Corporate M&A: The good, the bad and the weird

Jim Ratcliffe, and the unpredictable world of corporate investments.

by Arun Kakar
Last Updated: 14 Nov 2017

British petrochemical giant INEOS this week announced the latest addition to a series of odd corporate acquisitions: Swiss football team FC Lausanne Sport. The firm, founded by the media-shy Brexiteer billionaire Jim Ratcliffe, also raised questions last month when it scooped up luxury brand Belstaff, famous for its leather jackets.

‘The move comes after many years of investment by INEOS in youth and community sports in Canton Vaud where the company has the headquarters of many of its businesses,’ said a statement from the privately owned firm. ‘INEOS’s involvement in local youth sports has also given it a first-hand appreciation of the passion of the Vaudoise fans at all levels in the sporting leagues. A move into football is the next logical step.’

It’s this ‘logical step’ that often confounds the observer of corporate M&A. Sometimes only time reveals the logic behind the decision, and not always in the best of lights.

With that in mind, we’ve taken a look at some of the more intriguing 21st Century investments - one good, one bad, and one just weird…

The Good: Facebook and Instagram

Facebook didn’t even wait for its IPO when it swooped on Instagram in 2012, buying it outright for $1 billion in cash and stock. It was a controversial decision at the time – the smaller company had only 30 million users, and no revenue.

It was all part of a push into mobile, an arena in which Facebook was once considered weak. Indeed, its early efforts to monetise Instagram were hampered by user uproar over new terms and conditions that allowed third parties to use their photos and names in promotions, without compensation.  

How that seems like ancient history now. Today, 88% of Facebook’s $10bn quarterly ad revenues come from mobile, and while it doesn’t disclose separate figures for Instagram, it’s not hard to imagine its contribution.

From 400 million active daily users in 2015 to 500 million in 2017, Instagram continues to grow. Not to mention the fact that its stories feature has 300 million daily users, 100 million more than Snapchat, the (unprofitable) company that effectively originated the idea. When you square those levels of engagement with a mobile advertising industry that according to Magna Global will be worth $215bn by 2021, Instagram is making its original $1bn price tag seem like a steal.

The Bad: Nestle and Jenny Craig

A lesson on the importance of foresight. Nestle, the world’s largest food group, agreed to purchase the American weight loss and nutrition company Jenny Craig in 2006 for around $600m. The deal, though costly, made sense at the time: Jenny Craig was posting annual sales of $400m, with double digit growth. The weight loss industry was booming, and the Swiss giant had just entered the market with Nestle Nutrition. By buying an established family brand, it could consolidate its position. 

Like its competitors Weight Watchers and Medifast however, Nestle failed to anticipate the impending economic squeeze and, even more importantly, the huge rise in cheap and free health apps. All three brands suffered, and the writing was on the wall for Jenny Craig when in 2013, Nestle CEO Paul Bulcke told investors he planned to divest the underperforming business: ‘we want to be in business, not in agony.’ 

Not long after Bulcke’s speech, Jenny Craig was purchased by North Castle partners for an undisclosed amount.  Some things just aren’t meant to be.

The Weird: Google and… most of its investments

Google has long had a habit of snapping up companies in unexpected sectors. So much so, in fact, that it decided to rename itself Alphabet (a statement of intent if ever there was one – why be one company when you can be 26?) and create a separate division for its ‘Other Bets’.

That still doesn’t make it any easier to find any inherent logic in the company’s myriad purchases, of which there are well over 200. YouTube, Applied Semantics and DoubleClick made sense, because they fit naturally within Google’s overarching search and media business. But what about when the tech giant spent $40m on wind farms in 2010 and entered the energy spot market? Or when it announced super-fast internet for Kansas City in 2011, with the launch of Google Fiber?  

There’s also that time Google invested $1m in Shweeb, a cycle-powered monorail, and that other time when it controversially invested $3.9m in 23andme, a personal genomics company set up by the wife of Google co-founder Sergey Brin...

You get the idea. If you make enough bets, however weird, you’re bound to hit a few good ones eventually, right?


Read next: How small business M&A goes wrong


Image credit: Ksayer1/Flickr

Tags:

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Upcoming Events

Subscribe

Get your essential reading delivered. Subscribe to Management Today