Acquiring a brand is not for the faint of heart. If the only consideration was positive sales movement, determining prospective acquisition targets would be easy. And, presumably, the price for that brand more costly.
As HRG analysts reviewed a number of influencing factors behind brand acquisitions in 2016, it became immediately evident that other mitigating circumstances about a targeted brand can shape its potential future. Here’s a quick rundown of some of the most prevalent considerations along with some top-level pros and cons of each.
Promotional history activity
Brand visibility and consumer perceptions are often shaped by promotional activity. If a brand has completely halted promotional activities or dramatically scaled them back prior to its sale, that product’s value has been diminished. On the other hand, consistent promotional activities can impact its future state even if brand sales may have remained flat or slipped slightly.
Channel acceptance
Understanding and assessing market coverage or channel penetration can be critical factors in determining a brand’s current and/or future success. As an example, if an item has effectively gained strong distribution within the independent pharmacy channel but has not penetrated larger, national chains, this is not all bad news. In fact, depending on the item and the need for pharmacist guidance, trust, and interaction, it may be the best possible positioning for that product.
Breadth of line
A single stock-keeping unit (SKU) that is successfully holding its own in a category crowded with brands touting a far broader portfolio may be a diamond in the rough. Our analysts would be quite impressed with such a brand – and this may represent an opportunity to remain differentiated and targeted. Not all brands need total ACV (All Commodity Volume) distribution. In fact, some are better served remaining specialized.
Alignment
For manufacturers seeking to expand their footprint within a particular category or specific subcategory, acquiring the perfect match is far more important than adding a blockbuster brand that is a misfit. The reason is simple: adding a thoughtfully aligned SKU to the line-up communicates a strong vision that will resonate with consumers and improve the effectiveness of messaging, promotion, and future R&D.
Product life cycle
Another factor worth considering when evaluating an acquisition target is a product’s stage in its life cycle. In other words, if it has not yet reached maturity, timing may be ideal to add luster to its shine. If, on the other hand, it is on the downslope of its life cycle, it creates a wonderful opportunity to either rejuvenate it with new messaging, packaging, and positioning, or simply begin transitioning its users to some other product in your portfolio that may better serve their needs. Either way, understanding where the brand is in its life cycle is crucial.
Consumer acceptance
The final “soft” factor to examine is the brand’s acceptance by consumers. Some brands have ‘cult-like’ followings, geographic advantages, or heritage roots. Taking time to consider why the current customer base is enamored with the brand and gauging the importance of that relationship are two vital decisions during the acquisition period.
So, beyond historical sales trends or share analyses, you can begin to see that other factors should weigh into any acquisition decision. Keep in mind that the bottom line is affected by “soft” variables. Taking these into consideration when planning an acquisition will ensure fair valuation and likely set the stage for the brand’s future success. If you need unbiased help in this brand assessment, give the Hamacher Resource Group team a call.