New Study Finds Acquisitions by ESOP Companies Highly Successful

A new study presented at the recent Employee Ownership Fellows Program at Rutgers University by Suzanne Cromlish at Case Western Reserve found that acquisitions of other companies by ESOP companies have been strikingly successful.

Using a list generated by the NCEO from press sources and company histories on ESOP company Web sites, Cromlish focused on 20 ESOP companies that have done 442 acquisitions and 10 companies that were acquired by these companies. She did extensive structured interviews with various executives at each company. Just 12 of the 442 acquisitions were deemed unsuccessful. "Unsuccessful" acquisitions are outcomes such as the company failing, being bought back by the prior owners, or sold to another company because of difficulties integrating the new acquisitions.

Strikingly, Cromlish found that all of the companies doing the acquisitions said that retaining jobs at the target was either the main goal or one of the main goals. That is a very different agenda than the typical acquisition, where companies frequently announce that the acquisition will create greater efficiencies (which translates into fewer jobs). All but one of the executives interviewed in the target and acquiring companies said that creating a common ownership culture was a top priority in the acquisition process. Cromlish also found that 29 out of 30 executives discussed concepts of ethical values and altruistic behavior and 28 discussed concepts of open-book management.

Cromlish says that companies took "extraordinary steps" to make sure the integration process succeeded. These included one-on-one meetings, hot lines, dedicated contacts identified to link individuals in the target with people in the acquiring company, exchanging positions to give people a feel for the other company, and other programs. While Cromlish did not have comparative data for non-ESOP acquisitions, the literature is very clear that difficulties with cultural integration—not unrealized financial synergies—is the main reason so many acquisitions fail to live up to expectation.