Yoox, Net-a-Porter and Post-Merger Integration

LONDON, United Kingdom — During my time working as a management consultant, I did a lot of work in the space that the corporate business world calls "post-merger integration", which in layman's terms means doing everything possible to make sure that the merger of two companies goes as smoothly as possible and that the business goals behind it are achieved.

Mergers tend to be announced with much fanfare and excitement. The combined entity will hold a bigger and more powerful position in the market! There will be lots of “synergies” from the two businesses’ complementary skills and assets! And, if all goes well, everyone will get much richer in the process!

The ballyhooed Yoox and Net-a-Porter merger is one such case. Yoox’s efficient back-end operations could combine with Net-a-Porter’s slick front-end branding. The two companies would complement one another, resulting in a group with full-price businesses in women’s (Net-a-Porter), men’s (Mr Porter) and shoes (Shoescribe), as well as two thriving off-price businesses (the Outnet and Yoox), a white-label business serving the biggest brands in the industry, and an editorial voice in Porter magazine. Together, they would form the largest luxury e-commerce player in the world, with combined revenues of €1.3 billion (about $1.4 billion) and an EBITDA margin of eight percent.

In truth, mergers are often a lot messier than that. On the PowerPoint slides we would present to our clients, we would warn that more than 50 percent of mergers actually fail. We all know of big flashy mergers that, despite everyone’s excitement and best intentions at the beginning, just don’t work out.

Here’s a simple analogy. When risky organ transplants are done in advanced surgeries, everything is planned carefully to ensure that the body does not reject the transplant, from prepping the patient psychologically, to providing immunosuppressant drugs and countless other things to minimise risk of rejection. The essence of post-merger integration is a bit like this — doing everything to make sure that as little as possible goes wrong. There will be complications and not everything will go as planned, but if every possible detail has at least been thought of, then you increase the chances of a successful outcome.

The sudden departure of Natalie Massenet this week, just before the consummation of Net-a-Porter's merger with Yoox, took me back to my consulting days, working on mergers that seemed perfect on paper but became very difficult to execute in practice. It takes meticulous internal communication, organisation and alignment to fuse the people, resources, tasks, and technology of two different companies into one combined, smooth operating system.

There are lots of rumours about why the relationship between Marchetti and Massenet might have started to break down shortly after the merger announcement. And in the torrent of comment, speculation and blind items that have come in the wake of Massenet’s departure, not to mention the PRs on both sides trying to help manage the communication of the news, it’s hard to know what’s true and what’s not. But to summarise, here are the theories floating around:

1. Richemont forced the deal on Massenet, who wanted to keep Net-a-Porter independent. This seems to be borne out by the fact that Massenet and her original investor, Carmen Busquets, tried to buy out the company themselves to avoid the merger, which they thought was done at a price way below market valuation (a conclusion which an independent valuation supported, earning them both an additional financial windfall). If the founder and the investor who worked together to build Net-a-Porter — the founding souls of the business, if you will — didn't want it to happen, did it really ever have a chance of succeeding?

2. Massenet and Marchetti have been long-term rivals, albeit ones who grudgingly respected each other. But when Marchetti made a statement during a Lunch with the FT earlier this summer that there could only be one boss of the combined group, it seemed to signal that the rivalry was not over — and that there was not much room for Massenet's leadership skills in the new company. When you have been competing for so long, is it realistic to believe you could work side by side, together, towards a common goal?

3. Their cultures and management styles aren't compatible. Massenet's inspirational leadership and Marchetti's more take-it-or-leave-it approach have resulted in two very different companies, and to think that both of those cultures could somehow be preserved in the combined entity was a miscalculation. When merging two businesses, founded by two visionary entrepreneurs, you are actually merging two very distinct cultures.

It’s this last theory that has had me thinking the most this week. Whatever you believe, the success of this merger will now come down to those dreadful but important words: carefully managed “post-merger integration,” the riskiest part of which is cultural compatibility. Reading up a little bit on organ transplants this week, I learned from Wikipedia that one of the primary ways to ensure a successful organ transplant is to ensure “molecular similitude between donor and recipient.”

Thus far, in the case of Yoox and Net-a-Porter, this seems to be the biggest problem of all. Not the ability of Net-a-Porter to attract new brands to sell (more than five million customers will help to do that); not the ability to realign the two companies’ operations and streamline their warehouses. The biggest challenge will be merging cultures and retaining talent, especially at Net-a-Porter, where Massenet has legions of supporters. This appears not to have been managed well, given the unexpected exit just weeks before the merger is to be concluded. And without Massenet alongside Marchetti to lead and explain why the changes taking place are necessary, I worry about how the people behind these great businesses will respond.

Thousands of people are now wondering what this all means for them. Have the Yoox people won because the Net-a-Porter people lost their leader? Will the new business deem it necessary to maintain all of the elements of the Net a Porter business? What parts of the Net-a-Porter culture will be retained? Will the Yoox culture reject the Net-a-Porter transplant? There are many more questions.

I have to believe, even now, that both founders still want the merger to succeed, and their public statements on the matter certainly seem to suggest that. They have both worked too hard to build their respective businesses to want anything other than for those businesses to outlive their own involvement. To achieve that, this merger needs to be a success — especially now that competition in the e-commerce space is heating up.

And given that the conditions for the merger weren’t ideal to begin with, I guess it’s probably better for the combined business that Massenet has gracefully left at this stage, with amicable support from Marchetti, and that there is only one boss left. There will be no lingering tension or confused loyalties amongst the troops. The financial markets seem to think so: the Yoox share price surged five percent on the news of Massenet’s departure.

But I can’t shake the feeling that this still has a long way to go before we know how it all turns out. Maybe it's just that old naysaying consultant in me.

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