clair015

When a foreign company acquires a domestic firm, it often leads to outcries of indignation, nostalgia (“another of our once great companies in foreign hands”), and calls for legislation to prevent any more foreign poaching. Politicians and union leaders proclaim that the foreign owners may not be dedicated to keep up investment in the subsidiary, and that the take-over threatens national jobs and other economic interests. “Most governments are reluctant to see their corporate treasures fall into foreign hands”, the BBC wrote in an article devoted to the topic . But is all this (slightly xenophobic) fear justified? Well, maybe not; at least not on all dimensions. Because we have increasing evidence that foreign ownership of a firm may actually also benefit firms, specifically in terms of their innovativeness. And this increased innovativeness may clearly benefit the host country. Professor Annique Un , from Northeastern University in Boston, for example, did a pointy study. She collecte...

In about 70 percent of the cases, the stock market responds negatively to the announcement of an acquisition. Put differently, despite their popularity, the average take-over destroys value for the acquiring firm. There are literally hundreds of good academic studies that consistently show that effect. For long, it was actually quite impossible to find any category of acquisitions that defied this rule and made some money, but lately a few studies have started to emerge that identify types of acquisitions that are seen in a more positive light by the ever elusive stock market. One such sub-sub-subcategory of acquisitions that do appear to make at least a little bit of money are international acquisitions that were preceded by an alliance between the merging firms, especially if it was a strong form of an alliance, i.e. an R&D or Marketing alliance or prior buyer-supplier relationship (rather than a mere equity stake or licensing agreement). I know, it sounds like a very very specif...

Decades of research scarily consistently shows that most acquisitions destroy value , and only cost the acquirer money. There is really no denying it – all “ifs” and “buts” have been raised, examined and rebutted – about 70 percent of acquisitions fail. That is because acquirers are usually inclined to overpay (under pressure from bankers, the press and their own adrenaline; a take-over premium of 60-80 percent is really nothing unusual) and because managers systematically overestimate their potential for value creation; integration is often much harder to pull off than one thinks and “synergies” carry you only so far. So far the (familiar) bad news. Slightly to my surprise though – although not unwelcome – over the past years a few studies have emerged that managed to identify categories of acquisitions which on average do create surplus value. And the first category identified is actually quite a sizeable one: the acquisition of private firms. Pretty much all of the research on M...

Why are so many executives so pre-occupied with the size of their company? Like bigger is always better. It especially annoys me when it is used as an excuse for acquisitions. “This take-over will immediately make us the largest company in the industry”. So?! What is your point?! I am sure being the biggest can have certain advantages, but that doesn’t mean that bigger (let alone being the “biggest”) always automatically is better. If you can explain to me why more scale is better, ok, but until then, I remain sceptical. Of course company size is often associated with (financial) success. For example, the firms that always feature on “the most admired companies” lists are usually Behemoths such as Toyota, Dell, Intel, Wal-Mart, and Pfizer. Several of them became big through acquisitions. And I am sure a company worth £10 billion attracts quite a bit more attention (for instance in the business press) and admiration than any of the 10 companies that they acquired that were worth a mere ...

Some time ago, I gave a presentation to a group of executives from a variety of companies on the topic of acquisitions. Much of the talk was about how vastly different acquisitions can be, in terms of the purpose they are intended to serve. As often, I ended my talk urging the executives that, if they would ever come across a consultant who would tell them “this is how you should integrate acquisitions” (promoting one particular method), they should fire him. Because acquisitions can be so enormously different in purpose and nature that they really require quite fundamentally different approaches to integration, and if someone recommends a “one mould fits all” method, it is best to show that person the door. Little did I know that the speaker coming after me was a consultant, armed with an impressive array of powerpoints on “this is how you should integrate acquisitions…” He looked a bit apologetic. They were also the main sponsor of the event. Anyway, I sort of mean it. Because someti...

Have you heard of Narcissus – the character in Greek mythology? Narcissus was an exceptionally beautiful young man. He was so beautiful (and full of himself) that he fell in love with his own reflection in the water. He could not bring himself to stray from the well and did not even drink the water; fearing he’d disturb the water reflecting his image and would not see himself again. Our word “narcissistic” – to describe someone full of himself – is derived from it. How would you recognise a narcissistic CEO (as certainly not all of them are exceptionally beautiful)? Seriously, think about it, what would you say are signs of a CEO who is narcissistically full of himself…? Someone who always has his photograph displayed very prominently in his firm’s annual report? The CEO’s prominence in the company’s press releases? How often he uses first-person singular pronouns (such as I, me, mine, my, myself) giving interviews to the business press? Or his financial compensation relative to the se...

Most acquisitions fail. That’s not even a point of debate or opinion anymore; the evidence from ample, solid academic research is quite overwhelming: about 70% of acquisitions destroy value, and this has been the case for many, many decades. The question is, of course, what causes acquisitions to fail, and what causes managers to undertake them in spite of their rather dismal track record? Various complementary explanations have been offered but, remember, “failure” here simply means that the acquiring company does not create sufficient extra value out of the acquisition to recoup its (usually rather hefty) acquisition premium. One prominent explanation is that the average CEO suffers from “hubris”, or “overconfidence”. They think they will be able to create more value through the acquired company than these silly people who are currently running the show, because of “synergies” or simply because they’re much better and smarter than the sorry souls who are currently messing about in t...

The line above probably didn’t mean much to you, unless you’re Dutch. No I am not getting a commission for rehashing their old marketing slogan (which it is; I guess you could translate it as “heavenly, clear, Heineken”), it just reminds me of the acquisition strategy they used under the reign of their illustruous former chairman Freddy Heineken (who unfortunately died a few years ago). Since I have been known to sound slightly sceptical (yes, this is a good english eufemism) of the vehicle of corporate take-overs, people sometimes ask me which company’s acquisition strategy I actually like… A painful silence (to this fair question) used to ensue. But no longer! Since I didn’t want to create the erroneous impression that I think all acquisitions and acquirers are bad, I decided to look for one. And I found Heineken . It happens to be a product that I studied extensively during my student days but some time ago I also really dug into their past acquisition strategy, and whether it made ...