Brand in M&A
Inspiration. Innovation. Transformation. It seems like everywhere we look these days (including in my newsletters), there’s an anthemic “-on” awaiting our contemplation. Higher-order callings beckon us, and they should; for it is the neverending pursuit of our potential, and the way we push the boundaries of what’s possible, that truly defines us.
But let me be ruthlessly pragmatic for a moment: growth and impact are the table stakes, the price of entry, the dual coins of our capitalist realm. Cease having impact, and you risk fading into irrelevance. Stop growing, and...well, you know. Don’t stop growing!
Organic growth powers companies for many quarters, and even years. But eventually, the need to sustain growth rates and continue demonstrating impact requires giant leaps, not just incremental steps. This is when organizations look for opportunities to come together in an M&A context.
Acquirers and acquirees typically both have immense pride in their brands. For the scrappy startup, it’s the title of the story of which they’ve written merely the opening - but enthralling - chapters. For the more established company, their time-honored and battle-tested brand signals venerability, resilience, fortitude, trust, and perhaps a great many other attributes.
M&A is not just about combining teams, technologies, and operations. It’s also about the story that the combined company needs to sell to investors and tell to customers. The brand, or brands, that headline this story matter. Gone are the days when founders would tinker away in Silicon Valley garages with the hopes of selling a niche technology to Cisco or Google. Four forces have come together to motivate entrepreneurs to build not just minimum viable companies, but strong businesses with distinctive products and compelling brands: (1) The ever-growing volume of global venture capital, which enables companies to scale rapidly and early; (2) persistently low interest rates in western markets, which makes for cheap access to capital; (3) low technology barriers to getting companies off the ground, in particular the continued migration to cloud models; and (4) ever more digital connectivity across societies that enable great minds to find one another and collaborate to build what’s next. The more outstanding companies we have in the world, the more strong brands we have in the world, because builders have pride in not just what they do, but the story of why they’re doing it.
This makes getting brand decisions “right” in an M&A context more important than ever. How much does a strong brand add to the multiple that an acquirer is willing to pay? Is there revenue risk to a company if an acquired brand is removed from the marketplace? Are there areas where an acquired brand can help build, reinforce, or even improve perceptions of the acquirer? If a choice is made to migrate an acquired brand away, how soon should it happen and why? If a choice is made to retain a brand, what levels of investment need to be made to ensure that it has the “care and feeding” it requires?
These are all questions to consider, and develop a point of view on, during the diligence phase and not after a deal is closed. In a world where teams are building brands with every bit the same gusto and precision as they’re building products, the question of how brands will be managed in a post-deal world cannot be left to chance.
I wanted to spotlight the topic of Brand in M&A in honor of this month’s Qualtrics + Clarabridge deal close. Our corporate development, product, and marketing teams have been thinking strategically and with a long-term view about the path forward for each of our brands (as well as the brands of our respective product lines), and we’re very excited about the path forward that we’re charting, which follows the framework of my essay this week.
Enjoy this week’s issue. I hope there is something useful and practical for everyone!
A Thought
“Brand is just a perception, and perception will match reality over time.”
A Conversation
My friend Brennan O’Donnell is an inveterate company and product builder who’s been on both sides of the table at M&A. Now a Partner at Frontline Ventures in Palo Alto, he was on the buy side of many important deals over his 9 years at Google in EMEA and was on the sell side when he helped drive Yammer’s acquisition by Microsoft. Brennan and I sat down for a conversation recently on the Breakthrough Builders Podcast to talk about his experiences and the ways in which brand influenced the courses and outcomes of deals.
Check out the episode on Apple Podcasts, Spotify, or the web.
A Reflection
While mergers and acquisitions may have slowed in 2020, nearly $4 trillion in M&A activity had occurred as of August 2021. The federal funds rate is still close to zero, and the top 25 US private equity shops are sitting on $510B in uninvested capital. Whether you’re in buying or selling mode, experience and evidence show that a great brand adds monetary value and helps unify merged companies. Brand plays an important role before, during, and after M&A activity. Here’s how.
Full essay here.
A Collection
One of the coolest acquisitions of the past 10 years has to be Apple’s $3B deal to buy Beats. It represented the coming together of two incredible organizations, the teaming up of several cultural icons in music, sports, and technology, and a complete reimagining of the way that inorganic growth can power incredible products and experiences. Here’s a take from Billy Steele at Engadget about the impact of the deal five years after it happened. 🎧
On the other hand, the FedEx acquisition of Kinko’s is a case study of Brand in M&A gone bad. After buying Kinko’s - the copy center and production store - for $2.4B in 2004, FedEx felt it needed to retain the name because of ostensible equity in the brand among high-value business customers. But it turned out that FedEx massively undervalued its own brand’s ability to stretch from package delivery into consumer retail operations, and the company ultimately paid nearly $1B for the right to finally drop the Kinko’s brand. 🙊 🙊 🙊
Want to know who’s nailing Brand in an M&A context in tech? Twilio. It acquired Segment, one of the leading Customer Data Platforms, in October 2020 for $3.2B. Now, just one year after the deal closed, the first fruits of the deal are on display: a new product called Twilio Engage, which moves Twilio beyond its communications stronghold into the marketing space. This kind of practical yet visionary approach is exactly the right template for other leaders to follow - acquire for capability to build the portfolio, manage demand risk by making the right brand decisions, and make sure the combined company is collaborating to drive innovation as rapidly as possible. 🚀
One recent deal I’m particularly excited about is Intuit’s $12B acquisition last quarter of Mailchimp. This is probably one of the longest courtships I’ve read about in tech M&A, and I am bullish on both the prospects of the combined company and the potential for an incredible, integrated experience for its customers. Have a read of the perspective I put together on it. 👊🏾