Small businesses have unique aspects that require special consideration when merging or acquiring compared to a larger transaction. Maintaining a brand’s uniqueness when being integrated is possible to the degree its uniqueness is derived from its independence.
If it is highly derived from having independence, then a key aspect producing the uniqueness is restricted. In these cases value may be captured for a period as it diminishes. The length and severity of the diminishing period can be impacted by several aspects which can include:
• Culture. By installing cultural strong protection and systems around the target, culture shock can be reduced to a minimum, allowing a longer dispersion timeline of brand uniqueness benefits. As Corynne, mentions above having separate locations was a good buffer for maintaining culture.
• People. With a small business, much of the brand’s value or uniqueness may be attributed to fewer key people. Change management may require greater investment for retention programs and to address the increased power of key people.
• Firm Structure. By setting up the organization in a way that extends as much independence as possible, the curve for useful value from brand uniqueness is extended. Leaving some functional areas un-integrated could be preferable, especially in the near term if they have material implications to the brand.
• Marketing, Branding, Sales and Customers. The marketing efforts can support maintaining the brand individually. Customers can be approached while maintaining different groups, with separate offers, and bidding or sales processes. Although this approach reduces cross-selling and product portfolio combination benefits, if the branding is a priority and the situations specifics, it may be advantageous.
These and other factors, along with those specific to the situation can impact how much of the value from a brand’s uniqueness is captured by a new parent company.
Making the transition to an investment grade company is a challenge that many small business don’t make before a transition. For a prudent buyer, this represents risks and costs that need to be accounted for in the price of the business, or other areas of negotiation.
Along with other activities, running the due diligence process in reverse with consideration of buyer-market motivations can provide the start of a roadmap for a closely held company to position more rapidly, or in a higher value way, for an institutional transfer channel. This could include building the brand in a way that does not derive its value significantly from the company’s independence, or a multitude of other means.
