Do brand acquisitions create wealth for acquiring company shareholders? Evidence from India

Abstract

Purpose

The paper seeks to assess the impact of brand acquisition announcement on the wealth of the acquiring company's shareholders in India. Furthermore, announcement returns have been assessed and compared across FMCG versus pharmaceutical brand acquisitions and domestic versus cross border brand buyouts.

Design/methodology/approach

Standard event study methodology has been applied to compute the announcement returns for the overall sample of brand acquisitions. Besides, sectoral and cross border effect has been computed to assess and compare the shareholders' wealth gains of pharmaceutical versus FMCG brand acquisitions and domestic versus cross border buyouts respectively.

Findings

The results indicate that the acquiring company shareholders have gained positive and significant returns on the announcement of a brand acquisition as it offers instant access to brand names that are vital for the companies to compete effectively in a dynamic business environment. Further, it gives an assurance of better long‐term prospects for the acquiring company by adding certainty to the future cash flows. However, value creation is not universal; rather it is sector specific and country specific thus yielding higher wealth gains for the FMCG sector brand buyouts than the pharma ones and for the domestic brand acquisition than the foreign ones.

Originality/value

The study tries to establish an interface between marketing and finance literature, by assessing the impact of inorganically acquired brands on shareholder wealth within the framework of event study methodology. The study would go a long way in enabling marketing managers to assess and communicate the financial value of their branding strategies to the investors at large.

Citation

Jit Singh Mann, B. and Kohli, R. (2012), "Do brand acquisitions create wealth for acquiring company shareholders? Evidence from India", Journal of Product & Brand Management, Vol. 21 No. 4, pp. 265-274. https://doi.org/10.1108/10610421211246676