Analyst’s Take: Are Acquisitions a Good Idea or a Bad Investment?

It’s hardly news that it is very difficult for large retailers or brands to eke out even a little bit of growth. The cover story in the current issue of Inc. magazine focuses on one way companies have been dealing with this challenge: by buying other companies. Two of the companies profiled are Bluemercury, purchased by Macy’s for $210 million in cash in 2015, and MyFitnessPal, purchased by Under Armour for $475 million in cash the same year.

Because of Inc. Magazine’s general orientation, the focus of the article is on how awesome the trend of companies buying companies in order to grow is, rather than the pressing question of whether the strategy actually works. The article nonetheless sheds some light on the latter issue. Both cases leave plenty of room for skepticism—or at least questions.

Clearly both Bluemercury and MyFitnessPal had plenty of leverage in their respective negotiations with their acquirers. Both companies were able to get cash, rather than what was in hindsight inflated stock that then declined over what would have been a vesting period. Bluemercury is being run independently and MFP’s team was allowed to stay in San Francisco. The benefits to the parent companies do not seem to be overwhelming. It’s just not plausible that the revenue and market intel provided by Bluemercury can offset the decline in sales at Macy’s, which is organic and will likely increase with planned store closings. In the case of Under Armour, there is little evidence that the company is monetizing the literally billions of pieces of data about the fitness and eating habits of its 100 million plus users. This quote jumped out at me:

“Observing Under Armour’s online communities, [MFP founder, now Under Armour’s Chief Data Officer Mike] Lee and his team noticed that more athletes were focused not just on training but on recovering after workouts as well. They recognized that rest was an opportunity, which led to the company’s new ‘recovery sleepwear’—call it inactive wear.”

I don’t think a company needs to spend close to half a billion dollars to glean an insight of this nature.

If you need a refresher on just how tough traditional retail is right now, this article in Fortune is quite comprehensive, yet readable.

Separately, Warren Buffett’s latest book recommendation is decidedly relevant and worthwhile.

Faye Landes, co-founder and general partner of Back to the Future Ventures, advises emerging consumer and retail companies on strategy, branding and fundraising. She was one of Wall Street’s leading consumer and retail analysts for over 20 years and was widely recognized for her ability to anticipate sweeping trends, such as the widespread adoption of activewear. She has frequently appeared on CNBC, Bloomberg TV and other media outlets and has presented at industry conferences all over the world. Read her “Analyst’s Take” column here weekly.

 


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