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: Investigate and explore to what extent the concept of brand is considered in M&A due diligence in the South African context. Evaluate and explain the differing roles that the selected corporate advisors put forward in the M&A market regarding brand in South Africa. 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.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.