Brand in Mergers and Acquisitions

257 Pages·2007·3.49 MB·English

Brand in Mergers and
Acquisitions
An analysis of South African due
diligence
Name Carl Bezuidenhout
Student number 241217
Contact information
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Email address [email protected]
Date submitted 14 November 2007

A research report submitted to the Gordon Institute of Business Science,
University of Pretoria, in partial fulfilment of the requirements for the degree of
Master of Business Administration.
14 November 2007.

©© UUnniivveerrssiittyy ooff PPrreettoorriiaa

Brand in Mergers and Acquisitions
An analysis of South African due diligence

ABSTRACT
This study explores the extent to which brand features in the due diligence
process preceding mergers and acquisitions. Current literature suggests that
when brand elements are integrated efficiently, success levels of the merge
improve. Brand is considered broadly with the focus on corporate branding and
therefore incorporates elements of imagery, reputation, culture, employees and
external stakeholders.

Brand equity, which comprises the assets and liabilities of the brand is seen as
a source of competitive advantage. As such brand is a critical element which
could certainly be incorporated formally into the pre-deal due diligence process.

The research questions are to:
(cid:131) Investigate and explore to what extent the concept of brand is considered in
M&A due diligence in the South African context.
(cid:131) Evaluate and explain the differing roles that the selected corporate advisors
put forward in the M&A market regarding brand in South Africa.
(cid:131) Investigate how M&A practitioners are operating in terms of IFRS 3
legislation which requires transparency in disclosure of intangible assets
following a merge.

The findings reveal that corporate advisors generally do not incorporate brand
elements in the due diligence process. Their focus remains predominantly
financial in assessing the cash-flows implicit of the brand in their analysis.

Abstract Page i
A typology of the services and roles of corporate advisors is developed in terms
of their approach to M&A consulting.

Reporting in terms of intangible assets required by IFRS 3 convention is
investigated and the findings confirm that transparency of valuation is not
adequately revealed.

Recommendations to the stakeholders involved in M&A include the
incorporation of a formal marketing due diligence process to improve disclosure
levels, to gain a deeper insight into marketing drivers of cash-flow, to gain a
better understanding of inherent marketing risks and to improve valuation
practice.
Page ii Abstract
Brand in Mergers and Acquisitions
An analysis of South African due diligence

DECLARATION
I declare that this research project is my own, unaided work. It is submitted in
partial fulfilment of the requirements of the degree of Master of Business
Administration for the Gordon Institute of Business Science, University of
Pretoria. It has not been submitted before for any degree or examination in any
other university.

_______________________________________________________________
Date: 14 November 2007
Author: Carl Bezuidenhout
Declaration Page iii
ACKNOWLEDGEMENTS

My wife, Marcelle and my daughter Jenna have been extremely patient and
supportive of me throughout the research and during the MBA. Without them I
would not have been able to succeed. Thank you girls!

Thank you Mr Michael Goldman, my dissertation supervisor, who has been
encouraging, supportive and extremely efficient at giving me constant feedback.

Thank you to my sister, Lisa who has helped with this template design.

Thank you to my Mom who was really helpful in assisting with the capture of the
interview transcripts; even though “forestry” instead of IFRS3 was captured
occassionally.

Thank you to Prof. Malcolm Macdonald, my “unofficial” supervisor who I
engaged by email at the start of the research and who has provided me with
direction to understand the marketing due diligence process,

Thank you to Mr Dave Thayser of Ernst and Young for your sincere and
approachable nature; for providing access to the M&A database; for openly
giving industry contact information to further this research and for your guidance
and assistance in questionnaire testing.

