Being acquired destroys value
The bee (new name for the wife) and I were walking around Hampstead yesterday. We walked into the Body Shop – her choice obviously - and I said “has the body shop changed at all in the last couple of years?” it was obvious that it hadn’t. I started to wonder what if the Body Shop hadn’t been acquired by L’Oreal, would I be saying the same thing? Sure there have been other factors which slowed down innovation, like the death of Anita Roddick, but surely being part of the giant L’Oreal machine has slowed down growth.
This kind of thing is common in the internet industry; every cool company that I’ve liked hasn’t done anything really innovative since being acquired. But I was surprised to see that the same applied to retail.
A lot of entrepreneurs like the idea of pumping and dumping, build something cool, make it valuable, get someone big to pay a pretty penny, sit around while shares vest, and then head off to the next big thing. It’s not just small or medium sized start ups where this happens, a friend who’s in the venture business with whom I was discussing recent events at Y! made the statement
“pretty much all M&A is value destructive for the acquirer. But its great for the target”
I disagree… well sort of. While it’s great financially for the target, I think all M&A sucks for both parties, it handcuffs people, makes it difficult to do anything new and while the companies are busy ironing out the mess left after the transaction the competition pounces. Sad thing is while the entrepreneurs, founders, shareholders and other investors’ pockets get fatter the users/customers/employees suffer.
I hope at some point I’ll dip my toe in the entrepreneurial waters, and if you had asked me a year or so ago how would you feel about the company you built being acquired; I would probably have had a very different answer to today. Then it would have been “show me the money”. Today, it’s more likely to be “show me the plan and how value won’t be destroyed”. Interesting how your perspectives change in a short amount of time.
Farhan - again, a great article!!!
In terms of the Body Shop, I haven’t seen them change in years!
The Rogers buyout of the CHUM empire seems to have initiated some changes - namely the move to a newer and fancier location.
I wonder if the Teachers’ purchase of BCE will make the Leafs (another Teachers property) any better?
I digress….Probably the one M&A example that daily affects me is TD Canada Trust. CT was one “bank” that had looooong hours and was open on weekends. TD Canada Trust has continued this as well as many other innovations inside their branches. And the rest of Canada’s banks have followed suit. Today, most banks are open longer (especially on Thursdays and Fridays) and on weekends as well.
The result - both consumers (of ALL banks) as well as the banks themselves (valuations have doubled historically every 5-8 yrs) have benefited.
KK
June 24th, 2008 at 6:33 pm