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Posted on November 14, 2013 | Karin Rutstein
If you work in the business world long enough, it’s likely a competitor or a strategic acquirer looking to fill a specific gap in their portfolio of companies will buy your company. Or, your company will be the acquirer of another business. It’s part of what makes our capitalist society tick. My experience is that the acquiring company generally imposes its name on the soon-to-be-bought company. But is that decision based on research? Or hubris? I’d argue it’s both.
Most large corporate entities have spent significant time and money understanding their customers and their brand through research, and decisions around branding are made carefully because they understand the science behind what drives loyalty.
When smaller companies are involved, the concept of conducting research to understand the value of what you’re purchasing can be completely overlooked, primarily for what are perceived to be time-and-money parameters, as well as the auto-response of “we’re buying them, so they get our name.” This is the hubris factor.
Recently I learned of a situation that I think exemplifies this debate between objectivity and subjectivity when it comes to the value in a brand. A small firm was preparing to complete the purchase of the market leader in their industry. The acquirer’s strength was a more technology-focused platform, whereas the market leader’s strength was offering marketing services. The market leader had a group of long-term and newer, but very loyal, clients built through a focus on cultivating relationships and offering a strong value proposition around their services. Those relationships were so strong that over the years, the market leader’s customers had rejected the opportunity to move their business to the competition (acquiring company).
Instead of spending a few extra weeks and dollars to understand the benefits those customers saw with their current provider (market leader) and thus the equity in the name, the acquiring company decided to use its name for the merged organization because of some arbitrary parameters; for example, they preferred a one-word company name over one with two, for no defensible reason.
Because the market leader’s customers had previously declined to do business with the competitor, this created a very challenging situation for the newly merged organization. This instantly put a black mark on the acquiring company’s reputation and has created ripples throughout the operations, as now they must scramble to retain customers while still driving toward developing a profitable new company.
Bottom line: branding due diligence is as important as financial due diligence when evaluating a merger or acquisition. These efforts don’t have to be costly or even sophisticated if you engage the right team to help you execute your strategy. The benefits you will reap from understanding the perceptions both customers and prospects have will far outweigh any short-term costs.
- Karin Rutstein