The Art of Merging Brands in a Portco: A Sponsor’s Guide to M&A Integration Success

With M&A being a key driver of growth in PE deals, sponsors, and company leadership often need to deal with a collection of distinct brands that were once only local, or at times competitors, or offer adjacent products and services that were previously unfamiliar to the platform or other add-ons.

Each acquired brand has its own history, marketplace equity, and limitations. As platforms grow rapidly through acquisition and other financial and operational problems take priority, the integration of these diverse brands becomes a messy and often overlooked challenge. Successfully navigating this requires strategic foresight and careful planning to ensure seamless brand integration and market delivery, ultimately creating value at exit.

Smart brand architecture is key

One of the key strategies for a successful harmonization of disparate brands is to establish a thoughtful brand architecture – as early as during due diligence on the platform investment. This entails charting the connections between target acquisitions, pinpointing areas of mutual benefit, and deciding on the optimal positioning strategy.

The chosen brand architecture strategy (e.g., branded house, house of brands, sub-brands, endorsed brands, etc.) can be informed by examining other successful models not only within the platform’s sector, but by analyzing successful brand integrations from other sectors. By aligning the brand architecture with the platform’s overarching business objectives, sponsors create a cohesive brand umbrella that resonates with customers and maximizes the value of each acquired product or capability.

Architecture informed by research

Thorough research lays the foundation for selecting a comprehensive brand strategy. While often viewed merely as a customer-facing facade, a brand is perceived by all stakeholders including employees, investors, channel partners, suppliers, and others. Each group harbors its own interests, posing a challenge for businesses aiming to resonate universally with their brand. Research helps to pinpoint these interests, allowing for the synthesis of a cohesive brand message that resonates across audiences.

It’s essential to recognize that your brand isn’t defined by what you claim it to be. Rather, it’s shaped by how your audiences perceive and feel about it, and what they remember and act upon. The brand message should not only be informed by research but also brand architecture which prioritizes external perspectives, steering clear of subjective biases from sponsors or management teams.

Examine all of the options

Leveraging the strengths of each individual brand can and should enhance the overall value proposition. Rather than immediately assuming a holdco superstructure, or one-brand-fits-all uniformity, is the clear path forward, sponsors and CEOs should identify and capitalize on the unique attributes of each brand to differentiate the company in the market.

Thoughtful brand research can reveal that maintaining some acquired brand identities, or thoughtfully staging the sunsetting of acquired brands based on market demands, may be the best path to minimizing revenue and reputational impact.

Planning for A Smooth Transformation

Effective communication is paramount throughout the integration process. Clear and proactive communication helps to alleviate concerns among employees, customers, and other stakeholders, fostering trust and alignment. As institutional investors, private equity professionals should feel a responsibility to proactively engage with stakeholders to communicate the vision for the integrated brand and address any potential challenges or uncertainties.

Furthermore, investing in brand equity is essential for long-term success. While often overlooked after brand architecture is established, the business should continue to allocate resources towards building and strengthening the new brand umbrella, including marketing initiatives, product development, and customer experience enhancements. By nurturing brand equity, companies can enhance customer loyalty, drive revenue growth, and ultimately create sustainable competitive advantage.

Near-term Benefits

By effectively integrating acquired brands, the combined entity can increase its visibility, reach, and influence within its target markets, gaining a competitive edge over rivals. A well-executed brand integration can also uncover previously unidentified opportunities for value creation in the investment.

Perhaps most critically, a successful brand integration should maintain customer loyalty and trust. By delivering consistent, best-in-class brand experiences and maintaining a unified brand image, the integrated entity can strengthen relationships with existing customers while attracting new ones. This enhanced customer loyalty and trust can translate into increased sales, higher customer lifetime value, and a more resilient business model.

The Ultimate Prize

Despite being overshadowed by operational improvements such as lean manufacturing or software upgrades, the development of a sophisticated brand framework infused into a platform will equally, if not more, contribute to the realization of higher exit multiples. It’s a robust, tangible asset sold to the succeeding PE sponsor, offering greater impact onto that buyer’s own investment thesis across a vastly expanded footprint.