Thinking About Acquisition? Think About Branding

Bringing in a CFO to “clean up the books” before acquisition is a common process. Even if the books aren’t particularly dirty to begin with, a good CFO has the ability to 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 news1, and any CEO worth their salt would recognize their importance in the process. What many worthwhile CEOs might miss is the fact that good branding can be equally important in an acquisition.

March 26, 2015

Bringing in a CFO to “clean up the books” before acquisition is a common process. Even if the books aren’t particularly dirty to begin with, a good CFO has the ability to 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 news1, and any CEO worth their salt would recognize their importance in the process. What many worthwhile CEOs might miss is the fact that good branding can be equally important in an acquisition.

In marketing, “customer perceived value”2 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 really no different than any other purchase. The company being acquired is the product, and the company doing the acquiring is the customer. Even the best product can use the benefit of good branding to increase its perceived value.

The Branding Gap

I’ve worked with many companies that had a significant gap between their actual value and the value their branding suggests.

I’ve seen $20 million companies that look like $1 million companies because of outdated, amateur or non-existent branding. I’ve seen $1 million companies come off convincingly like $10 million companies 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 company that’s successful, but for any number of good reasons has branding which doesn’t reflect or amplify that success.

Maybe branding was ignored because growth was happening without it. Maybe other areas of the business had more pressing needs for investment, or (more often than you’d expect) branding was neglected simply because no one ever really got around to focusing 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 make the biggest impact to 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 bigger 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 over the course of their target acquisition timeline.

The Results

Branding is no different than any other investment. In the end, it all comes down to 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 the course of 4 years. At the beginning of that company’s branding campaign, they were valued at close to $5 million. When they were acquired 4 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 particular 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 perceived value of the company.

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’re going to leave a lot of value on the table.

1 http://fusefinancialpartners.com/cfo-role-mergers-and-acquisitions/
2 http://smallbusiness.chron.com/customer-perceived-value-23692.html

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