A 10-minute read looking at the critical importance of brand diligence to influence deal success, uncover hidden risks or opportunities, gain a competitive advantage, and improve investment outcomes.
A Brand Diligence Playbook/Primer for Better Investment Outcomes
You thought it was the right acquisition. It checked all the boxes. You looked at everything, or you thought you did, then things went sideways. Kinda like this cautionary little tale:
L’Oréal acquired The Body Shop in 2006, hoping to attract a new, ethical, socially responsible, and loyal customer base. After all, The Body Shop had a unique product positioning and a strong brand image. The acquisition did help L’Oréal enhance its awareness and reputation regarding social responsibility. However, there was a fundamental brand conflict.
The Body Shop began to lose customers because it was owned by a company that contradicted the ethical and moral values the brand once represented. Much of the uncertainty among consumers arose from the conflicting brand identities of the two companies. L’Oréal’s brand focused on external beauty, while The Body Shop emphasized the internal beauty of individuals. The Body Shop’s customers were outraged that L’Oréal continued to test on animals, a significant divergence from The Body Shop’s own ethical and social values. Aligning with a cosmetics company that had not demonstrated the same level of ethical integrity created significant friction. Market evidence from the post-acquisition period revealed that The Body Shop customers actively abandoned the brand, sought alternatives, and even considered severing their relationship with the company entirely if presented with a suitable substitute.
Things never recovered. After years of declining sales, L’Oréal sold the brand to Brazil’s Natura & Co in 2017. Though the actual data is unpublished, it is believed to have been sold for less than the acquisition price.
Word to the wise- brands matter in M&A.
Keep this in mind because global M&A activity is projected to reach a record $3.5–4 trillion in 2025.1 And these days, an acquisition or merger that checks all the boxes is about more than numbers, operations, and integration logistics—areas where most dealmakers tend to focus. One of the most critical value drivers is often overlooked: brand equity strength.
This costly oversight represents a fundamental misunderstanding of modern business value creation. In today’s market, where intangible assets account for over 90% of the S&P 500’s market capitalization,2 ignoring brand considerations when acquiring or merging isn’t just shortsighted—it’s potentially catastrophic. And just plain ignorant.
The Tangible Impact of Intangible Assets
Sometimes, acquisitions are simply about folding in capability, gaining assets, or eliminating the competition. In these cases, brand is understandably a bit less relevant. However, most acquisitions or mergers involve integrating equity, people, brands, market perceptions, and a host of other intangibles. Brand equity is a quantifiable business asset that directly influences financial performance. Companies with strong brand equity command premium pricing, generate greater customer loyalty, and create barriers to competitive entry. When Google’s brand value is estimated at over $413 billion, or Apple’s at $574 billion,3 these aren’t abstract marketing metrics—they’re concrete financial realities that impact every aspect of business performance.
Brand equity is the combined value of a brand’s reputation, customer relationships, and market position. Well-executed brand integration can accelerate revenue synergies, reduce customer acquisition costs, and support premium pricing strategies, generating compound value over time. Well-executed brand integrations can reach new audiences, enter new markets, and create competitive advantages that would be difficult to achieve organically. In B2B, where relationships are long-term and switching costs are high, a strong brand creates stickiness and accelerates growth.
In M&A contexts, brand equity and goodwill can influence deal valuation. A target company with strong brand recognition and positive consumer sentiment can warrant higher acquisition multiples, while weaker or poorly positioned brands may necessitate significant post-acquisition investment. Strong brand equity suggests a higher likelihood of future success, providing negotiating leverage, lowering risk profiles, and enhancing transaction multiples and deal outcomes.
The Pre-Diligence Imperative
Brand assessment should be integrated into the earliest stages of target identification and evaluation, rather than treated as an afterthought during the final phases of diligence. This strategic shift requires expanding the traditional due diligence framework to include a comprehensive brand attribute and equity assessment before conducting in-depth financial and operational reviews. It serves as a critical layer of required diligence and the initial go/no-go decision-maker.