Thank you to all the people who allowed me the time and honesty to be
interviewed.
Page iv Acknowledgements
Brand in Mergers and Acquisitions
An analysis of South African due diligence

Acknowledgements Page v
Page vi Acknowledgements
Brand in Mergers and Acquisitions
An analysis of South African due diligence

TABLE OF CONTENTS
ABSTRACT......................................................................................................I
DECLARATION...............................................................................................III
ACKNOWLEDGEMENTS......................................................................................IV
LIST OF TABLES............................................................................................XI
LIST OF FIGURES..........................................................................................XII
LIST OF ABBREVIATIONS................................................................................XIII

CHAPTER 1. INTRODUCTION TO THE RESEARCH PROBLEM.............................1
1.1 DESCRIPTION OF THE PROBLEM AND BACKGROUND.......................................1
1.2 PURPOSE OF THE STUDY......................................................................2

CHAPTER 2. LITERATURE REVIEW...........................................................3
2.3 INTRODUCTION.................................................................................3
2.4 BRANDS..........................................................................................3
2.4.1 BRAND DEFINITION.........................................................................4
2.4.2 CORPORATE BRAND.........................................................................6
2.4.3 RESEARCH BRAND DEFINITION..........................................................10
2.4.4 BRAND EQUITY.............................................................................11
2.4.5 MARKETING ASSETS AND INTANGIBLE ASSETS........................................16
2.5 DUE DILLIGENCE..............................................................................20
2.5.1 GENERAL DUE DILIGENCE................................................................21
2.5.2 MARKETING DUE DILIGENCE.............................................................22
2.6 BRANDS IN MERGERS AND ACQUISITIONS. ...............................................25
2.6.1 INTRODUCTION............................................................................25
2.6.2 M&A MOTIVATION. ......................................................................25
2.6.3 MEASURE OF SUCCESS....................................................................26
2.6.4 WHY SHOULD BRAND BE INCORPORATED?............................................29
2.6.5 HOW COULD BRAND BE INCORPORATED?..............................................31
2.6.6 CONCLUSION OF BRANDS IN M&A.....................................................35

Acknowledgements Page vii
CHAPTER 3. RESEARCH QUESTIONS.......................................................37
3.1 INTRODUCTION...............................................................................37
3.2 RESEARCH QUESTIONS......................................................................38

CHAPTER 4. RESEARCH METHODOLOGY..................................................39
4.3 INTRODUCTION...............................................................................39
4.4 PROBLEM DISCOVERY........................................................................39
4.5 INTERVIEW RESPONDENTS..................................................................40
4.6 RESEARCH TECHNIQUE.......................................................................43
4.7 RESEARCH METHOD..........................................................................44
4.8 POPULATION...................................................................................44
4.8.1 BRAND SPECIALISTS......................................................................44
4.8.2 M&A CORPORATE ADVISORS............................................................45
4.9 SAMPLING......................................................................................45
4.10 COLLECTION OF DATA........................................................................47
4.11 UNIT OF ANALYSIS............................................................................47
4.12 SAMPLING ERROR.............................................................................48
4.12.1 RESPONDENT ERRORS....................................................................48
4.12.2 ADMINISTRATIVE ERRORS................................................................49
4.13 LIMITATIONS..................................................................................50

CHAPTER 5. RESULTS.........................................................................52
5.1 DATABASE OF M&A TRANSACTIONS.......................................................52
5.1.1 M&A ACTIVITY............................................................................52
5.1.2 M&A MOTIVATION .......................................................................53
5.1.3 CORPORATE ADVISORS...................................................................55
5.2 RESPONDENTS FOR EXPERT INTERVIEWS.................................................58
5.3 THEMES OF DISCUSSION.....................................................................59
5.3.1 “BRAND IS GENERALLY AN AFTERTHOUGHT.”.........................................59
5.3.2 “YOU’RE NOT REGISTERED FOR POPCORN.”...........................................62
5.3.3 “DUE DILIGENCE IS NOT ABOUT INTANGIBLES.” .....................................65
5.3.4 “IT’S A HUGE CONFLICT OF INTEREST.”................................................69
5.3.5 “IFRS 3 IS A BALANCING ACT.” ........................................................73
5.4 SERVICES ......................................................................................76
5.4.1 VALUATIONS ...............................................................................77
5.4.2 TRANSACTION SUPPORT..................................................................78
Page viii Acknowledgements