November 2, 2011

Branding 101 For Buyer Of MetLife’s Mortgage Unit

November 2, 2011

Branding 101 For Buyer Of MetLife’s Mortgage Unit

MetLife’s mortgage division is up for sale and PNC seems to be one of the potential purchasers. There are even marketing pieces about it.

Many banks and mortgage companies are searching for merger or acquisition candidates. But what is the best branding strategy in a merger? In any merger, there are 5 choices on what to do about the brand:

(1) The acquirer maintains its name and disregards the acquiree’s name (most common; like Bank of America and Fleet),

(2) Both brands are kept separate (2nd most common),

(3) Both brands are kept in a fusion that maintains certain elements of both (3rd most common, similar to JP Morgan Chase),

(4) Create a new brand from the combined entity (rare, similar to Virginia Financial Group and First National Bank forming “Stellar One), or

(5) the acquirer drops its name and takes the name of the acquiree (rare, like when Norwest bought Wells Fargo but kept the Wells name).

A study was done by IE Business School in Madrid and the University of North Carolina, with the research looking at 216 US companies formed by merger between 1997 and 2006.

Most mergers during that time period underperformed the market by about 18%. Mergers that maintain the acquirer’s brand and disregard the weaker one underperformed the marked by an average of 15%.

In similar fashion, mergers that kept the brands separate underperformed the market by a whopping 25%.

However, in cases where brands are fused together, the new brand ends up outperforming the market by 3%.

Performance is one thing; we do see how management treats the brand as a sympathetic response that likely highlights a general attitude about cultural, process and infrastructure assimilation.

The method of discarding the acquisition brand likely points out that while some cost savings are achieved, valuable talent and processes were also likely jettisoned (thereby hurting performance).

Likewise, keeping brands separate is most likely also a sign that overlapping cost structures were maintained and internal cultural silos kept.

Keeping brands completely separate likely kept the organization from reaching its full potential.

Because a merger’s success relies in part on the successful integration of two cultures into a powerful new entity, a branding strategy that explicitly underscores the best of both worlds is likely worth considering for increasing value.

While bank mergers are good at valuing property, loans, deposits and other assets; management teams usually treat what to do about the name as an afterthought.

Since a bank’s intangible or brand value may compose a material amount of performance, considering this question pre-decision is highly recommended as a way to capture more merger value.

Using a fusion strategy to send reassuring signals to customers, employees, other stakeholders and most importantly, investors, may increase the level of success.
Further Reference:
MetLife Exiting Mortgage Biz: My Advice To Their Loan Agents
MetLife Press Release On Selling Mortgage Unit