What's In A Name?

Branding is usually considered to be part of a marketing strategy, Development Director Tim Mallon explains why businesses should also consider tax planning and corporate re-structuring alongside any branding exercise.

In the August edition of Northern Insight we explained the rationale behind our recent rebranding and the introduction of “Leathers the Accountants”. The reaction from our clients and professional contacts to the change has been extremely positive and it has already generated financial benefits. Businesses are increasingly aware of the importance of branding and we sometimes find in our discussions that branding and corporate structure are closely linked. We recently met with a business to discuss their overall corporate structure and future growth strategies. The directors of the company had recently successfully completed two acquisitions of companies which were in the same sector as their original business, but enabled the new group’s activities to expand into other, complimentary, areas. They were finding, however, that the existence of three trading names, being the original name and those of the two acquisitions, was causing some confusion in the market place and was also causing internal difficulties in terms of financial reporting. We were asked to advise on the potential rationalisation of the group’s activities, and our client had suggested that they move all of the businesses into the original company, such that the entire group’s activities would be carried out under one trading name.

This would be an interesting project and exactly the type of work we have undertaken many times over the years. However, we regard our role as more than simply accepting instructions and carrying them out. We want to make sure that our clients fully understand the ramifications of the decisions they make, and to suggest alternative solutions using our experience of similar situations. We had a series of discussions with the directors to examine fully the reasoning behind their original decision. We explained to the directors that the financial structures of the three businesses were such that the transfer of the two subsidiary companies could cause some financial issues; these were matters of potential inconvenience rather than real financial risk but, nonetheless, matters which the directors wished to avoid. It was also our understanding that the group would continue to acquire new businesses and therefore there was the possibility that we might need to carry out this type of restructuring several times over. For various reasons, the directors wanted to change the structure so simply continuing with the status quo and dealing with any confusion in the marketplace was not possible. We agreed that they should consider a structure which was not only fit for purpose now, but which would also help with future expansion plans. Potential structures included: Leaving the subsidiaries in place but having all trading conducted through the original company. To the extent that the original company was trading on behalf of a subsidiary then we could ensure that the subsidiary still reported that trading by having the two companies enter into an agency agreement. Ceasing trading in the two subsidiaries and having all future trading carried on in the original company. Unfortunately, the terms of the acquisitions of the subsidiary companies prevented this. Setting up a new holding company above all three companies such that each of the three trading companies became a subsidiary of the new holding company.

The directors quickly identified that the new holding company idea gave them opportunities not only in terms of future corporate structure but also branding. It emerged during our discussions that the group has ambitions to grow internationally, and that the nature of the group’s activities were such that it was likely that a new company would be set up for each territory into which they wished to expand. The holding company could therefore become a useful vehicle for the ownership of these companies. From a branding perspective, the new holding company gave the group the opportunity to be much more positive about the group’s overall identity. It gives them the chance to carry out their own re-branding exercise at a group level, whilst keeping the trading names of the subsidiary alive and recognisable in their respective market places. For us, we are now looking forward to working with this client on this exciting development strategy, content in the knowledge that our intervention had generated a change of direction resulting in a solution which has been fully thought through.