Out of the Box

Marketing in Mergers and Acquisitions

By Menachem Lubinsky on February 15 2008

Two small pharmaceutical companies recently signed an agreement to merge. One of the companies had a strong marketing department while the other did not. In the first company, there was a vice president of marketing with a staff of sales and marketing people while the other company had only one junior person, mostly producing low budget sales materials for the small sales force that visited medical offices. In contemplating the merger, both companies factored in the savings that would come from merging many of the business functions of the company including sales and marketing.

The merger of two companies in a like category is commonplace and in most cases the reasons are to consolidate costs and improve the bottom line. Both companies might be falling short, perhaps even loosing money, because of the cost of doing business or one of the companies might be the weaker of the two. The objective is to take the best of both companies and create one strong company. The same may be true in an acquisition in which a stronger company acquires a weaker enterprise and merges the two into one strong company. The stronger company can then take the best of its acquired company and fold into their operation.

The consolidation in either a merger or acquisition usually involves trimming personnel of both companies and creating a smaller but more efficient team. In one such case, a merged company was able to save $300,000 in marketing expenses, including personnel, representing a considerable savings for the company.

Companies that depend on strong marketing and sales but for whatever reason are not as successful as they can be should certainly consider merging with a like company, even if the prospect is that the best candidate is a competitor. Many a business could have avoided bankruptcy or demise if an owner had forsaken their ego in favor of entering into talks with others in a similar business. I recently counseled a young couple that appears to be breaking even for several years without realizing a profit to consider either capitalizing the business to build a marketing department or otherwise consider a merger with a competitor, working out a deal for continued active involvement in the company. They were unable to take out any money out of the business and when I first suggested meeting with a competitor to discuss a merger, they balked.

After another half year of being in the red, they finally agreed. They ended up with an acquisition deal that included employment for the husband and equity in the merged company which was more than they had owning their company. For the first time in a long time, they were able to breathe easier.

In most cases a merged company will retain successful brands and not tamper with the name. They will retool the marketing program with their knowhow and expertise but will not change the name of the brand. The value of a successful brand is what prompts many mergers and acquisitions in the first place.

In some cases, a name change will occur and again there will be considerable savings. As an example, instead of advertising the products of each of the companies, in this scenario there is one ad that covers the products of both. This would occur if the acquiring business calculates that the brand value of the company it acquired is not as good as theirs. Lawyers often spend weeks in deciding which brand name will dominate in a merger. This is particularly true for banks and airlines and even today merger talks continue between some of the larger airlines and it can safely be said that the value of the brands is on the table.

Sometimes a company will retain a brand of a company it acquired but inject itself into the marketing story. It might salute the heritage of the brand and acknowledge its strength but promise consumers that it will use its position in the marketplace to make the brand even stronger.

Marketers say that a merger or acquisition is a great opportunity to use marketing in an effective way to help a company meet its objectives. For the pharmaceutical companies, it was an opportunity for a strong marketer to share its expertise with a weaker entity and to upvalue its brands.

Last November, the New York Times reported that many not-for-profits were also merging for the same reason as businesses: improving the bottom line. The story quoted heads of not-for-profits saying that the mergers allow them to better market themselves and compete against larger not-for-profit organizations. “Unlike mergers among corporations, which are normally negotiated among a few people who keep it quiet until all details are worked out, nonprofit mergers require any and all stakeholders — and there are many — to be involved, which is much more likely to make them go off the rails,” said Jeffrey D. Solomon, president of the Andrea and Charles Bronfman Philanthropies Inc.

But mergers do happen even amongst the not-for-profits and the first activity that benefits is marketing. Often the most difficult task is to come up with a name that will embrace both of the merged organizations. In some cases, just selecting the name can take weeks and involve marketing consulting companies. In this case, both of the entities are willing to give up their brand name in favor of a third common name that will be stronger than the individual brands.

Companies that recognize that they might benefit from a merger or acquisition but do not know where to turn can consult with the many mergers and acquisition experts who will evaluate your company and perhaps suggest or locate the right candidate, a task that my firm has done many times.

Out of the Box is a collection of strategic marketing articles that Lubicom has published on various topics, trends and ideas in the marketing world. The articles have been published in the Hamodia weekly newspaper circulated on three continents to a readership of well over 100,000.

The name, "Out of the Box" is a term used frequently in business nowadays to describe creative thinking that is not the norm. It is meant to help a business pull away from the pack or separate oneself from the competition. It is to some extent fraught with risk, simply because it is not the run of the mill thinking, but it is at the same time the key to reaching the next opportunity.