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Aarati Krishnan

BRAND acquisition is a common strategy adopted by companies to take the shortcut to revenue, profit and market-share growth. Companies try to circumvent the painful process of brand building by acquiring established brands.

But does this strategy deliver value to the acquirers? A study of brand acquisitions by some companies shows that there is, at best, a patchy track record in this respect.

No "boost" from acquisition: When GlaxoSmithkline Consumer (Glaxo) snapped up health drink brands — Viva and Maltova - — from Jagatjit Industries in 2000, it was counting on these brands to help fortify its dominant position in the market, where its own brands — Horlicks and Boost — already held a 70 per cent market share. But three years down the line, the sales of the acquired brands have sunk to half the levels at the time of the acquisition. Glaxo paid Rs 86 crore for the two brands in 2000; but has now decided to write down the value of these brands to their "true worth", which is now just Rs 28 crore.

What went wrong? Though the two acquired brands at first appeared a neat fit into Glaxo's existing portfolio, their integration into Glaxo proved complicated on the ground. First, the integration of the newly acquired sales force with Glaxo's, took longer than expected. Then, Glaxo discovered that they did not exactly meet their label specifications and had to spend some more time re-formulating the brands. Meantime, competition in the health drinks market hotted up and decimated the acquired brands' market share.

Not a cakewalk: Writing out a cheque to buy up a brand is often the easy part. Making sure it retains its customers after the transition and expanding it, sometimes requires as much effort as building a brand from scratch.

When Hindustan Lever acquired a clutch of ice cream brands (Kwality, Milkfood, Dollops) in the mid-nineties, this no doubt helped it get a head start in the business, at a time when its own brand- "Walls" was an unknown debutant. But it has been uphill task for HLL thereafter. Over the past five years, HLL has expended considerable effort in rationalising its ice-cream portfolio, re-working the pricing strategies and even changing its target markets. Yet the ice cream business has barely grown in size.

Remember Rex Jelly, Brown and Polson custard powder, Glucovita, Captain Cook and Savlon? Well, each of these once well-known names were acquired by HLL from competitors in the nineties. But they have either been axed or put on the block since 2001, after HLL decided to embrace the "power" brand strategy and focus on just 30 of its largest money-spinners.

Uncharted territory: Brand acquisitions may also backfire when a company counts on them to set foot in uncharted territory. When shaving major Gillette bought out the "Geep" battery brand in 1998, it hoped to acquire a hold on the lower-end battery market and a formidable rural distribution network. Four years later in 2002, Gillette decided that the acquisition had not delivered; it recently sold the "Geep" brand to the Thanawalla group.

Passing the parcel: Then, there are the clutch of FMCG brands which have been passed on from one acquirer to another, with each one failing to engineer a successful re-launch. Toothpaste brand-Binaca and antiseptic brand Burnol have changed hands more than once but have failed to make a difference to any of their owners.

It would be wrong to assume from these incidents, that brand acquisitions are doomed to end in failure, for there are an equal number of instances where they have delivered value to the acquirer. But thanks to some of the unsavoury experiences with brand acquisitions, consumer goods companies now adopt a far more cautious approach to such buyouts.

Caution rules: For one, a few companies are today "on the prowl" for new brands; instead they would prefer to put greater firepower behind their existing brands. Secondly, companies are also less likely to dish out a king's ransom for a well-known name today. Five years ago, brands were typically valued at two or three times their prevailing sales for the purpose of an acquisition. But today, the purchase price is more likely to be pegged to a brand's contribution to profits. And acquirers are also structuring brand acquisition deals, so that a part of the purchase price is paid after evaluating the brand's performance for a year or two, instead of coughing up the entire price upfront.

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