Companies that fuse their original identities stand a better chance of success, one research team found.
The September issue of the Harvard Business Review had a short article under its Idea Watch section on Why Fusing Company Identities Can Add Value. The three researchers found an exception to the popular belief that merged companies underperform the market. Their study of 216 companies formed by mergers between 1997 and 2006 revealed that those that “fused” the merging companies’ identities had better returns.
They divided the companies into three behaviors:
Assimilation: one company brand/logo is chosen, the other discarded.
Business as usual: both entities keep their original name and logo.
Fusion: either combining names or combining a name with the other logo.
“After adjusting for such factors as risk, size, and market-to-book ratio, we found that companies using an assimilation branding strategy fell short of the market return by 15%, on average," the researchers say. "Companies using a business-as-usual strategy fell short by 25% — but companies using a fusion strategy exceeded the market return by 3%.”
The authors cited the fusion of United Airlines name with Continental Airlines logo as an example:
What does this have to do with credit unions? Well, mergers are definitely on industry insiders' minds these days. (Note another exception to popular wisdom: credit union mergers aren’t actually increasing. At mid-year, we are at an annual rate of 178 for 2011, well below the 300+ posted in ’04, ’05 and ’06.)
More specifically, at the same time I was reading this article, my colleague Aaron Pugh was in Michigan filming Season 7: Anatomy of an Expansion at United Federal Credit Union. United FCU was originally created through the merger of two Berrien County credit unions: $215 million United Federal Credit Union (originally Buchanan Clark Employees) and $480 million First Resource Federal Credit Union (formerly known as Whirlpool Community) from St. Joseph, MI.
Like United Airlines did with its logo, United FCU and First Resource FCU melded the existing brands by keeping the United name and combining it with the four diamonds from the First Resource brand.
United FCU today is a top performer in many areas of the balance sheet, as Callahan & Associates analyst Lydia Cole, describes in her article on the assessment of its performance, which ran last week on CreditUnions.com. United's merger is another living example of the Harvard Business Review's thesis that maintaing two brand identities can pay off.