Few things can roil a local business community like a blockbuster merger-and-acquisition deal, and yet it’s typically for naught. Although some of these deals are multibillion-dollar transactions, the actual impact in the end is often a lot less than anticipated.
The pending $23.3 billion acquisition of San Antonio-based oil refining company Andeavor by Ohio-based Marathon Petroleum Corp. is the latest and largest example of the kind of M&A deals that have been a frequent source of news during the nearly 18 months since I moved to San Antonio.
And the Alamo City isn’t alone. Statewide, Texas has about double the amount of M&A activity as it did a decade ago, according to a report in the Dallas Business Journal, a sister publication of ours. There were 218 mergers and acquisitions in Texas in 2017 compared with 77 in 2009.
With all that high-stakes dealing, there can be a lot of handwringing over what a merger or acquisition can mean for a business community. And to be fair, some acquisition deals have wrecked local economies. A larger company swallowing a smaller competitor sometimes leads to mass layoffs and a hollowing out what was once a powerful economic engine.
About two years ago, two massive home goods makers, Newell Brands Inc. and Jarden Corp., merged in a $15 billion deal that was supposed to be a win-win for all parties. Since then, the two companies — which manufacture a wide range of stuff, from Diamond Playing Cards to Elmer’s Glue — have lost billions of dollars in market share, consistently missed sales goals and lost managers and executives at brisk pace.
San Antonio is unique among many large U.S. markets in that its largest companies — like USAA and H-E-B — are private. While big, powerful and profitable, you can’t point to their ticker symbols scrolling across the New York Stock Exchange or Nasdaq. But their impact is no less significant.
It may turn out that the loss of Andeavor as an autonomous corporation — along with the prestige of another lost publicly traded company — will tangibly hurt the area’s economy, but there seems scant evidence to expect that. A quick look at the M&A deals that have prompted the most local consternation shows that they have not had that much impact beyond the foregone cachet.
The three highest-profile M&A deals completed in recent years — CST Brands Inc. bought by convenience store operator Alimentation Couche-Tard Inc., Rackspace Hosting Inc. bought by private equity company Apollo Global Management LLC, C.H. Guenther & Son Inc. bought by PPC Partners, also a private equity firm — have resulted in fewer than 500 local layoffs so far.
Layoffs are never good, of course. But in city with a workforce of more than 1 million, such numbers don’t move the needle much, and it’s possible that reductions would have occurred anyway due to other market forces.
Business Journal reporter Sergio Chapa’s coverage of the most recent high-profile acquisition suggests that Marathon is more interested in letting Andeavor continue on its path rather than upending its business, as their footprints seem more complementary than redundant. Nevertheless, it remains to be seen how Andeavor’s future as a subsidiary will hit San Antonio.
Meanwhile, we may soon know a lot more about the impact of Rackspace’s acquisition by private equity. In May, reports began circulating that Apollo was preparing the company for a return to the public market. Perhaps San Antonio will soon have another publicly traded company to bolster its prestige.
Few things can roil a local business community like a blockbuster merger-and-acquisition deal, and yet it’s typically for naught.