Branding can play an enormous role in creating or destroying value during an acquisition.
Bringing in a CFO to “clean up the books” before acquisition is a standard process. Even if the books aren’t particularly dirty, a good CFO can help cast the company in the best possible financial light to potential investors.
The fact that CFOs can make or break an acquisition isn’t news; any CEO worth their salt would recognize their importance in the process. Many worthwhile CEOs might miss the fact that good branding can be equally important in an acquisition.
In marketing, “customer perceived value” is a common term. It refers to the benefit the customer expects from the product. This perception can be strongly influenced by branding.
On this level, acquisitions are no different than any other purchase. The company being acquired is the product, and the company doing the acquisition is the customer. Even the best product can use good branding to increase its perceived value.
THE BRANDING GAP
Echo-Factory has worked with many companies with a significant gap between their actual value and the value their branding suggests.
I’ve seen $20 million companies that look like $1 million because of outdated, amateur, or non-existent branding. I’ve seen $1 million companies come off convincingly like $10 million because they invested intelligently in their branding.
WHAT IT LOOKS LIKE
I’ve been through the process of helping companies clean up their branding before acquisitions several times. Every company is unique, but the broad outlines tend to look the same.
The process starts with a successful company but, for any number of good reasons, has branding that doesn’t reflect or amplify that success.
Maybe branding was ignored because growth was happening without it. Maybe other business areas had more pressing investment needs, or (more often than you’d expect) branding was neglected simply because no one ever really focused on it.
Sometimes, the company has a target goal for acquisition. They want to get bought within a year, two years, four years. Other times, they’re not sure what that timeline will look like or even if acquisition is the path they want to pursue, but they want to make sure they still look good to potential acquirers.
Regardless, the process is the same. We start by developing a strategy. Something that addresses their biggest branding deficiencies and will significantly impact their potential customers, who are the companies that might acquire them. The specifics often depend on the industry. In B2B, we frequently focus on improved product support materials, a more prominent presence at industry events, and an overall brand refresh. In B2C, it’s more likely to be direct consumer outreach, merchandising, and carefully targeted media campaigns.
Once we’ve settled on the most effective strategy, we work with the company to implement that plan throughout their target acquisition timeline.
THE RESULTS
Branding is no different than any other investment. Ultimately, it all comes down to return on investment (ROI).
The challenge is that with branding, ROI can be difficult to compute. In an acquisition, how much precisely is the purchase price affected by branding? It’s hard to say.
What I can confidently say is that branding can contribute enormously.
We worked with one company that spent less than $400,000 on branding and marketing over four years. At the beginning of that company’s branding campaign, they were valued at nearly $5 million. When they were acquired four years later, it was for close to $25 million.
Of course, we can’t attribute a company’s entire increase in valuation to branding.
In this example, the company’s CEO estimated that branding accounted for somewhere between $5 million and $15 million of that increase. That’s somewhere between a 12x and 37x return on investment, simply from helping to increase the company’s perceived value.
HIRE MORE THAN A CFO
If you’re thinking about an acquisition, by all means, bring in a CFO to clean up the books and make sure that potential investors will be impressed with your financials. But don’t stop there.
If your books look great but your branding doesn’t, you’ll leave a lot of value on the table. Learn more about branding services for mergers and acquisitions from Echo-Factory.
