In Food & Beverage, M&A Success Relies on Brand Strategy01.24.18 / David Lemley
The purpose of mergers and acquisitions (M&A) is to combine the intellectual property, capabilities, and reputations of different entities into something more powerful, more valuable, and ultimately more sustainable over the long-term.
Ownership changes, acquisitions, and huge funding deals continue to swarm the food and beverage industry like flies at the world’s biggest better-for-you summer picnic.
The benefits of an M&A include diversified product and service offerings, increases in capacity and market share, merging operational expertise, shared research and development, and reduced financial risk.
These are all good, but an average of 50 percent of the 70,000 M&As in the last two years failed to create long-term shareholder value (some rank this number as high as a 75 percent failure rate).
There are two key problems that contribute to this:
- Lack of vision or poor long-term strategy. In most cases, vision and strategy are rolled out after the deal is sealed and usually as a knee-jerk reaction to the people experiencing heartache while the new entity figures out how to increase shareholder value without an articulated vision. Poor strategy is the leading cause of merger failure.
- Not taking care of the people affected. Failure to acknowledge, plan, and follow through on how to integrate the different cultures prior to the merger can leave employees struggling to cope with cultural differences, politics, and lack of effective communication. And when people feel as though they are being tossed about in a storm without a compelling vision of how they fit into the new big picture, they jump ship.
But take heart, we have seen many M&As succeed culturally and simultaneously increase in value. Simply put, brand strategy allows the acquirer and the acquired to have a shared vision for a shared future that extends beyond simply increased revenue and marketplace dominance by considering the ways they can influence the world – together.
Use the M&A to change what your brand stands for
The questions and decisions leadership makes about brand play a crucial role in unifying the merged entity and maximizing long-term value. Decisions about the brand are signals following a merger or acquisition. Go-forward brand strategy translates how a merger or acquisition makes sense and establishes a compelling vision for the combined new entity that resonates with employees, customers, and the outside world.
A brand is a set of promises your company makes and the manner in which you keep those promises (resulting in what Seth Godin calls memories, stories, and relationships that give people a preference for one product or service over another). Then we can begin to see how brand, although less tangible than a financial report and operational integration plan, can enhance or detract from the likelihood of M&A success.
Use the acquired brand to improve the cultural relevance of your brand
There was much ado about Spam maker Hormel’s acquisition of organic meat producer Applegate Farms in 2015. People began lamenting that the little guys had sold out to greedy corporations and that the big guys used it as an opportunity to squash the little do-gooder brand’s influence on the landscape of consumer concern about our food chain — everything from quality organic standards and sustainability to animal welfare practices. We confess, at first, we were skeptical and a bit freaked out by what they might do to our “Sunday Bacon.” We watched them carefully (along with many brand loyalists) looking for clues suggesting that design and marketing could be masking a decrease in quality or standards.
But we could never produce any evidence.
In short, the little guys weren’t selling out. Instead, the biggest guys in the world bought their way into this emerging ideology and consumer preference. They bought into the future.
Bottom line: Hormel now gets a lot of respect from retailers and clean label-reading consumers for not destroying the integrity or quality of Applegate Farms.
Use brand strategy to inform planned integration – or intentional separatism
Understanding and integrating two different corporate cultures is tricky. Management often assumes that the other company is just like them and then dismisses the need for deeper cultural understanding (especially when acquiring a business in the same or similar industry). But it’s one of the most common reasons for failed mergers. Certainly, it’s much better to have a cultural understanding prior to a merger and keep two brands operating independently until this situation changes.
Unilever’s acquisition of Ben & Jerry’s is a great example of successfully keeping cultures separate. Throughout the critical post-acquisition integration phase, Ben & Jerry’s successfully retained its culture, corporate identity, and brand image and at the same time became profitable. This happened because the leadership at both organizations knew that combining the cultures would risk destroying Ben & Jerry’s most valuable asset: values-driven culture.
Use brand strategy to define the next generation of your portfolio strategy
In a move that surprises and inspires us, InBev (Anheuser-Busch), the beer giant, acquired Hiball Energy, a producer of organic energy drinks and the Alta Palla brand of sparkling juices and waters.
The acquisition represents a strong desire by InBev to diversify their brand portfolio and to tap into a new high margin, high-growth segment.
“The combination of Hiball’s category-leading organic energy drinks and Alta Palla’s organic sparkling juices and sparkling waters together with our network and operational know-how will create tremendous growth opportunities for these brands,” João Castro Neves, president and CEO of Anheuser-Busch, told the Chicago Tribune.
This acquisition, along with the joint venture with Starbucks and Teavana made in 2016, signals that InBev is actively pursuing brands that will help them with their next generation product portfolio beyond the latest micro-brew industry darling. This forward-thinking during an M&A proves the positive impact brand strategy can have on the overall development of your portfolio.
Use brand strategy to acquire a meaningful innovation pipeline
Large companies innovate to refresh their products and enter new markets. The bigger a company gets, the harder this can be to achieve (success at scale is often the antithesis of innovation). So, many larger companies feel they must acquire a market-leading startup or leading niche player to expand into new markets, feed their innovation pipeline, add new capabilities to fill a gap in its existing capabilities system, or to respond to a change in its market.
Another giant watching consumer trends, Campbell’s Soup, acquired Pacific Foods, currently a leading producer of organic broth and soup. Founded in 1987, Pacific Foods has a sustained track of growth and according to the Campbell press release, “has strong health and well-being and organic credentials, particularly with younger consumers.” Campbell noted that the acquisition will broaden its access to organic customers and channels largely because the Campbell’s Soup brand is not in the consideration set of people looking for healthier options.
Making the conscious – or too frequently unconscious – decision not to focus on brand strategy early on in M&A or waiting until your people are unhappy is a recipe for failure.
With so much opportunity and so much at stake in the fluid yet highly competitive landscape of M&As, we believe that investing in brand strategy to drive your planning and vision at the front-end of the new relationship will reap rewards more quickly and sustainably.