Given that many banks are on the hunt for merger or acquisition candidates, an interesting study caught our eye that asked the question -"What is the best branding strategy in a merger?" In any merger, there are 4 choices on what to do about the brand: 1) The acquirer maintains its name and disregards the acquiree's name (most common and similar to Bank of America and Fleet), 2) Both brands are kept separate (2nd most common), 3) Both brands are kept in a fusion that maintains certain elements of both (3rd most common, similar to JP Morgan Chase), or 4) Create a new brand from the combined entity (rare, similar to Virginia Financial Group and First National Bank forming "Stellar One). The study was done by IE Business School in Madrid and the University of North Carolina, with the research looking at 216 US companies formed by merger between 1997 and 2006. The post-merger company's performance was analyzed for 3Ys after the merger date and average total return performance of equity was tracked and then adjusted for size, risk (beta) and market-to-book ratio.
The results are somewhat surprising. The first result that jumps out is that most mergers during that time period underperformed the market by about 18%. However, since that is a much deeper topic and not the focus of the study, we will come back to this aspect at a later date. What the study did highlight was that mergers that maintain the acquirer's brand and disregard the weaker one underperformed the marked by an average of 15%. In similar fashion, mergers that kept the brands separate underperformed the market by a whopping 25%. However, in cases where brands are fused together, the new brand ends up outperforming the market by 3%. What about cases, were a totally new brand is created? Unfortunately, this happens so rarely in corporate America that the 2-3 public cases over the time period studied didn't provide a relevant sample.
While we are skeptical that the branding method in the merger drove performance, we do see how management treats the brand as a sympathetic response that likely highlights a general attitude about cultural, process and infrastructure assimilation. The method of discarding the acquisition brand likely points out that while some cost savings are achieved, valuable talent and processes were also likely jettisoned (thereby hurting performance). Likewise, keeping brands separate is most likely also a sign that overlapping cost structures were maintained and internal cultural silos kept. Keeping brands completely separate likely kept the organization from reaching its full potential. Because a merger's success relies in part on the successful integration of two cultures into a powerful new entity, a branding strategy that explicitly underscores the best of both worlds is likely worth considering for increasing value.
While bank mergers are good at valuing property, loans, deposits and other assets; management teams usually treat what to do about the name as an afterthought. Since a bank's intangible or brand value may compose a material amount of performance, considering this question pre-decision is highly recommended as a way to capture more merger value. Using a fusion strategy to send reassuring signals to customers, employees, other stakeholders and most importantly, investors, may increase the level of success.