A business under attack from stakeholders can defuse opposition by acquiring — or being acquired by — a firm those same groups respect. That’s according to new research from Wharton professors Emilie Feldman and Exequiel Hernandez, which shows that acquisitions can reset damaged stakeholder relationships and help put conflicts to bed, even those that have simmered for years.
The researchers, who include former Wharton doctoral student Kate Odziemkowska, point to a 20-year battle in California’s redwood forests that only ended after an acquisition.
However, not every acquisition delivered a truce. The cooling effect arose only when the stakeholders on either side of a deal already had ties to one another, when they shared common interests, or when they formed a cohesive community rather than a fragmented one. The more connections with one of the three characteristics a deal contained, the bigger the reduction in conflict with stakeholders after the acquisition.
The implication? Executives usually justify acquisitions by pointing to synergies inside the company, stemming from cost savings, greater scale, or integration. But the researchers argue there is another source of deal value that’s often overlooked: a firm’s external relationships.
“We tend to think of acquisitions as being all about combining factories or products or teams and talent, but we don’t think of them as affecting the external relationship environment that firms operate in,” said Hernandez, a management professor at Wharton.
“Sometimes if there’s no way out, a change of ownership can help.”— Exequiel Hernandez
How Companies Can Inherit Goodwill
The findings come from a study written with Odziemkowska, now at University of Toronto’s Rotman School of Management. The paper, “Stakeholder Synergies in Acquisitions,” was published in the Strategic Management Journal.
The researchers hand-coded more than 94,000 news reports, press releases, and corporate filings. Those records allowed them to reconstruct 25 years of interactions between Fortune 500 companies and 136 environmental groups, and then track how those relationships changed before and after acquisitions.
One battle played out in Northern California. Environmental activists waged a bitter campaign against Pacific Lumber, a timber business, over logging in the redwood forests, using protests, lawsuits, and blockades to curb logging. The conflict, which kicked off in the late 1980s, only ended in 2008 after Pacific was acquired by Mendocino Redwood, a rival that had built solid relationships with many of the same environmentalists.
The lesson is that an acquisition can — under certain conditions — give a company a fresh start with hostile stakeholders by inheriting relationships and goodwill from the other side of the deal. “If your stakeholders really hate you,” said Hernandez, “one strategic exit could be to acquire a target with better stakeholder relations or to put yourself up for sale. That might be a very extreme decision but sometimes if there’s no way out, a change of ownership can help.”
“Acquisitions are not a magic wand that always resets stakeholder relationships.”— Exequiel Hernandez
Why Acquisitions Can’t Resolve Every Conflict
But there’s a catch: Not every acquisition makes things better.
“Acquisitions are not a magic wand that always resets stakeholder relationships,” added Hernandez.
Indeed, the paper found that simply buying a company with better stakeholder bonds was not enough to cool conflict with hostile groups. Tensions only ebbed when the stakeholders from each side of the deal were already aligned — either because they cared about the same issues or already knew and worked together.
Why is that? Because stakeholders tend to watch one another closely. So when one group was willing to put its name alongside a company and effectively stake its reputation, others became more willing to give the business the benefit of the doubt.
However, that was not always the case. In the study, the picture became much murkier when stakeholder groups were fragmented, meaning that they disagreed over how an issue should be tackled. In those situations, the study’s authors found less convincing evidence that an acquisition could bridge existing divides.
“If part of your M&A due diligence does not include thinking of who are the stakeholders involved, how do they see the two firms, is it positive or negative news, how might they react to this deal — you might be creating a problem for yourself,” warned Hernandez.
More broadly, the researchers say the lesson extends far beyond environmental activism. The wider takeaway is that relationships can be a source of deal value in their own right. Because ultimately, an acquisition does not just bring together factories, brands, or customers. It also combines critical stakeholder relationships that can make a company’s life harder or easier — depending on how the acquirer and target stakeholders align.
