Why acquisitions often don't work - MySpace and NewsCorp.

The business media get really excited about acquisitions.  And it is clear that many executives still think acquisitions are a good way to grow - especially when wanting to enter new markets.  Even though all the academic research says that acquirers inevitably overpay, and that almost all acquisitions don't really have "synergy."  In fact, most acquisitions significantly reduce shareholder value.  While this doesn't keep execs from going forward, if we understand why acquisitions go badly better performance can be obtained.

As reported at Financial Times in "The Rise and Fall of MySpace" the problem with acquisitions is very tied to the "owner and acquired" thinking that emerges.  NewsCorp wanted to get into social media, so it moved early.  And the investment looked brilliant when a quick deal with Google appeared to make payback a year from new ad revenues.  MySpace was an early social media winner, and it looked to be potentially transformative for NewsCorp.

Until NewsCorp decided that things were too undisciplined at MySpace.  NewsCorp thought, like almost all acquirers, that it was more "disciplined" and "structured" and could apply its "better management" to the growth at MySpace.  Of course, all of this is code for pushing the NewsCorp Success Formula onto MySpace.  What was acquired as White Space was quickly turned into another NewsCorp division - with the decision-making processes and overhead costs that NewsCorp had.  Quickly Behavioral and Structural Lock-ins that were prevalent in NewsCorp were applied to MySpace in management's effort to "improve" the acquisition.

But applying the acquirer's Success Formula to an acquisition soon removes it from White Space. Even though NewsCorp felt sure that it's higher caliber IT staff, big budgets and strong management team would "help" MySpace, it was robbing MySpace of its tight link to a rapidly shifting/evolving marketplace and replacing that with "NewsCorp think."  Quickly, competitors started to take advantage of market shifts.  Facebook took advantage of the now weighted-down MySpace to rapidly bring on more users, while the additional ads on MySpace simply frustrated formerly happy customers more than willing to trade platforms. 

Scott Anthony on the Harvard Business Review blog "MySpace's Disruption, Disrupted" points out how in just 4years MySpace went from market leader to almost irrelevant.  MySpace lost its position as market disruptor as it increasingly conformed to demands of NewsCorp.  As the NewsCorp Success Formula overwhelmed MySpace it stopped being a market sensing project that could lead NewsCorp forward, and instead became a now money-losing division of a newspaper and TV company.  NewsCorp started trying to make MySpace into a traditional media company - rather than MySpace turning NewsCorp into the next Amazon, Apple or Google.

If a company wants to acquire a company for new market entry, that acquisition has to be kept in White Space.  It has to be given permission to remain outside the acquirer's Lock-ins and separate from the Success Formula.  It has to be allowed to use its resources to develop a new Success Formula toward which the acquirer with migrate - not "brought into the fold." 

Unfortunately, acquirers tend to think like previous century conquerers.  In Gengis Khan fashion they almost always end up moving to change the acquired.  Often in the name of "discipline" or "good management practices."  And that's too bad, because the result is a loss of shareholder value as the investment premium is dissipated when the acquisition fails to reach objectives.  Acquisitions can be good, but they have to be kept in White Space -- like we see Google doing with Facebook!

Comments

[Buckley Brinkman]

The December HBR also provided another way to approach acquisitions and their integrations: Partnering with them! (http://tinyurl.com/HBRPartnering) Instead of trying to wring every synergy out of the new acquisition by eliminating duplicate staffs and operations, the article outlines the Ulker Group's purchase and subsequent management of Godiva. Ulker kept the present management in place and held them accountable for results and growth.
It's another great story of a parent company using a non-traditional approach to keep white spaces alive!

[Bob Lewis]

Not to quibble or nuthin' ... might I suggest you read Jack Weatherford's "Genghis Khan and the Making of the Modern World"?

Far from imposing his "success formula" on the empire he conquered, he encouraged diverse thinking and did nothing but what you'd describe as creating white space within the vast trading network he created.

Modern business leaders would do well to read the book - Khan was a wiser leader than just about any of them, in just about every respect.

Not to quibble ...

[adam hartung]

Sounds like I have a popular stereotype of Genghis Khan than perhaps reality. I'll have to check out your recommended reading. Thanks for your comment!

[calcium]

Hello
Yes its true that MySpace was an early social media winner.Well I also think that sometimes acquisitions are good way to grow.You have described very well in this post.Now a days Facebook is popular.I also agree with your last line in this post.Thank you..