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M&A and the Valuation Impact of Brand Essence

These days we are seeing quite a lot of co-branding in the ice cream isle. Tie-ins with innumerous candy bars (Godiva, Snickers, Twix, M&Ms etc), SpongeBob, Squarepants, Care Bear, and Disney’s Alladin have all graced the shelves.

However, what is of interest regarding brand essence is found in the superpremium ice cream category. This category is dominated by two brands: Ben & Jerry’s and Häagen Das.

Nestle and Unilever are going at it in the $32.4 billion ice cream market. Nestle merged with Dreyers in 2003 to create an ice cream empire which includes Dreyers, Edys, Starbucks ice cream, Nestle, and Dole fruit and Häagen Das. Dreyers had purchased Häagen Das from General Mills in 2004.

Unilever which owns Good Humor, Klondike and Beyer purchased Ben & Jerry’s in August 2000 for $326 million. Overall, Unilever has 2000 brands of ice cream and the category accounts for about 10% of its revenues.

Unilever thought it was doing a good thing purchasing Ben & Jerry’s. However, one thing it seems to have overlooked is the impact of brand essence. Brand essence represents the core values of the brand, and for the pre-acquisition Ben & Jerry’s this brand essence was quite strong. Ben & Jerry’s was run by two quirky guys that loved ice cream and also had a strong interest in social responsibility. The firm was well known for its environmental advocacy and social conscious sourcing from its headquarters in Vermont. It was seen through the eyes of the consumer as counter-culture and idealistic.

Häagen Das, on the other hand, was known to be simply a high-indulgence ice cream without any of these social responsibility values.

What happens when a massive global corporation purchases a “mom & pop” type of brand? The brand essence suffers from incongruity. As you can see from the chart Ben & Jerry’s is sliding in market share in comparison with Häagen Das, so this brand essence contradiction could be an underlying factor in the brands market performance.

Ben & Jerry's vs. Haagen Das.png

A similar issue happened with Beatrice. Beatrice, a food giant in the 1980’s, found that utilizing a corporate brand often was counter productive, especially on craftsman type of products where the corporate identify was would smother that of the child brand. For small dairy farms the corporate brand’s positive elements would be offset by its negative elements. Beatrice found this all out the hard way and has since vanished.

Acquirers in the M&A world would best learn from these experiences and be sure to measure brand essence to uncover divergent elements in the target brand which would wipeout other potential synergies.


Sources:
Nestle Investor Seminar June 2004, Presentation
Mintel Ice Cream Report June 2005

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