Examples abound of acquisitions that ultimately fail to benefit shareholders, and the wipeout in market values since 2007 has provided lots of new case studies. Exposure of deals-gone-bad serves as a cautionary tale for people who write merger announcements: Too often, standard M&A clichés don’t ring true.
One case in point – the 2006 acquisition of apparel retailer J. Jill by Talbots – is Michelle Leder’s subject in “On M&A Math,” published June 9 at Footnoted.org, a blog dedicated to digging up and highlighting glitches in company disclosures. Talbot’s bought J. Jill for $517 million three years ago. Last week, Talbots said it was selling J. Jill to a private equity group for just $75 million, about 85% less.
Whenever a deal is announced — and a bunch of them have been lately — there’s the inevitable press release that talks about synergies and how the deal is going to enhance shareholder value. Indeed, that’s pretty much a mandatory sentence. But things don’t always turn out as planned when it comes to M&A, or, quite frankly a lot of other things …
In the February 2006 release on the retailers linking up, the Talbots CEO used several M&A bromides:
Working together, we expect to capture the significant growth potential of the J. Jill brand and enhance shareholder value. We believe our proven expertise in managing a complex multi-channel operation will enable us to maximize the cost synergies of our similar business models, particularly in back-office functions.
In the June 2009 exit announcement, a different Talbots CEO declares:
This is a significant strategic step forward for Talbots as it enables us to focus our time, resources and attention exclusively on rejuvenating our core Talbots brand and return to profitable growth.
Synergy. Shareholder value. Growth potential. Expertise in managing complex operations. It’s too bad when these things come to naught. Of course, the financial crisis and recession have overcome many companies that didn’t merge, too.
But it seems to me that investor relations professionals should learn something from witnessing the wreckage of various mergers in recent years. We should anchor our statements about M&A transactions in specifics, not the traditional broad-brush claims of reaping synergies and enhancing shareholder value.