After the M&A: Influences on Corporate Visual Identity Choice Mary Brooks, Philip Rosson* and Horand Gassmann School of Business Administration Dalhousie University 6152 Coburg Road Halifax, Nova Scotia Canada B3H 3J5 *Direct correspondence to Philip Rosson (902) 494–3161 (902) 494–1107 fax
[email protected] This paper contains original work that has not been presented at a conference of published in a journal
Abstract This paper focuses on mergers and acquisitions (M&As) and the decisions made about the corporate visual identity (CVI) of the new entities. M&A activity creates turbulence for company management, as well as other stakeholders. The difficulties faced in combining two independent companies is borne out by merger statistics—most M&As fail to deliver the expected results. Researchers are paying increasing attention to management and cultural factors that potentially affect performance. One such factors concerns the important decision facing executives about what to name the new entity, and how to present the entity through visual devices such as logo, typeface and colour. We present findings from the first systematic study of the CVI choices that are made following M&As, as well possible influencing variables. Our examination of 83 M&As reveals that first, the acquiror’s CVI is used in eight of ten M&As, and second, neither the relative power of the combining companies, the geographic scope of the M&A, nor the industry sector, appear to influence CVI choice. The theoretical and practical implications of these findings are discussed.
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After the M&A: Influences on Corporate Visual Identity Choice Introduction Mergers and acquisitions (M&As) are often seen as a strategy for corporate growth. Reflecting this fact, M&A activity accelerated in the 1990s, with the value of deals growing from US$0.5 trillion in 1990 to US$3.5 trillion in 2000 (Economist, 2001). This trend reversed during the economic slowdown of the last few years, but the number and value of deals in the last quarter of 2003 and the first quarter of 2004, suggests that momentum is building once again (Singhania, 2004). Future intentions also point to growth: CEOs of US-owned multinationals expect to increase M&A activity in the next two years (PricewaterhouseCoopers, 2004). Yet the popularity of M&As as a corporate strategy appears paradoxical since most deliver disappointing results. This has prompted researchers to examine M&As from a management and cultural standpoint, to supplement purely financial approaches. The process whereby two previously independent companies come together to form a new entity is fraught with uncertainty and difficulty. From early rumours of interest to consummation of the deal and integration efforts, a variety of stages must be navigated involving a multitude of tasks. This makes for a turbulent environment, with customers, suppliers, employees, investors and others likely to be affected by the combination of operations. One of the more important organizational and marketing questions that arises in M&As is the choice of a name for the new entity, as well as how this is supported through visual devices such as symbols and/or logotypes, slogans, typography and colour. We examine these corporate visual identity issues through studying 90 M&As, focusing on two questions. First, what choice of corporate visual identity (CVI) is made following M&As? Second, to what extent is this decision influenced by (a) the relative power of the two companies, (b) the geographic scope of the M&A, and (c) the similarity of the sectors from which the two companies are drawn? The paper begins with a brief literature review, followed by details of the study, then the results, and finally, comments on their implications. Literature Review There is a substantial literature on M&As, with a variety of thematic approaches taken. The motives and thinking guiding M&A activity is one such theme (Myers, 1976; Trautwein, 1990; Brouthers et al., 1998; Bower, 2001). Another theme that is well developed concerns performance questions such as whether M&As: create shareholder value (Ravenscroft & Scherer, 1989; Chatterjee, 1992; Bradley et al., 1995; Allen et al., 1995; Markides & Oyon, 1998); have a
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positive impact on operating results (Sharma & Ho, 2002); and are likely to be successful (Porter, 1987; Bleeke et al., 1993). Yet another research theme focuses on the importance of cultural and management factors in M&As that are significant in the post–M&A implementation stage (Datta, 1991; Morisini, 1998). Several studies in this area suggest that, although important, the matter of corporate identity is shortchanged in most M&As (Balmer and Dinnie, 1999; Melewar & Harrold, 2000). Corporate identity is how a company thinks about itself and would like to be viewed by others. Identity is made concrete through actions and elements such as corporate culture and behaviour, strategy, products, communications and design (Schmitt & Simonson, 1997). Identity is an asset to be managed at the highest level (Marguiles, 1977; Olins, 1989; Anson, 2000). Identity is related to corporate image and reputation. Image reflects how the identity that has been created, nurtured and transmitted, has been received by others. Reputation, as the collective judgement of outsiders about a company’s actions and achievements is connected to image (Gioia, Schultz & Corley, 2000) and therefore identity (Dowling, 2001). While corporate identity is made up of many facets, research suggests that senior personnel and visual elements play critical roles. Balmer and Soenen (1999) find that founders, CEOs and boards principally shape the vision of companies and that visual elements are emphasized over other forms of communication and behaviour. In light of these findings, we concentrate on corporate visual identity (CVI). CVI elements include corporate name, symbols and/or logotypes, slogans, typography and colours. Many companies establish visual identity systems to ensure consistent application of these elements to signs, stationery, booklets, uniforms, and vehicles. It is also extended to media advertising and all other areas of public exposure. Symbols, in particular, are one of the main vehicles for communicating an identity, cutting through clutter to gain attention, and speeding recognition of the company or product (Henderson & Cote, 1998). Little empirical attention has been paid to CVI questions in the marketing literature. (For exceptions, see Schmitt, 1995; Schmitt & Simonson, 1997; Henderson & Cote, 1998; Melewar & Saunders, 1999, 2000; Madden, Hewett & Roth, 2000.) The question of what happens to CVI following a M&A appears not to have been examined empirically. Kleefeld (1999) argues that three choices exist when companies are combined: (1) one CVI dominates (the second disappears), (2) a hybrid CVI is used (retaining elements from both companies), or (3) an entirely new CVI is developed. When one CVI is chosen over another, there will be a sense that there is a “winner” (and by implication, a “loser”). The hybrid solution suggests equality; an alternative interpretation is that it reflects a compromise or lack of vision. Development of a new CVI signals a fresh beginning but risks losing any “equity” built up in
