In the Know: Analyst Insights on Best Practices for M&A

Jessica Simpson ad for spring '15
An image from Jessica Simpson's spring '15 campaign.
Courtesy of brand

With major footwear companies constantly searching for growth and expansion opportunities, the recent uptick in mergers and acquisitions across the industry is hardly surprising.

In March alone, Jessica Simpson’s brand inked a new partnership with brand-licensing powerhouse Sequential Brands; Iconix gobbled up the remaining 50 percent of Iconix China from its joint venture partner; and Yoox and Net-a-Porter merged, forever redefining the online luxury retail space.

These days, with lower oil prices and lots of equity and debt capital to go around, experts say the apparel and footwear markets are poised for even more new and lucrative partnerships.

As exciting as these deals often seem, though, it’s hard to ignore the number of business relationships that eventually crumble.

Where do major industry players go wrong? FN asked analysts to share their insights on some of the major considerations in advance of any M&A deal.

• Identify and Address What Doesn’t Mesh

Experts say it might be tempting — especially in the early stages — to get caught up in all of the surface similarities between two companies in the same industry. Some partnerships even appear to be “no brainers” in the beginning, when both entities are focused on creating a new synergy. Insiders warn, however, that an overemphasis on what’s similar while downplaying what’s different can be dangerous.

“Companies always talk about looking for synergies, but they never talk about the discordant issues that prevent a successful merger,” explained Matt Powell, a sports industry analyst at The NPD Group. “Focusing on what won’t mesh and needs to be dealt with is key.”

Riley & Co. analyst Jeff Van Sinderen noted that in the case of global partnerships, cultural differences can also muddy the waters.

“If the cultures of each entity are not a fit, issues tend to surface down the road,” said Van Sinderen. “[Some examples are] conflicts in style of management and strategy and head-butting of personalities that may not be aligned culturally.”

• Clarify the Roles of Key Players

Will the CFO of Company A carry the same responsibilities after the organization merges with Company B? Who will need to be demoted, promoted or even fired along the way? With all the moving parts and complications that come with a new partnership, employees at all levels of an organization can become confused and begin to feel alienated.

“When a merger is being considered, it is critical that all parties know what their roles will be,” said Powell. “If not, you run the risk of people who you thought would be key players in the organization post-merger feeling dissatisfied — and even leaving the company.”

• Think Beyond Consolidation

Consolidation is often a main goal when companies engage in M&A activity, but what other outcomes could synergies achieve?

Van Sinderen said he’d like to see more companies think outside the box when it comes to forging a new partnership.

“Some synergies that can be achieved beyond consolidation include: cross-selling, as well as leveraging talent, expertise and knowledge to grow business lines that may not have been possible with prior management/talent at the original organization,” said Van Sinderen.

• Ensure Customer/Supplier Buy-In

“Most mergers tend to be internally focused,” said Powell. “But [a company’s] customers and suppliers need to support the move as well. If they don’t support [the new partnership], they may change their relationship with the company.”

There is a range of potentially positive outcomes for customer and supplier relationships, added Van Sinderen, if a partnership is carried out with those parties in mind.

“The credibility of a firm applied to an additional line of business can benefit customer/supplier buy-in,” he added.