Fight or flight? Dealing with M&A

Mergers and acquisitions (M&A) are the ‘hottest’ of moments in the business world – big companies, billions of dollars; they catch the eyes of investors, keep the press talking and generate a whirl of excitement among stakeholders. But from pre-deal to post-merger, the route to M&A includes a million twists and turns and is often strewn with unforeseen roadblocks.

Last year was a record year for M&A activity, with more than $5.9 trillion in deals globally, making up approximately 63,000 transactions. However, research has shown that between 70% and 90% of transactions are unsuccessful. There is a delicate balance between the perfect M&A strategy, the right timing and the right character leading the deal – and striking both is rarely achieved.  

Elon Musk’s $44bn bid to takeover Twitter failed only three months after it was first announced, with the Tesla founder terminating the agreement after claiming Twitter misrepresented the number of spam accounts on the platform. A US judge later ruled a trial about the future of the deal would start in October. What happens next is anyone’s guess. But the Twitter saga is an example of how problematic M&A deals can be and the huge implications for brands and businesses.

How can brands ride the wave of unsuccessful M&A and what can we learn from other deals that have gone wrong?

Re-evaluate the foundations behind the move
Any successful M&A deal starts with a strong strategic brand foundation – what the brand stands for today and where it hopes to be tomorrow. Without this, if a deal goes sideways or hits an unforeseen crisis, you have nothing to fall back on or start again with.

In 2020, months after announcing its acquisition of Tiffany, LVMH attempted to scrap the deal citing the threat of US tariffs on French goods, Tiffany’s request to extend the deal deadline and the Covid-19 pandemic. Subsequently, Tiffany threatened litigation. 

LVMH made a countersuit but finally both parties avoided court by reaching a new deal in 2021 that lowered the original purchase price. The US luxury company saw the deal as strategic to driving future growth, refreshing its position and strengthening its resilience in a turbulent market.

Be prepared to create a spin off
Sometimes companies will look at demergers to refocus their business and position themselves for growth. Spinoffs can bring the brand and business into sharper focus, resources can be better allocated and management can be distributed to better lead business performance.

In May 2020, only three months after announcing a $525m deal, L Brands called off the sale of a 55% stake in its Victoria’s Secret lingerie business to Sycamore. In this case, L Brands preferred to focus on navigating an extremely challenging business environment (Covid-19 ) rather than spending money and resources on litigation.  

L Brands finally decided to change leadership and separate Victoria’s Secret and Bath & Body Works into two separate publicly traded companies. By 2021, when the spin-off was completed, L Brands’ shares had increased significantly in value.

Put culture and values before strategy
While brand strategy is imperative to an M&A deal, culture sits at the heart. In 2020, Accenture carried out a survey of senior executives, which revealed that 75% thought the talent and cultural aspects of a merger or acquisition was crucial in light of the Covid-19 crisis. When all people involved in the deal understand who they are, what they stand for and the vision for the business, there is a higher chance of success.

The Amazon and Whole Foods merger –which took place in 2017 – is one of the more puzzling recent mergers. In terms of culture and compatibility the merger just didn’t make sense. Whole Foods appealed to upscale customers, looking for high quality, healthier foods (with a bigger price tag) and a personalised in-store experience. Amazon offered a more relentless, price-minded and impersonal service for shoppers.

There are some key points to consider for successful M&As:

• Re-evaluate the foundations behind the move 
• Keep shareholders close. Entities must amalgamate their strengths, compromise, and strike a balance to be sure that the outcome creates incremental value for both shareholders and the employees. The shareholder is often the last constituent of a M&A move who has a say, so pay attention to how they are invited, informed and embraced in the process
• Agile communication. Anything that has to do with M&A must come with a consolidated communication plan adapted to each stakeholder to maintain trust.

 Gonzalo Brujó is global chief executive officer at Interbrand