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corporate identity over time. We examine the post-M&A choices that companies make about CVI, as well as a number of potential influences. The research propositions and methodology are described next. The Research Study Propositions The propositions result from the limited literature that exists on CVI choices following M&As, as well as more general considerations. As discussed, Kleefeld (1999) sees three broad CVI choices to be possible, leading to the first proposition: P1: Post-M&A CVI choices are of three kinds: one CVI dominates; a hybrid CVI is used; or a new CVI IS developed. As is the case in other areas of decision-making (French & Raven, 1959), it seems reasonable to argue that the choice of a post-M&A CVI will be influenced by the relative power of the merging companies. When companies of similar stature combine, for example, the development of a hybrid or completely new CVI is more likely. In contrast, where there are marked differences in the stature of the combining companies, it is expected that the more powerful company will ensure its CVI is used after the M&A. P2: The relative power of the combining companies influences the choice of post-M&A CVI.
M&A activity is a global phenomenon. Although the majority of M&As is domestic in scope (i.e., involving companies from the same nation), many do take place across borders. With evidence that standardized corporate marketing is a popular strategy in global markets (Buzzell et al. 1995), it seemed worthwhile exploring whether CVI choices are influenced by geography. We found no specific literature on this topic and therefore advance a null hypothesis for test purposes. P3: CVI choices made in domestic M&As are no different from those made in crossborder M&As. Finally, it was anticipated that industry sector membership could have a bearing on CVI choice. Some M&As bring together companies from the same or closely related sectors, whereas other combinations are from unrelated sectors. Although the literature provides little guidance on this matter, Melewar and Saunders (1999) found CVI standardization to be influenced by product attributes. We anticipate that when companies from the same industry combine, it is more likely that one of the existing CVIs will be employed. This follows from the desire to use a CVI that is familiar within the industry sector in question.
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P4: “Dominant” CVIs are more likely choices in M&As involving companies from the same industry sector. Methodology Thomson Financial Securities Data was used as the sampling frame. We set the study period as January 1, 1995 to December 31, 2000 and downloaded information on all completed M&As that had a valuation of $10 million or more. This approach meant that a fuller size-range of M&As were covered than in other research, which concerns very large corporate combinations. We created a subset of 23,559 cases. As was expected, many of these cases involved financial restructurings while in others, the acquiror and target companies had the same parent. Since CVI choices would not normally be required in either of these cases, they were omitted from the sample. A random sample of 75 domestic and 75 cross-border M&As was drawn from the remaining cases. Following closer examination, some cases were discarded because they (a)(still) represented intra-corporate transactions, (b) were not cross-border, (c) involved physical infrastructure acquisitions, (d) represented partial acquisitions, or (e) were privatizations. Some 90 M&As remained after detailed study, 53 of these were domestic while 37 involved crossborder deals. For each of the 90 M&As, information was collected on the CVI of the acquiror and target companies prior to, and just after (no longer than one year later) the announcement of the deal. Elements collected on each company included corporate name, symbols and/or logotypes, slogans, typography and colours. This was principally collected through secondary sources although, in some cases, companies provided requested data. The sources consulted included press reports, securities filings, trademark databases, annual reports, web sites, and online databases. At this point one of the researchers made a determination of the CVI choice that had been made following the M&A. A second researcher reviewed the decision and any disagreement was resolved following discussion and/or additional research. In seven of the cases, however, it was not possible to make a determination because of insufficient information. Therefore, the analysis below is based on CVI choice for 83 of the 90 M&As. In order to test P2 and P4, data were collected on number of employees, bankruptcies and industry sector. It would have been preferable to use assets and/or net sales as measures of relative power. However, these figures were usually missing from the database. Employee data were more often reported or were available from secondary sources and are used in this study. Even here, however, complete data were not available in 17 of the M&As and the missing data were imputed. Information about the acquisition of bankrupt companies is also available in press
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reports. Industry sector was recorded in the database; we compared the sector for acquirors and targets at the 2-digit SIC level. Results Proposition 1 Table 1 shows the CVI outcomes found through examining 83 M&As. The “Total” column indicates the number (and percentage) of cases for each. The first two rows show cases where one CVI
was dominant. This was the CVI choice made in more than six in ten cases. Overwhelmingly,
however, it was the acquiror company’s CVI that was retained for use (57.8%) after the M&A. Relatively few cases were found of hybrid or new CVI choices. We found an additional CVI choice to those identified by Kleefeld (1999), which we label “both CVIs used.” This typically involved the use of the target company’s CVI for a brand or subsidiary of the new entity (22.9%), but in a few cases both acquiror and target CVI (3.6%) were employed more widely in the postM&A entity. In light of these findings, we see Kleefeld’s (1999) typology as providing a good but not full account of the CVI choices that are made following M&As. Table 1: CVI outcomes following M&As (P1) and the influence of acquiror’s relative power (P2) P1 P2 CVI outcome Total (%) Low power (5) Acquiror CVI used
48
(57.8)
22
26
Target CVI used
3
(3.6)
2
1
Hybrid CVI
4
(4.8)
2
2
New CVI
6
(7.2)
5
1
Both CVIs used
22
(26.5)
7
15
Total
83
(100.0)
48
35
Proposition 2 Relative power was measured as the ratio of the number of acquiror employees to target employees. Table 1 shows the data using a threshold of 5 to distinguish between M&As where the acquiror had low or high relative power. The chi-squared analysis of CVI outcome and relative power shown, yielded a p-value of 0.194. Various threshold values were tried but none produced statistically significant relationships. This was also the case whether imputed values for missing data were used or not. Proposition 2 is therefore not supported.