A thorough brand diligence process includes constituent discovery interviews, assessing the target’s market strength, positioning, and differentiation, as well as a comprehensive review of all brand strength and equity attributes that impact both market performance and equity value. Some critical areas of brand diligence include:
Alignment With Investment Objectives
This is the first step in target viability. Does the target align with strategic objectives or the investment and portfolio strategy? Align with stakeholder objectives and desired outcomes?
Market Awareness and Perceptions
How well-known is the target’s brand within its relevant market segments? Strong brand awareness translates to reduced customer acquisition costs and faster market penetration for new products or services.
Brand Differentiation and Positioning
What unique value proposition does the brand represent, and how clearly is this communicated to target audiences? Brands with strong, differentiated positioning offer more strategic value and are less vulnerable to competitive pressure.
Customer Loyalty and Retention
Brands that have strong emotional connections with customers create sustainable competitive advantages. High customer lifetime value and low churn rates indicate robust brand equity that can survive ownership transitions.
Constituent Alignment
Are all constituents, from stakeholders to all levels of management to employees to the market, all aligned around the company’s value proposition, values, and mission? Building equity requires consistency over time, and this demands constituent alignment.
Brand Reputation and Sentiment
In our connected world, brand reputation can shift rapidly. Comprehensive sentiment analysis across digital channels, social media, and traditional coverage provides insight into potential reputation risks or opportunities.
Evaluating Brand Compatibility & Architecture- Mergers
Beyond individual brand strength, acquirers must assess how target brands will integrate with the lead brand. Will the acquired brand operate as a standalone entity, be integrated into existing brand structures, or require complete rebranding? Different approaches carry different costs, risks, and potential for value creation.
Cultural and Values Alignment- Mergers
A brand’s culture, values, and purpose have never been more important. Misalignment between brand cultures, identities, personality, and values can create integration challenges that affect employee engagement, customer perception, and operational effectiveness.
Market Positioning Synergies- Mergers
Complementary brand positioning can create powerful cross-selling opportunities and market expansion potential. Conversely, conflicting brand positioning and messaging can confuse customers and dilute market impact.
Brand Integrations
In the case of a bolt-on acquisition or merger, early consideration in the pre-diligence process should be given to the brand architecture of the combined entity and to assessing the potential of compound benefit. Several approaches:
Independent Brand Preservation
This is a House of Brands approach. Maintaining acquired brands as independent entities works well when the target has strong brand equity and serves different market segments. This approach preserves existing brand equity and customer relationships while allowing for operational synergies behind the scenes.
Complete Brand Integration
This is a Branded House approach. Fully integrating acquired brands into existing structures can maximize synergies, but requires careful change management to avoid losing valuable brand equity in the process.
Gradual Brand Migration
Slowly transitioning customers from acquired brands to the parent company’s brand portfolio allows for careful management of customer relationships while achieving long-term brand consolidation goals.
Hybrid Brand Strategies
A Brand Fusion approach. Creating a new brand architecture that combines elements from both organizations can capture the best of both worlds while signaling transformation and innovation to the market.
Brand integration carries inherent risks that must be actively managed. Customer confusion during brand transitions can lead to defection to competitors. Employee uncertainty about brand direction can impact performance and retention. Market perception of brand changes can affect stock prices and competitive positioning. Successful brand integration requires clear communication strategies that explain changes to all constituents, robust change management processes that support employees through transitions, and careful monitoring of brand performance metrics throughout the integration process.
Build Brand Diligence Into Your M&A Framework
Firms serious about maximizing M&A value creation must institutionalize brand diligence within their deal-making processes. Establishing this best practice involves creating cross-functional deal teams that integrate brand strategy expertise alongside traditional financial and operational specialists. Brand considerations should influence target selection from the earliest stages, adding a rich layer of diligence to the evaluation process that has historically been overlooked in a pre-diligence phase.
Leverage an unbiased resource that offers a rigorous framework for assessing and quantifying tangible and intangible brand equity, ensuring that brand considerations are weighted appropriately and align with stakeholders’ M&A objectives.
