dunn: Once you’ve defined your new brand proposition you need to take a fresh approach and ensure all new offers and services align with your new vision. A perfect example of this is Orange Wednesdays. It was a very popular offer and a massive success at its peak but our brand changed and our customers’ viewing habits evolved so it was time to move on and introduce a more relevant offer.

Q. What is the best way to merge brands in terms of organisational structure and culture?

Pippa Dunn: It is key to communicate your vision as quickly as possible to ensure everyone feels involved – not just part of a business, but part of a bold, exciting new culture. We made sure we had the right structure in place to get closer to the front line, and ultimately our customers, to communicate this.