Abstract

Brands are valuable and strategic intangible assets of firms, and there is a general agreement in marketing literature that they are key mechanisms for value creation (Madden et al. 2006; Srivastava et al. 1998). A study of Interbrand, an American global branding consultancy, reveals that organizations generate earnings from brand assets and tangible assets, as well as other intangible assets (Perrier 1997). Out of these different assets, the brand earnings can have a share of up to 70 percent, depending on the market (Lindemann 2003). The brand-building process requires constant efforts in marketing and advertising activities, and the creation of positive consumer associations is a long-term investment (Rossiter and Percy 1997). Due to the great meaning of brands (Homburg and Bucerius 2005), many companies are willing to pay high prices when acquiring brands, and the value paid for them can range from 1 percent to 50 percent of the total deal value (Bahadir et al. 2008). In mergers and acquisitions (henceforth: M&As), the redeployment of brands, which are complex organizational intangible assets, is difficult (Capron 1999), even though the target firm’s legitimacy for products and technology can be enhanced when acquired by a firm with a strong brand (Wernerfelt 1984). With research and development (R&D)-intensive targets, the post-acquisition interaction of the target’s specific resources and the acquirer’s brand and marketing resources can enhance the acquisition performance (King et al. 2008). Nonetheless, many firms try to avoid the high risks of new product and brand development and instead they acquire firms with established brands for corporate development purposes (Capron 1999; Mahajan et al. 1994). Further, as brand building needs time and the transfer of brands across borders is difficult, the acquisition of local brands is often a key element in the internationalization strategies of firms (Anand and Delios 2002).