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Executive Summary
In mergers and acquisitions (M&A), brands account for significant but varying proportions of overall transaction value. The marketing literature focuses on the drivers of financial value of brands when there is no change in the ownership of brands. However, in M&As, the value of brands also depends on how their new owners might leverage them. This study identifies both the target and the acquirer firm characteristics that affect the value of a target firm’s brands in M&As. The study uses audited measures of acquired brand value from Securities and Exchange Commission filings (made available as a result of recent statutory reporting requirements) along with data collected from diverse secondary sources. The analysis is based on 133 M&A transactions in which acquirers attribute value to target firms’ brands. The results indicate that both acquirer and target marketing capabilities as well as brand portfolio diversity have positive effects on a target firm’s brand value. The positive impact of acquirer brand portfolio diversity and target marketing capability is lower when the M&A is synergistic than when it is nonsynergistic.

The study has the following managerial implications: Executives who are grooming their firms for a potential M&A transaction need to be cognizant of their potential acquirers’ marketing capabilities and brand portfolio strategies. They should seek acquirers with strong marketing capabilities and high brand portfolio diversity (i.e., house-of-brands strategy) to get a higher price for their brands. However, if the potential buyer operates in the same industry as the target company, high brand portfolio diversity may lower the price because of potential redundancies between the brand portfolios of the two companies. Target firms need to recognize the significance of a firm’s marketing capabilities and 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 (or acquirers may have higher willingness to pay) because diverse portfolios provide strategic options for the acquirer. If a firm follows a single-brand strategy, it may consider limiting the number of firms to which the brand is extended. After a certain threshold of extension, it may be better to use new brands if the goal is to achieve higher brand value in M&A transactions.

Biography
S. Cem Bahadir is Assistant Professor of Marketing in the Moore School of Business at University of South Carolina. Cem received his PhD from Emory University, where he was named Goizueta Fellow and Sheth Fellow. Cem’s interests are in the area of the marketing strategy–financial performance relationship and cross-country marketing strategy. Cem has expertise in econometric techniques, such as panel data estimators. His business experience includes supervision of quality assurance certification project for human resources functions of one of the leading diversified conglomerates in Turkey and involvement in strategic management development projects at the corporate level.

Sundar G. Bharadwaj is Associate Professor of Marketing in the Goizueta Business School at Emory University. His research focuses on business problems related to current and long-term returns and risks to marketing investments in brands, customers, innovation, and marketing strategy. He received an Early Career Award from the Marketing Strategy Special Interest Group of the American Marketing Association. His recent work introducing a relational process–oriented approach to customer solutions published in Journal of Marketing and was a finalist for the Maynard Award for theoretical contributions. His research on the process of marketing strategy making published in Journal of Marketing was awarded the Marketing Science Institute/Paul Root Award for contribution to the practice of marketing. His research also received the American Marketing Association Services special interest group best-paper award, the Sheth award for best paper in Journal of the Academy of Marketing Science, and the American Marketing Association doctoral dissertation award. Sundar has held brand management and sales management positions in multinational corporations (SmithKline Beechams and AMUL), developing branding strategies and channel strategies for new and existing products.

Rajendra K. Srivastava is Roberto C. Goizueta Chair in e-Commerce and Marketing in the Goizueta Business School at Emory University and is Provost and Vice President for Academic Affairs at Singapore Management University. Raj is best known for his contributions to marketing strategy and marketing performance metrics. His work summarizing the impact of market-based assets on shareholder value in Journal of Marketing received both the 1998 Maynard and Marketing Science Institute/Paul Root Awards for the article judged to contribute most to the theory and practice of marketing, respectively, and more recently the Sheth Foundation Award for long-term contributions to the marketing discipline. He is also a recipient of American Marketing Association Mahajan award in recognition of career contributions to marketing strategy. He holds a BTech from the Indian Institute of Technology, Kanpur, an MSIE from the University of Rhode Island, and an MBA and a PhD from the University of Pittsburgh.

Journal of Marketing, Volume 72, Number 6, November 2008
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