Acquisitions are full of opportunity and risk for the buyer and the seller. If done right, being acquired can give your company access to capital and distribution that will help you better realize your vision. What's more, if you're the buyer, a well-executed acquisition can help your company grow faster, access new customers, and provide new products to existing customers.
Sadly, most mergers fail. Here's one that I think won't, however: On November 25, luxury French brand conglomerate LVMH announced a deal to pay $135 a share for Tiffany & Co., The Wall Street Journal reported. The $16.2 billion deal gives the owner of the Louis Vuitton and Bulgari brands a chance to revive Tiffany, "a classic American brand that has struggled with weak demand," noted the Journal. I think the likely success of this deal offers valuable lessons, whether you are looking to buy a company or sell yours to someone else.
How to Make the Combined Companies Better Off
Here's how LVMH intends to reinvigorate Tiffany:
- Boost Tiffany's marketing budget. LVMH wants to spend more on marketing Tiffany's high-end jewelry line, focusing attention on its high-carat diamond necklaces rather than less-expensive silver jewelry.
- Launch new products. These have yet to be specified.
- Spiff up Tiffany's retail stores. Bernard Arnault, LVMH's CEO, while browsing a Tiffany store in Seoul, South Korea, "noticed the glass on a display case was dirty and took a photo of it, telling his team that it was an example of management failure," according to the Journal.
- Retain certain Tiffany assets. It appears that former LVMH executive Alessandro Bogliolo, who became Tiffany's CEO in 2017, will stay with the company. The Journal reported that the brand's creative functions will "be kept largely autonomous," as will its diamond-finishing facilities.
- Merge overlapping back-office functions. LVMH will integrate Tiffany's back-office finance and logistics functions and supply the services of the "digital strategy group" that advises its brands.
Potential acquirers should take note. LVMH has worked well with the target company's CEO -- this could be thanks to a common business culture (since Tiffany's CEO is a former LVMH executive). It also understood the high profit potential of Tiffany's luxury jewelry market, knew which Tiffany capabilities it wanted to keep intact, and had a clear idea of which Tiffany/LVMH capabilities could be merged to save costs.
Takeaways for Sellers
Tiffany's CEO appears to have given wise consideration to a few factors that are important for founders who are looking to sell. Here's what to do when you're trying to find the right strategic buyer:
- Seek out a buyer that shares your vision for the future of your company. Tiffany's CEO clearly did this deal because LVMH shared his vision for the company's future.
- Negotiate your role in the acquired company. Bogliolo will now be free to run Tiffany without the pressures of quarterly Wall Street earnings reports.
- Agree on what your company and the acquirer will each contribute. While Tiffany will run its own creative branding and diamond finishing, LVMH will contribute capital for marketing and new products and will handle investor relations.
- Negotiate how your performance will be measured. Although it's not clear how Bogliolo's performance will be measured once he is running Tiffany inside LVMH, I would guess that he negotiated this before the deal closed.
- Agree on terms for your departure before you ink the deal. It is possible that you will not like reporting to a boss and will want to leave. The best time to negotiate those terms is before the deal closes.
To be sure, the success of this merger is not a forgone conclusion. After all, I would not be shocked if Bogliolo became frustrated after losing his CEO role. It's also possible that Tiffany could suffer if its expected opportunities in the Chinese market fall short, and, while Arnault has tested his turnaround mettle before, it remains to be seen whether he will be able to do the same with Tiffany.
Despite the risks, I think this merger is an example of how to find the right buyer for your company. Follow the five steps I described above -- they'll help you avoid the pitfalls and capture the benefits that flow from finding the right company to buy your business.