With more than 250 mergers and acquisitions taking place in the U.S. banking industry every year (and countless more considered but never executed), it’s clear the M&A trend is on banking executives’ minds. It’s one of the fastest ways to increase a bank’s valuation, but the track record of these deals isn’t always stellar. In some cases, they end up destroying instead of creating value for the two financial brands involved. Why?
Simple: there’s a lack of priority placed on the brand. In fact, of all the complex decisions senior executives make before and during a merger, none is more critical than the impact on the brand. And yet the internal and external branding components in banking M&As is often fumbled — a costly mistake.
The acquiring institution may only be interested in purchasing the deposits to increase its own value, but with no solid plan for the brand strategy, the integration gets mismanaged, and communications to key stakeholders create more concern than clarity. Promises between the acquired and the acquiring become more and more elusive. Internally, employees become distrustful and disgruntled. And customers behind those newly acquired deposits grow cynical, dissatisfied and eventually defect. Another big problem comes when the acquired institution’s company name, symbol, iconography and trade dress disappear immediately (i.e., the equity of the acquired brand is eliminated).
Too many executives in the financial industry feel branding is nice-to-have — not a worthy and legitimate priority. But in the M&A process, the brand is critical. It must play a critical role in 1) communicating the organization’s strategic intent, and 2) ensuring a productive relationship between three important audiences: employees, customers and shareholders. Simply put, the brand can be the unifying force, providing a singular opportunity for executives to set forth a compelling vision for the combined entity and, perhaps most importantly, send definitive and timely messages to employees and the outside world. But that’s not usually the way it goes.
Interestingly, due-diligence processes during merger negotiations are typically good at assessing tangible assets. But when it comes to intangibles like “brand”, employee and customer good will, and corporate reputation, the evaluation falls short or brushed aside — huge mistake.
The growth in the importance of the brand value over the last 30 years is unmistakable. According to Jim Stengel, former P&G GMO and adjunct professor at UCLA’s Anderson’s School of Management, virtually the entire market capitalization of S&P 500 companies in 1980 consisted of tangible assets. But by 2010, tangible assets accounted for only 40-50%. The rest consisted of intangible assets, and about half of that — more than 30% of total market capitalization — came from brand. Brand value is now most companies’ single biggest asset, so it’s critical that this part becomes part of the M&A process receives more priority and a more comprehensive approach.
And yet, financial institutions all too often hemorrhage employee and customer good will and corporate reputation during the M&A process without any appreciation for the long-term impact. With that in mind, here are four questions to help banking executives proactively think about brand as they work through mergers and acquisitions.
1. What makes the transaction compelling — greater scale, new market entry, complimentary product offerings to better compete, or acquisition of new streams of revenue?
How this question is answered impacts how the issue of brand might be considered in the terms of the transaction. It is acknowledgement that there is business purpose behind the merger, and brand identity and architecture must be aligned to realize the full value of the deal.
2. How will the transaction impact the organization’s essential reason for being? And, how will it enable to company to improve the lives of the people most important to the company’s future in new and innovative ways?
In a global economy of excess supply and insufficient demand, it’s not enough for a bank to have products or services that simply play a functionally useful role in customers’ lives. That’s table stakes and nothing more. The brand defines the business’s essential reason for being – the higher-order benefit it brings to the world and to its customers. It’s the only sustainable way of recruiting, uniting and inspiring all the people a bank touches, from employees to customers. It’s the only thing that enduringly connects the core beliefs of the people inside the organization with the core human values of the people the business serves. Without that connection, without that brand value, no business – merged, acquired, or otherwise – can truly excel.
3. Who might feel loss with this transaction and how will we communicate the value as a gain for those impacted by the merger or acquisition?
People build emotional connections to brands. Research shows that they often feel a tangible sense of loss when their preferred brand is acquired and assimilated into a new organization. That sense of loss can fuel defections from the brand and a sense of hostility toward the acquiring entity. It is critical to address these brand emotions as you plan communications around the transaction.
4. If one brand is slated to survive in a transaction, what competitor (existing or new market entrant) might try to claim the brand position being vacated?
Subsuming an acquired brand into an acquiring brand often leaves a void in the market. Competitors may try to backfill that void by claiming the legacy positioning of the eliminated brand, adversely impacting the value of the transaction. It is important to recognize this competitive dynamic, develop strategies, and identify proof points that allow legacy customers to continue experiencing (if appropriate) the attributes of the acquired brand as a means of retaining their business.