News for Managers: If You Want to Create Shareholder Value, Don't Buy Other Companies, Just Buy Their Brand Assets

New research published in the Journal of Marketing uncovers the financial benefits and failings of brand acquisitions.

CHICAGO, Jan. 5, 2012 /PRNewswire-USNewswire/ -- Firms can garner significant positive stock market returns when buying stand-alone brands from other firms, but stockholders reward buyers with strong marketing capabilities with higher returns than when buyers that are less proficient at marketing, according to research newly published in the American Marketing Association's Journal of Marketing.

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Researchers and study authors Michael A. Wiles, Neil A. Morgan and Lopo L. Rego examined the brand acquisition and disposal announcements of more than 160 spanning 31 consumer-facing industries, such as food and beverage manufacturers and travel companies, and the impact those announcements had on stock prices.

"Our results indicate that investors have a more nuanced understanding of brand and complementary marketing related-assets and how they contribute to firms' financial performance than may be commonly believed," the authors write in the article "The Effect of Brand Acquisition and Disposal on Stock Returns."

The authors found that when a brand is sold by a firm with weaker marketing capabilities to one with stronger capabilities, net shareholder value can be created for both companies. For the seller, shareholders reward the divestiture of brands that are relatively unrelated to the firm's core portfolio. For buyers, shareholders reward the purchase of an under-supported brand when it is known that the buyer can add more value to the brand asset than the prior owner.

In seeking brand acquisition candidates, the study indicates that firms should look for higher quality/price positioned individual brands owned by firms with relatively weaker marketing capabilities, and avoid getting into "auctions" with multiple bidders for the brand whenever possible. Meanwhile, managers seeking brand disposal candidates within their portfolio should look for lower quality/price positioned brands that are furthest removed from the firm's core business and for which the firm has relatively weaker channel relationships.

How buyers and sellers of brands position their sales agreements also impacts how shareholders react. "Managers must be keenly aware that investors are sensitive to public statements," the authors say, noting that elaborating on likely cost-saving synergies generally creates value, but talking of potential revenue synergies generally has a negative impact on investors.

The full article and its findings are available in the December issue of the Journal of Marketing.

About the American Marketing Association:
The American Marketing Association (AMA) is the professional association for individuals and organizations who are leading the practice, teaching, and development of marketing worldwide. Learn more at marketingpower.com.

Contact: Christopher Bartone – 312.542.9029 – [email protected]

SOURCE American Marketing Association