As M&A Deals Linger, Acquisition Targets & Employees Languish

Pity the betwixt and between. 

Companies are engines of ambition — innovating here, expanding there, trying to sharpen a business or break into something new. 

But when that ambition leads to a corporate buyout, much of that ambition is put on hold, as companies wait for financing to be finalized, regulators to sign off, for the deal to close and for the new boss to arrive. 

That interim period can lead to a lack of immediate direction, causing sales to potentially slump and employees to mull their options.

In a world that prizes agility and the ability to go after the next big thing, it can be a long wait for a big deal to close. 

A year ago this week, Capri Holdings agreed to a $8.5 billion buyout by competitor Tapestry Inc. The deal has a little bit of everything — some synergies to be realized, some data savvy to be shared and a long — and now uncertain — timeline. 

The deal was set to close this calendar year, but is being challenged by the Federal Trade Commission on antitrust grounds, casting an uncertain light over the agreement.  

Meanwhile, Capri, which owns Michael Kors, Versace and Jimmy Choo, has hit a tough stretch, with net losses of $229 million for the year ended March 30 on an 8.4 percent drop in revenues. 

While Capri, led by chairman and chief executive officer John Idol, is working on operations day to day, it’s not currently in a position to make the bigger, business-defining moves. 

And Capri isn’t the only company on the sidelines. 

Neiman Marcus is also awaiting its Hudson’s Bay Co.-arranged marriage to Saks Fifth Avenue, and VF Corp.’s Supreme is waiting to be shuttled off to EssilorLuxottica.

“Management should be expected to operate, maximize quarterly earnings and drive performance in the short term,” said consultant Greg Portell, senior partner and global markets lead at Kearney. “But the longer, strategic growth elements that we expect from management teams really get put on pause [while deals are pending].

“Bold is taken off the table, if you were looking for a management team to really drive change, you’re not going to see it,” Portell said.

While 10 or 15 years ago companies would really plan for integration immediately, Portell said the pace of integration planning has “slowed dramatically” as companies become less certain about regulatory approval. 

That leaves employees in wait-and-see mode — and not everybody is going to wait around to see.

“People are being very, very cognizant that they are their own brand,” said Elaine Hughes, managing director of executive search firm E.A. Hughes, a division of Solomon Page. “Every major, any even minor accomplishment, they make sure they post it on LinkedIn, they post it on Facebook. They keep their profiles very relevant and therefore the recruiting community will look to them when opportunities come up. Companies are smart, they’re aware of this.”

So firms waiting to be sold often line up retention bonuses to keep key employees hanging in until the deal is done. 

“The truly critical assessment of the individuals has to come from the CEO or whoever the top management is,” Hughes said. “The company has to decide how critical that individual is to the organization and to the success and to maintaining and sustaining that success while the company is in this limbo state.” 

Altogether, it can be an unsettling time. 

“With any business or certainly with any employee, the worst thing is uncertainty,” said Robert Burke, chairman and CEO of the Robert Burke Associates. 

But an unsettled present can also lead to a better future when the deal closes and the business wakes back up, with new energy and new faces and potentially new resources. 

Burke said deals can lead to “significant opportunity for some of the existing employees to take on more responsibility, have more experience.”

“[A pending deal] can kind of stall things, it can also be a motivator for employees that are good and creative and see a bigger vision,” he said. 

“Every acquisition or sale is different and they can be an incredibly positive opportunity,” Burke said. “Or if it’s just to consolidate and downsize and that’s the motivation behind the acquisition, then of course there’s going to be a level of stress.”

The Bottom Line is a business analysis column written by Evan Clark, deputy managing editor, who has covered the fashion industry since 2000. It appears every other Thursday.