As business models are upended, and previously untouchable companies become cheap acquisition targets, the COVID-19 crisis will bring about many opportunities for growth through mergers and acquisitions.
Brand Finance has conducted a study of the financial effects of rebrands following mergers and acquisitions on a global scale – the first study of its size. The Brand Finance Global Rebrand and Architecture Tracker 2020 (GReAT™) report analysed all 3,000 of the public acquisitions globally in the last five years above $500m in deal size – accounting for 80% of the total value of public acquisitions in the world.
Brand Finance’s analysis identified that after one year, on average, rebranded companies performed worse (-2.1%) than unrebranded companies (-0.4%). Demonstrating that it is highly likely that short-term business performance will be worse immediately after a rebrand as the company negotiates major business changes and ruptures.
Despite these lower average returns, rebrands significantly reduce risk following an acquisition. Rebranded acquisitions analysed in the study saw much less dispersed results, with one standard deviation covering business returns between -27% and +23%, whereas the equivalent figure was -40% and +39% for unrebranded acquisitions.
As approximately 68% of results lie within one standard deviation, what this means in practice is that only 16% of rebranded acquisitions will see a business return of -27% or lower, whereas the equivalent proportion for unrebranded acquisitions is as high as 25%.
This makes unrebranded acquisitions 56% more likely to result in serious damage to their business than rebranded acquisitions. Rebranding is, therefore, a tool to avoid extreme shocks and ultimately generate more value from acquisitions by improving integration.
Alex Haigh, Technical Director, Brand Finance, commented:
“Our analysis has found that the decision to rebrand carries less risk than not doing so. Rebranding should, therefore, be considered carefully in any M&A deal. Although the rewards are unlikely to be felt in the short to medium term, they are reaped in the long run. Consistent and careful planning is essential in any rebrand.”
Results vary by sector
The success of rebranding strongly depends on sector. In pharmaceuticals, for example, where acquired brands are usually weaker than acquiring ones, rebrands are highly successful, generating average returns of +13.8%.
In Telecoms (+3.2%), international and national brands tend to be well-thought of and positively relevant to customers since brand positioning focusses on connectivity.
Importantly, however, some sectors perform badly. The most notable sector in this category is Banking (-8.9%). The industry has gone through similar trends of consolidation to single brands that have been seen in Telecoms, but with much worse results.
Alex Haigh, Technical Director, Brand Finance, commented:
“The list of rebranded acquisitions gone wrong includes many small regional banks rebranded to national or international names. Banking – especially local banking – is a relationship business in which stability and security are extremely important. Many of these rebrands underestimate the impact to customer loyalty as a result of changing someone’s bank brand and suffer as a result.”
Rate of rebranding
Overall, 21% of acquisitions analysed are rebranded, while 79% are left unrebranded. Looking at the value of acquisitions, the proportions are 31% and 69% respectively, demonstrating that the larger the deal size, the greater the likelihood of rebranding.
Sectors rebrand to different degrees, with Pharma the most prolific rebranders in terms of the number of acquisitions, and Telecoms the biggest when taking into account the value of the acquisitions rebranded. The Technology and IT sector has had the largest number and highest total value of acquisitions in the last five years. However, perhaps surprisingly given the size and value of the biggest Tech brands, the rate of rebranding is not particularly high. Tech acquisitions are littered with well-known brand names well thought of by customers, including WhatsApp, iZettle, WebMD, McAfee and LinkedIn. Rationales for these deals tend to be access to customers and their data as well as the technology underpinning the company. Changing the brand is often seen as too unsettling to customers to be worth considering – especially given recent worries about data privacy and the reputation of acquirers.
Note to Editors
The full Brand Finance Global Rebrand and Architecture Tracker (GReAT™) report, with additional findings, charts, commentary, and case studies, can be accessed here.
Data compiled for the Brand Finance rankings and reports are provided for the benefit of the media and are not to be used for any commercial or technical purpose without written permission from Brand Finance.
Brand Finance conducted a study of the financial effects of rebrands following mergers and acquisitions on a global scale – the first study of its size. Brand Finance analysed all 3,000 of the public acquisitions globally in the last five years above $500m in deal size – accounting for 80% of the total value of public acquisitions in the world.
In order to evaluate the relative performance of rebranded and unrebranded acquisitions, Brand Finance compared the total shareholder returns with the total return on the sector benchmark within the S&P 500 over one year. For rebranded companies, Brand Finance identified the start date of the year under review as the date of rebrand, and for unrebranded the start date was the date of deal completion. This, therefore, highlights the relative returns of rebrands over the short to medium term, but does not identify whether rebrands deliver value in the long run.
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About Brand Finance
Brand Finance is the world’s leading independent brand valuation consultancy, with offices in over 20 countries. Brand Finance bridges the gap between marketing and finance by quantifying the financial value of brands.
Brand Finance helped craft the internationally recognised standard on Brand Valuation – ISO 10668, and the recently approved standard on Brand Evaluation – ISO 20671.
Brand Finance is a chartered accountancy firm regulated by the Institute of Chartered Accountants in England and Wales (ICAEW), and also the first brand valuation consultancy to join the International Valuation Standards Council (IVSC).
Brand Finance’s brand value rankings have been certified by the Marketing Accountability Standards Board (MASB) through the Marketing Metric Audit Protocol (MMAP), the formal process for validating the relationship between marketing measurement and financial performance.
Brand Finance has produced this study with an independent and unbiased analysis. The values derived and opinions produced in this study are based only on publicly available information and certain assumptions that Brand Finance used where such data was deficient or unclear. Brand Finance accepts no responsibility and will not be liable in the event that the publicly available information relied upon is subsequently found to be inaccurate. The opinions and financial analysis expressed in the report are not to be construed as providing investment or business advice. Brand Finance does not intend the report to be relied upon for any reason and excludes all liability to any body, government or organisation.