How to F*ck up an Acquisition in One Week
Error by Ego happens all the time, even when the stakes are high
Now and then, we get to read the inside scoop on how successful company acquisition deals are done. On a long road trip last week, I listened to Bob Eiger’s autobiography, in which he shares the stories of negotiating Disney’s purchase of Pixar, Marvel, Lucasfilm, and 20th Century Fox. It’s especially interesting to hear these details, given that I’ve been a part of a couple of acquisitions myself—albeit much, much smaller!
While these negotiation stories are fascinating, almost no one shares the details of what happens after the closing dinner. And few talk about the fact that most acquisitions fail. According to this Harvard Business Review article, between 70% and 90% fail, usually due to poor integration of the purchased business.
From the outside, this fact is stunning. After all, many smart business people are spending lots of money to make necessary changes. How can so many of them screw it up?
I think it’s because of human nature—and I suspect failure often comes from a single human that cannot keep their ego in check. I’m two-for-two in seeing this from the sell side of acquisitions, and I’ve got a story that still makes me shake my head in amazement…
Daniel the Wonder Man
Let’s travel in time back to December 2005, when our digital advertising agency just closed a deal to be acquired by WPP, the world’s largest agency holding company. This deal is the culmination of several months of work.
The process got started in the summer when we began to receive inbound interest from the big agency groups. We had hit $10 million in revenue, a level of success that traditionally kicks off interest in the industry. It also helped that we were in the digital marketing space, which was growing wildly. Those big agencies were slow to develop their own digital capabilities and making strategic acquisitions to catch up. We ran a sales process and had four competitors in the mix. WPP started as the lowest bid but came in with the highest offer right before our process ended.
As part of its holding company model, WPP has hundreds of name-brand “sister agencies” under its umbrella, and with the acquisition, we were to be placed with one of these brands. Looking across its portfolio, WPP leadership saw the best fit with Wunderman, a large, global agency network that it had acquired five years before. Wunderman was started in the 1950s as a specialist in direct mail marketing. And while this was a powerful medium for a long time, the torch was being passed to digital—and Wunderman was falling behind.
As most people prepare to shut down for the Holidays, our executive team is working to craft plans for our acquisition announcement and integration. We were excited about closing any deal, of course, but the Wunderman fit feels really good. Although we didn’t get to meet their team as part of the negotiation process, we are excited about being a part of a large, successful business that we can learn from. Plus, most of the sale price in our deal will be based on a 5-year earnout. So the fact that Wunderman is behind on digital suggests that we will get brought into a ton of client opportunities. This is going to be great!
While the rest of us plan, our CEO boards a plane to New York City to meet with Daniel, the head of Wunderman. They spend a few hours together at Daniel’s corner office in a Midtown skyscraper. It’s our first interaction with the new boss, so we’re anxious to hear how it went when we gather in our executive War Room the morning after our CEO’s return. He doesn’t look thrilled…
“They bought us for bulk”
That’s what Daniel told our CEO when their conversation started. To Daniel, we were just “bulk”—another $10 million in revenue assigned by the holding company to his empire, another dot on the map of global agency locations. He had no curiosity about our digital capabilities—and claimed that his firm was already a leader in the space. He had no interest in our team or how we put together one of the strongest growth rates and operating margins in the agency business. If anything, he seemed offended that WPP assigned us to his group.
So we go from a high of closing a deal to a low of realizing we’ve got to work with this guy for the next five years…
But we push on in planning. And as we prepare our launch announcement, we learn that despite his disinterest in our business, Daniel has lots of interest in one thing: our largest client, Procter & Gamble.
For decades P&G had been a prize that every agency longs to have on its client roster. It is the world’s biggest-spending marketer with countless valuable brands. Wunderman had yet to crack the code on getting into P&G, so Daniel is eager to show off this prize to his clients and rivals. He insists that our press release and interview with Advertising Age, the leading industry trade magazine, highlight the P&G message. You can see the resulting headline above and still read the story if you’re registered.
The article breaks just as we share the news with our team of about 100 employees. Generally, people are excited about the shared achievement and prospects for future growth.
But the next day, we get a phone call from Daniel. It seems that the CMO of one of their current large clients, Colgate, has a big issue with Wunderman now working with P&G. The two companies are close competitors in a few categories, especially dish soap and toothpaste, and the CMO threatened to move his multi-million-dollar business away from Wunderman.
This, my dear reader, is always a potential risk in the agency industry. In fact, one of the most important roles of agency leaders is to manage this risk closely. And with a little planning, it’s almost always manageable. But in his rush to proclaim that his firm now had P&G, Daniel created a problem.
And, once again, our high of announcing the deal shifts to the pain of figuring out what to do next. After a few days of wrangling with WPP, they decide that our agency will be moved out of Wunderman and into something called Special Services. Later, we learned it was more commonly called “The Land of Misfit Toys” within the network.
So, our dreams of riding a big, global agency to digital earnout glory were dashed.
We dust ourselves off and do what got us here: Keep growing. Over the next five years, we received almost no help from WPP. But we continued to do great work for our clients, “added a zero” to their budgets with us as they shifted more dollars to digital, and added a few new clients that liked our “independent status” and holding company backing. We maxed our 5-year earnout deal in a little over three years. Looking back, it was a blessing to be cast out of Wunderman so quickly.
We never ran across Daniel again. He was replaced a few years later by a leader with heavy digital experience. He seems to be into motorcycles in his retirement.
Avoid Error by Ego
Looking back, I still find it amazing that Daniel could look at the CEO of a company he had just purchased and say, “I bought you for bulk.” It was insulting, unnecessary, and just a stupid way to onboard a team of talent that could help you and your business succeed. How can someone smart enough to get to that high position of power in a people business bungle something so basic?
I think it was his ego getting the better of him. And ego usually comes from fear.
He was afraid of how he was perceived by his bosses in the holding company. When they assigned our agency to his group, Daniel feared that he looked bad. He wasn’t progressing fast enough in digital. Instead of taking advantage of this new asset, his ego came to his defense.
I also believe he was afraid of our CEO. Here before him was a leader who built a company by hand—unlike Daniel, who rode the corporate ladder his whole career. And this rising star was a next-generation digital leader who might rival or even dethrone him someday. Better to put him in his place immediately, I guess.
I hope this post serves as a cautionary tale for company owners that sell. Your new boss might see you and your company as a threat. You will be thrust into power games that are alien to an entrepreneur. If it’s important for you to stay at the company that buys yours, then make sure you do a lot of reverse due diligence. And if all you care about is the highest price, well, accept that you might have to work for an asshole for a certain amount of time. Make sure any earnout and retention contracts are ultra-tight.
But this is also a cautionary tale for leaders. Don’t let your innate fear and ego negatively impact others. Often the most senior leaders have this dark tendency. The ravenous beast of ego and ambition can drive you to succeed, but it must be tamed, or it will devour you eventually and damage countless relationships along the way.
There’s another lesson that I think most about as I write this…
Try not to take it personally when you’re on the receiving end of someone else’s ego trip. Over time I’ve stopped reacting negatively when another person puts me down or can’t stop talking about themselves. I still register the offense, but now I just laugh it off and make a mental note to reduce future interactions.
And increasingly, I feel bad for the egotistical, who unhappily struggle with their demons—often for their entire lives. We’ve all been in that trap at some point in our lives.
Bob Gilbreath is a 2x-exit entrepreneur and co-founder of Hearty, a curated matchmaking service that combines top software developers with early-stage, venture-backed startups.