The Competitive Advantage of Brand-Centric M&A
Companies that incorporate rigorous brand assessment into their deal-making processes will gain a significant competitive advantage and realize greater return on invested capital. This is particularly relevant in tech, where sustainable differentiation is fleeting at best (hello, AI). In the pre-diligence phase, brand diligence can identify targets with hidden brand value. Avoid deals where brand conflicts create integration challenges, and steer clear of brands where true differentiation does not exist. Solid brand diligence will determine whether there is a sustainable competitive advantages that extend beyond the immediate transaction. This is the asset value you want.
Ignore Brand At Your Own Risk
These days, brand matters. We live in a time where trust, reputation, authenticity, and emotional connection drive consumer and business decisions. A brand is a living entity that embodies promises, values, and experiences- things that drive market performance. When two companies merge or one acquires another, what happens to these deeply ingrained perceptions?
Value Erosion vs. Value Creation: Financial models can project future earnings, but they often fail to adequately account for the loyalty, advocacy, and long-term sustainability commanded by a strong brand. When you acquire a company with a tarnished or weak brand, you inherit liabilities—customer churn, market skepticism, and an uphill battle for acceptance. Conversely, acquiring a brand that resonates deeply with its audience means you’re buying not just market share, but also future growth potential. Ignoring this intangible asset mean leaving money on the table or, worse, losing it post-deal.
Customer Alienation: Whether B2B or B2C, and regardless of company size, customers form strong bonds with brands they trust. A sudden, poorly managed brand transition can lead to confusion, dissatisfaction, and loss of loyalty. Merging two brands requires a careful approach to ensure that existing customers feel valued and remain engaged, rather than becoming disgruntled and seeking alternatives.
Employee Morale and Talent Retention: Mergers and acquisitions are inherently disruptive. Employees often have a strong emotional connection to their company’s brand, mission, and culture. A brand strategy that fails to acknowledge and integrate these emotional ties can lead to a loss of employee satisfaction, productivity, and retention.
Market Perception and Investor Confidence: The market watches M&A activity closely. How a newly formed entity is branded and positioned sends powerful signals to investors, analysts, and competitors. A clear, compelling brand narrative can boost confidence, attract investment, and solidify market leadership. Customers and your competition can smell a screwed up integration a mile away.
Competitive Advantage: In crowded markets, differentiation is crucial. Strong brands inherently hold competitive advantages through differentiated positioning, customer loyalty, and a high perceived value. Failing to strategically assess and leverage brand assets during M&A pre-diligence risks potentially losing the advantages that the acquisition represents.
Conclusion: Brand Strategy as Deal Strategy
The projected surge in M&A activity presents unprecedented opportunities for value creation, but only for organizations that approach deals with comprehensive strategic thinking. Brand assessment and integration strategy cannot remain afterthoughts in the M&A process—they must become central elements of deal evaluation and execution. Companies that recognize brand equity as a critical component of business value will make better acquisition decisions, achieve more successful integrations, and create more sustainable competitive advantages. In a world where intangible assets drive significant business value, brand-centric M&A strategy isn’t just a best practice—it’s a competitive necessity.
The question isn’t whether your organization can afford to prioritize brand diligence in M&A transactions. The question is whether you can afford not to. The companies that understand this distinction will be the ones that capture the greatest value from their deal-making activities.
Be one of those.
If you are interested in seeing an overview of BRANDThink’s Brand Diligence evaluation index, jump over to the Contact Us page, all you gotta do is ask.
- https://www.reuters.com/markets/deals/dealmakers-eye-4-trillion-plus-ma-haul-2025-trump-boost-2024-12-19/
- https://anderson-review.ucla.edu/boom-of-intangible-assets-felt-across-industries-and-economy/
- https://brandfinance.com/press-releases/apple-is-the-2025-most-valuable-brand-in-the-world-nvidia-breaks-into-the-top-ten#:~:text=DALLAS
L’Oréal source links:
https://www.brandvm.com/post/the-body-shop-rebranding-and-marketing
https://www.warc.com/newsandopinion/news/body-shop-suffers-backlash-after-loreal-deal/en-gb/19245
https://theindustry.beauty/the-body-shop-what-went-wrong-and-can-it-be-saved/