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Proposition 3 The frequency of various CVI outcomes in domestic and cross-border M&As is shown in Table 2. Chi-squared analysis produced a p-value of 0.671, supporting the proposition that CVI choices are not influenced by the geographic scope of the M&A.
Table 2: CVI outcome and the influence of geographic scope (P3) and industry sector similarity (P4) P3 CVI
outcome
Acquiror CVI used
Domestic M&A
Cross-border M&A
SIC
P4 differs
SIC same
Total
28
20
19
29
48
Target CVI used
2
1
2
1
3
Hybrid CVI
2
2
2
2
4
New CVI
5
1
5
1
6
Both CVIs used
11
11
7
15
22
Total
48
35
35
48
83
Proposition 4 Table 2 also shows CVI outcomes and the similarity of the industry sectors of the combining companies. Sector similarity was determined at the 2-digit SIC level. The chi-squared analysis is not statistically significant (p=0.191), and the proposition is thus not supported. Practical and Theoretical Implications The research is the first systematic examination of CVI choices following M&As, and the factors that may influence such choices. Support was found for the choices that exist for combining companies (P1), and geographic scope was seen not to influence CVI choice (P3). Two other propositions were not supported. Specifically, it does not appear that relative power (P2) or industry sector (P4) influence CVI choice. Practical implications Recent reports point out that post-merger integration is the most risky phase in the M&A process (Habeck et al. 2000), and that “resolving cultural issues” and “communications” are key to M&A success (KPMG 1999). Davies et al. (2003) write that M&As are challenging because they create gaps for employees and customers in the images and identities of the combining companies. To date, the practices followed by companies in seeking to fill these gaps have been recorded through anecdote and case examples (Spaeth 2002). What does this more systematic study reveal? First, we now have a more complete understanding of the choices that exist for companies. Kleefeld’s (1999) typology finds support but an additional choice was found, where the CVI of
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both companies continue in use after the M&A (26.5%). In most of these cases, the target company’s CVI continues to be used post-M&A, but for a brand or subsidiary of the new entity. A second major finding is that the acquiror’s CVI is usually the one used to convey the identity of the new entity (in 57.8% of cases). Other CVI choices—in favour of the target company, or new and hybrid CVIs—are made in few cases (15.6%). An explanation for the overwhelming use of the acquiror’s cvi may be that, in reality, M&As are takeovers. We find that the acquiror asserts its CVI in eight of ten cases, because the use of the target’s CVI for a brand or subsidiary is a lower-level use of that CVI. Is this the best strategy? One possible consequence of such acquiror domination is a loss of affinity and loyalty on the part of employees and customers of the target company, which disappears or is diminished (Davies et al. 2003). Theoretical implications As is usually the case for first studies in an area, our research raises more issues than it provides answers. The issues we encountered included: an absence of theory, database inadequacies, sampling compromises, the non-availability of some CVI information, and second-best variable measures. In the absence of theory in this area, our work took a practitioner’s observations about CVI
choices following M&As as its point of departure (Kleefeld 1999). Armed with the results
from this study, some theorizing should be possible to guide future efforts. We used a wellknown, comprehensive and expensive database as the basis for the study. Our experience was far from satisfactory since we found many data entry errors, as well as fields with missing values. Because the work to identify the pre- and post-CVIs is a painstaking exercise, we had to restrict the sample size. This created some problems later when data cells in tables for analysis had small numbers. We decided to include a full range of company sizes in the study and to make it international in scope. These led to the later challenge of finding and interpreting CVI information for smaller and foreign companies. Another difficulty is that little archiving of CVI information takes place—once M&As have taken place the old CVIs disappear quickly. Finally, database inadequacies meant that we were forced to use a measure of relative power that may not be best.
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