The Homa Files

Excerpted from Knowledge @ Emory “The Mystery and Motivation of Valuing Brands in M&A“, November 13, 2008

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in 2000 Cadbury Schweppes bought the Snapple brand of drinks, justifying the purchase to its board by saying that Snapple would be a wonderful addition to its product line and could be sold through its established distribution channels. Cadbury could successfully launch this small-town brand into the big time.

Quaker Oats, a previous owner of the Snapple brand, had given the same reasons for wanting to buy the brand—and yet, Quaker had failed to build the Snapple brand to any measure of its aspirations.

Brand valuation takes on a special significance in M&A, when both acquirer and target contribute inherent qualities that fuel brand value. “For example, Procter & Gamble (P&G) acquired Gillette and about 49% of the acquisition was attributed to the Gillette brand.”

Emory researchers. … set out to study the contributing traits of both the target firms and acquiring firms to explain the value given to a brand…They were able to determine the capabilities of both the acquirer and the target and how those, in turn, influence brand value…

Study results show that both acquirer and target marketing capabilities, as well as brand portfolio diversity have positive effects on a target firm’s brand value. Both parties’ capabilities are critical. 

Regarding brand portfolios: “If there’s redundancy in your portfolio, then your valuation is likely to be lower…if you’re acquiring a brand that allows you to get into a whole new market, then your valuation would be much higher.”

“Target firms need to recognize the significance of a firm’s marketing capabilities as well as its brand portfolio diversity…Targets with strong marketing capabilities can negotiate higher prices for their brands because the target’s marketing capabilities provide assurance to the acquirer firms in terms of the future performance of its brand portfolios. Targets with diverse brand portfolios can charge higher prices for their brands because diverse portfolios provide strategic options for the acquirer”…

Edit by SAC

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Full article:
http://knowledge.wharton.upenn.edu/article.cfm?articleid=2091
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