When one company decides to acquire another, it sets in motion a long, deliberate and expensive due diligence process that involves CPAs, attorneys, engineers and business analysts. The stakes are high. A lot of promises are on the line.

Often overlooked in the process, though, is a comprehensive evaluation of the acquired company’s brand. The consequences for ignoring this step can be significant.

The power of brand halo

Brand is more than the ugly logo that came for free with your acquisition. A brand is a promise of the experience stakeholders will have when they engage with the company. Tiffany’s blue box is part of its brand, but no more so than the inherent promise of quality and service that customers are willing to pay a premium for.

Brand associations directly impact perceived quality and overall value. They also drive market share, pricing acceptance and loyalty. A company known for quality and service can be negatively impacted by associating with a brand that has neither.

This is especially true in the business-to-business world. That’s why we recommend a brand audit as part of the due diligence process.

Why we recommend brand audits

We worked with a client who had recently acquired a specialized oilfield equipment company to complete its technology portfolio. The acquired company had a sound portfolio, but had experienced some catastrophic service and quality failures a few years before the acquisition. Due diligence didn’t expose the true impact of those failures.

Our client was aware of the problems and worked hard to correct them. But they made a costly early mistake. They continued to use the damaged legacy brand. The product line improved, but the company couldn’t overcome headwinds caused by the brand perceptions of past and potential customers.

The parent company eventually gained market traction by launching its next-generation products under its own well-regarded brand.

Why GE probably does now, too

When GE bought Lufkin Industries in 2013 for $3.3 billion in cash, Lufkin was the leader in the rod lift market. It used only American steel in its American-made products, and its high quality and great service commanded premium pricing and deep customer loyalty.

To lower costs, GE moved manufacturing overseas. Now Lufkin is associated with foreign-made products and uncertain quality. Disillusioned employees left in droves. Products could no longer command premium prices. Competitors stole market share.

By better understanding why the market valued the Lufkin brand and was willing to pay premium pricing for its products, GE might have implemented a different integration strategy that could have mitigated the negative consequences.

A success story

We recently worked with two merging companies: Light Tower Rentals and Globe Energy Services. Globe was a major supplier of water and infrastructure solutions for the oil and gas industry, and Light Tower Rentals was a well-respected supplier of lighting and power solutions in remote locations. Both brands were well known and respected in their industries, and there was no overlap in their product and service offerings.

There were clearly opportunities to streamline operations, but the answer to maximizing leverage was in each company’s brand promise. Both were in business to help clients maintain continuous operations.

Once we identified this commonality, it made sense for the two companies to come together, which they did as Gravity Oilfield Services. Working under a common brand and brand promise let the employees see that they were part of a larger, more diversified entity. It also let the sales forces cross-sell more seamlessly.

Questions to ask during a brand audit

In conclusion, before you purchase a company, ask yourself a few questions:

• What attributes does the market associate with the targeted company’s brand?
• How does the market perceive its culture and people?
• What level of loyalty does the company engender?
• Are they able to take advantage of pricing premiums?
• Does its brand associations align with yours?