over the past few years, i have accompanied a series of corporate and private equity funds in their merger and acquisition activity.
process is very sophisticated and thoroughly done with the smartest people you can get, but at some point it appeared to me that the marketing audit and expertise was lacking. the same level of scrutiny you can get from financial, production or sales capacity …in a due diligence is incomplete when you start talking about brand equity and how marketing strategy can impact your choice in the investment, thus also could be a source of risk and deal failure.
i see 2 reasons for this,
merger and acquisition due diligence is too often viewed from a financial perspective, with important effort and resources allocated to analyse commercial, operational, technical, accounting and legal aspects.
let’s change the glance for a while. in today’s highly competitive environment, the major sources of shareholder value creation are the intangible marketing assets of the business. do not think that it is reserved only for the highly inspirational consumerist corporates and brands such as apple ($140bn), amazon ($226bn), tesla($12bn)*.
This is even more true within a btb industrial or utility sectors as the brand finance ‘s valuation report in utilities sector demonstrates. This report** shows how brand equity represents a substantial part of company value as for example Veolia $3,2 bn EDF 9,8 bn, Innogy 4,8bn Enel 8,6bn Engie 8,3bn to name a few.
to ignore marketing during due diligence means depriving yourself of understanding up to 90% (depending on the sector) of the robustness and sustainability of a company valuation and de facto its value creation process.
among all the intangible assets, brand equity and customer relationship are both significant contributors to company value creation.
in this respect, it’s the business responsibility (and not just marketing) to manage and develop these assets. as an investor, you shall gain a clear and comprehensive understanding of the corporate marketing effectiveness to generate top line growth in the short time (tactical efficiency) and its strategy to manage the brand equity and create value in the long term.
the 2nd reason I see, Is the order of priority given to analysis, marketing reflection often being postponed until post deal.
marketing capabilities and brand strategy shall be understood from the beginning and a framework embedding marketing, commercial and finance that resonates with all key internal and external stakeholders defined.
they shall be included in the definition of investment strategy at the same level of financial considerations. it is an imperative to align them all for driving m & a success.
postponing this reflexion to post acquisition, gives an edge to your competitors. during the time you will devote to review marketing capacities, brand assets and define a new strategy for the combined entity,
- you install confusion and uncertainty among customers, employees and shareholders (merger and acquisition means change and change is scary)
- you loose traction giving competitors time to react
Our approach to limit that risk, is to recommend the acquirer to
- run a marketing audit to understand its own marketing and brand potential,
- include marketing and brand perspective in the investment thesis in addition to financial consideration,
- during the scouting period, analyse potential targets adding the lens of this framework ( in complement to traditional scoring criterias such as size, market share, geographical reach, technology capabilities, service offering, product range etc……it shall both open new perspective and increase your understanding of potential targets
- based on shortlisted potential targets, fine tune your growth plan coupling marketing, commercial and finance strategies
- complete your financial and commercial due diligence with a marketing due diligence on the selected target company to ascertain its marketing ability to deliver the growth plan and identify the potential gaps and issues which may arise after the acquisition
Through this process you
- you gain a more comprehensive understanding of the value creation process,
- get closer to the true company value
- clarify the potential to deliver your investment thesis considering the whole set of information at your disposal without limiting to finance and commercial perspective, and
- gain traction in the implementation,
all this contributing to limit the risk of your deal.
at parallell we combine due diligence, marketing and organizational experience. we are not a traditional consulting company we are devoted to advise on strategy but also share hands on expertise and best practices from our senior advisors coming from a large set of different sectors that enhance the overall parallell expertise. through our approach we are all aligned to create value to employees, customers and shareholders.
how can we help you ?
+ samuel penagos is senior advisor in m&a and strategy at parallell advisors a business, marketing & organisation solution led advisory firm based across Brussels and London. he works in parallell with + debbie percy who leads the organizational practice and + claire baillet responsible for marketing and sales advisory.
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(*) brand finance press release October 2020
(**) brand finance 2020 utility report