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.
Brand Finance is the world’s leading brand valuation consultancy. Bridging the gap between marketing and finance for more than 25 years, Brand Finance evaluates the strength of brands and quantifies their financial value to help organizations of all kinds make strategic decisions.
Headquartered in London, Brand Finance has offices in over 20 countries, offering services on all continents. Every year, Brand Finance conducts more than 5,000 brand valuations, supported by original market research, and publishes over 100 reports which rank brands across all sectors and countries.
Brand Finance also operates the Global Brand Equity Monitor, conducting original market research annually on over 5,000 brands, surveying more than 150,000 respondents across 38 countries and 31 industry sectors. Combining perceptual data from the Global Brand Equity Monitor with data from its valuation database enables Brand Finance to arm brand leaders with the data and analytics they need to enhance brand and business value.
Brand Finance is a regulated accountancy firm, leading the standardization of the brand valuation industry. Brand Finance was the first to be certified by independent auditors as compliant with both ISO 10668 and ISO 20671 and has received the official endorsement of the Marketing Accountability Standards Board (MASB) in the United States.
Brand is defined as a marketing-related intangible asset including, but not limited to, names, terms, signs, symbols, logos, and designs, intended to identify goods, services, or entities, creating distinctive images and associations in the minds of stakeholders, thereby generating economic benefits.
Brand strength is the efficacy of a brand’s performance on intangible measures relative to its competitors. Brand Finance evaluates brand strength in a process compliant with ISO 20671, looking at Marketing Investment, Stakeholder Equity, and the impact of those on Business Performance. The data used is derived from Brand Finance’s proprietary market research programme and from publicly available sources.
Each brand is assigned a Brand Strength Index (BSI) score out of 100, which feeds into the brand value calculation. Based on the score, each brand is assigned a corresponding Brand Rating up to AAA+ in a format similar to a credit rating.
Brand Finance calculates the values of brands in its rankings using the Royalty Relief approach – a brand valuation method compliant with the industry standards set in ISO 10668. It involves estimating the likely future revenues that are attributable to a brand by calculating a royalty rate that would be charged for its use, to arrive at a ‘brand value’ understood as a net economic benefit that a brand owner would achieve by licensing the brand in the open market.
The steps in this process are as follows:
1 Calculate brand strength using a balanced scorecard of metrics assessing Marketing Investment, Stakeholder Equity, and Business Performance. Brand strength is expressed as a Brand Strength Index (BSI) score on a scale of 0 to 100.
2 Determine royalty range for each industry, reflecting the importance of brand to purchasing decisions. In luxury, the maximum percentage is high, while in extractive industry, where goods are often commoditised, it is lower. This is done by reviewing comparable licensing agreements sourced from Brand Finance’s extensive database.
3 Calculate royalty rate. The BSI score is applied to the royalty range to arrive at a royalty rate. For example, if the royalty range in a sector is 0-5% and a brand has a BSI score of 80 out of 100, then an appropriate royalty rate for the use of this brand in the given sector will be 4%.
4 Determine brand-specific revenues by estimating a proportion of parent company revenues attributable to a brand.
5 Determine forecast revenues using a function of historic revenues, equity analyst forecasts, and economic growth rates.
6 Apply the royalty rate to the forecast revenues to derive brand revenues.
7 Discount post-tax brand revenues to a net present value which equals the brand value.
Brand Finance has produced this study with an independent and unbiased analysis. The values derived and opinions presented in this study are based 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 study are not to be construed as providing investment or business advice. Brand Finance does not intend the study to be relied upon for any reason and excludes all liability to any body, government, or organisation.
The data presented in this study form part of Brand Finance's proprietary database, are provided for the benefit of the media, and are not to be used in part or in full for any commercial or technical purpose without written permission from Brand Finance.