Over the last 20 years, we’ve witnessed an unprecedented level of agency acquisitions by holding companies to sustain their ever-increasing growth targets. Now, we are seeing that same playbook unfold with equal velocity in fashion and retail. Increasing M&A activity holds enormous implications for the fashion and retail industry; which is why getting it “right” can often mean the difference between a new major growth trajectory or a slow death for a brand.
To understand what’s in store for fashion and retail, one only needs to look at the pattern of holding company acquisitions that have taken place in the last decade.WPP acquired nearly 150 companies between 2013 and 2015. IPG paid more than $2 billion to buy data marketing company Acxiom last year; Publicis purchased Epsilon for $4 billion this past spring. Accenture Interactive acquired Droga5 in April. And the list goes on.
Now look at what’s already taking place in fashion. Coach transformed into Tapestry as it scooped up Stuart Weitzman and Kate Spade. Michael Kors Holdings Ltd. became Capri Holdings as it pulled Jimmy Choo and Versace under its ever-chic umbrella.
Authentic Brands Group has emerged as a $10 billion behemoth over the last 10 years, grabbing up well-known but struggling brands like Camuto Group, Nine West, Nautica and Barneys New York since 2017 alone.
In the last three years, Walmart Inc. has acquired Bonobos, Eloquii and Bare Necessities, as it aims to grow its portfolio of digitally native and specialty brands. In August, seven-year-old clothing rental start-up Le Tote purchased iconic retailer Lord & Taylor in an unusual play in the growing space of fashion subscription and rental services.
What does it all mean, and what lessons can we learn from each?
Having been on both sides of the acquisition table over 15 times in my career, I’ve seen acquisitions fail over the long term because buyers have prioritized short-term growth over long-term integration. When acquisitions have been successful, it is because the leaders have maintained what we call the juju of the investment thesis — the reason the deal was made in the first place. They have successfully brought two companies together and generated more value than each had on its own. In other words, what I like to call making one plus one equal three.
But how do you make that magic happen? Here are three pillars for doing an acquisition right — whether you are an agency or a retailer.
Check for Shared Values
When considering an agency acquisition, the first thing to look at is whether a potential target shares the same priorities and belief systems. If the companies’ values are not in harmony, the long-term success of an acquisition is unlikely, if not impossible.
Most agencies claim to be “people-first” — our true products are our people, after all. My agency’s values include a commitment to greatness, a zest for learning, gratitude and appreciation, and passion and pride in what you do, among others. So the first place we look to see if a potential acquisition shares our values is at the organization’s Glassdoor reviews and culture awards. By analyzing retention rates, how they are celebrated and whether they are industry-leading, we can tell right away whether a company not only speaks our values, but also lives them out.
In the retail world, there are brands that emphasize shopping experiences (such as store layout, site design and customer service) and there are those that seek to offer low prices above all else. There are brands that value velocity (and have a higher tolerance for errors in the service of speed), while others value attention to detail and prioritize excellence over speed.
If integration is part of the eventual goal of an acquisition, then values need to be shared — or else there needs to be a clear and realistic plan for reconciling them over time. Otherwise, the product or service will stagnate and the brand experience will suffer. Perhaps most critically, the good people — the ones who built the shiny object the buyer wanted in its treasure trove — will leave and the value of the acquisition can suffer.
Tap Into the Value Exchange
It goes without saying that companies on both sides of an acquisition bring something to the table. The key is being able to tap into one another’s business value so the whole of the transaction equals more than the sum of its parts.
Here’s a trend that’s been seen often in the retail world of late: When a digitally native brand (i.e., a Bonobos, Bare Necessities, or Le Tote) comes together with a traditional brand (a Walmart or a Lord & Taylor), the former brings data-centricity to the deal, while the latter offers brand equity, and in some cases, merchandising and distribution efficiencies.
Because digitally native brands have had the luxury of starting up in today’s data-centric age (they aren’t trying to undo decades of legacy systems and structures), they have their marketing and customer data at their fingertips. Some traditional brands, on the other hand, only have access to good data on a weekly or sometimes monthly basis. Digitally native brands — often direct-to-consumer start-ups — appeal to traditional brands because they can act on opportunities in real time and therefore drive tremendous growth.
In the marriage of Lord & Taylor and Le Tote, Le Tote will use its technology and data-savviness to personalize in-store visits and e-commerce experiences for Lord & Taylor customers, while Lord & Taylor will provide tremendous brand recognition and millions of pieces of inventory to the clothing rental business.
The value exchange is clear, but making it a reality will require diligence post-deal.
Integrate with Love
In order for an acquisition to be successful, executives need to pay as much attention to integration as they do to getting the deal done.
At one of my previous firms, the agency acquired a specialist agency with the intention of supporting a struggling area of our business. What happened? The executive in charge of the deal got hung up on the acquisition and lost sight of integration. Post-close, he became increasingly hands-off. Within the first six months, the founder and the majority of the key executives had left the company. Without the institutional knowledge of the leadership team, we were unable to fully capitalize on the value, and the cross-sell opportunity fell flat. The acquisition was, in my view, a bust. Talk about lighting some money on fire.
Conversely, my company did our largest acquisition to date just over a year ago. There was a great culture fit between our two organizations and our services were complementary. But what ultimately made the transaction such a success was the tremendous attention paid to the integration process.
While many companies have a dedicated focus on merger-and-acquisition activity — teams of people who work specifically on the acquisition process — they don’t always devote the same kind of resources to integration.
Successful deals allot the same amount of energy and focus to integration as they do to acquisition. This means you need to assign dedicated teams to give integration the love and attention it needs to flourish, with an overlap of talent between the deal team and the integration team. Have a plan with milestones, and offer transparent and frequent updates to the broader organization to influence the internal narrative, to set expectations. Invite all of your employees, at all levels, to participate in the change.
Finding the right fit from a value perspective, giving integration the same amount of energy as the acquisition, and leaning into realizing the value exchange, is a recipe for success.
As the chief marketing officer at Tinuiti, Dalton Dorné leads the brand and growth strategy for one of the largest independent digital marketing agencies in the United States.