Dollar Shave Club acquisition is more strategic than financial, mergers scholar says

LAWRENCE — European consumer products giant Unilever is acquiring for $1 billion the four-year-old startup Dollar Shave Club that sends razors to subscribers via mail, according to national news reports.

The deal, which comes with access to Dollar Shave Club’s 3.2 million subscribers, has to be viewed as a strategic rather than a financial play, said a University of Kansas expert on mergers and acquisitions.

George Bittlingmayer, Wagnon Distinguished Professor of Finance in the KU School of Business, is available to discuss the perils and prospects that accompany acquisitions of startups with innovative products or disruptive business models by large, established firms, an increasing trend in retailing and other consumer-facing businesses. Bittlingmayer's research interests include mergers and acquisitions as well as the effect politics and regulation have on business and financial markets. He served as a visiting economist at the Federal Trade Commission.

He said other recent similar examples of mergers that seem hard to justify on a financial basis include the 2014 $22 billion Facebook acquisition of WhatsApp, which at the time had an estimated $10 million in sales, and the 2014 General Mills purchase of natural foods company Annie’s, which involved paying $820 million for a company with earnings of about $15 million.

“The common theme is that new technology and a new generation with different shopping habits are in fact disrupting retailing and advertising. Established firms realize that they have to reach out and incorporate the disruptors. It's a good question whether these are wise deals that will pay off one day or whether they are acts of desperation,” Bittlingmayer said.

These sorts of acquisitions are both a bet on changes in consumer behavior and on the ability of the acquiring company to successfully leverage the assets and knowledge they have acquired.  The ill-fated year 2000 merger of AOL and Time Warner provides a cautionary example of how these deals can and do fall off the tracks, he said.

The good news, according to Bittlingmayer, is that Dollar Shave Club will represent only a small fraction of Unilever’s value and product line. Executives of larger firms have acknowledged they do learn from the newer companies, and the deal could well pay off if those lessons can be leveraged across Unilever’s other products, he said.

To arrange an interview with Bittlingmayer, contact George Diepenbrock at gdiepenbrock@ku.edu or 785-864-8853.