TechniqueCase studyDeals and M&AActivism and governance
The acquired brand's market share is the cleanest test of an acquisition
Trian Fund Management · Trian's July 2017 letter to Procter & Gamble shareholders · 2017
The idea
Trian's 2017 letter to Procter & Gamble shareholders carries its argument on one brand. P&G paid 57 billion dollars for Gillette in 2005; over five years its share of the US men's shaving market fell from 62 to 49 percent, and no major shaving system had launched in twelve years. The challengers were named: start-ups using the internet, clever marketing and lower prices. The cost case uses the same method, a ten billion dollar programme with no discernible effect on growth, to doubt the next thirteen billion. What Trian said it was not seeking, no break-up, no leadership change, no cuts to research, is as instructive as what it asked for: one seat.
Judge an acquisition by what happened to the acquired brand's share of its market afterwards; the number is public and hard to argue with.
When it works
Post-deal assessment, consumer and brand coverage, and any activist case built on competitive evidence rather than financial engineering.
When it may fail
Share can fall for reasons unrelated to the acquirer, and the letter is advocacy. The method is strong because the data are public; the conclusion still needs the counter-case.
How to use it
For any large acquisition five years on, find the acquired business's market share before and after. The number is usually in industry data or the company's own filings, and it answers the question a goodwill impairment only hints at.
Where it came from
Letter Trian's July 2017 letter to Procter & Gamble shareholders · Trian Fund Management
What the source says. Trian argues that P&G paid $57 billion for Gillette in 2005 yet its share of the US men's shaving market fell from 62 to 49 percent over five years with no major launch in twelve years, and that a $10 billion cost programme launched in 2012 had no discernible impact on profit or sales growth.
Connected ideas
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Puts it to work
Accretion is arithmetic; whether a deal was worth doing is a different questionAnswer accretion with arithmetic and value with evidence, and never let the first stand in for the second.
Says something similar
Synergies are worth something only once they are valued rather than assertedA synergy is a change in cash flow, growth or risk; value it as one, and only then compare it with the premium being paid.
Concepts
Put it to work on L3VLUP
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