QUANTIFYING M&A'S IMPACT ON BRAND EQUITY: A STRUCTURAL APPROACH

Abstract

The literature on mergers and acquisitions (M&As) has overlooked the interaction between M&As and consumers. Here, we provide a marketing perspective by investigating how the response of consumers to M&As influences the post-M&A performance of firms involved. We develop a conceptual framework on how M&As affect firm profit through three channels: brand equity, cost synergies, and product portfolio. We use structural model in combination with the difference-in-difference approach to quantify the combined profit effect of these channels. We then decompose the combined effect into the main effects of the three mechanisms, along with their two-way and three-way interactions. This approach is applied to assess Lenovo?s acquisition of IBM?s personal computer division in China. We find that the acquisition raised consumers? valuation of the Lenovo brand and generated significant cost synergies. The brand equity gain contributed the most to increasing Lenovo?s profit, followed by cost synergies and product portfolio gains.