When Acquisitions Seduce: Why FMCG Firms Must Look Beyond the Shopping Spree

India’s fast-moving consumer goods (FMCG) sector is on an acquisition binge. From skin serums to millet-based snacks and pet wellness products, a range of premium, digital-first, and health-conscious brands are being gobbled up. As detailed in recent earnings calls and media interviews, acquisitions have emerged as a central plank of growth for many legacy firms looking to stay “future-fit” amid decelerating urban demand. Yet as the deal-making intensifies, one must ask - are acquisitions always the right answer?

The Rise of Inorganic Aspirations: Caution from Theory and Evidence

The motivations are understandable. Urban consumption is slowing. Premium niches are booming. Startups are capturing digital mindshare. And capital is abundant. Add to this the pressure to deliver top-line growth, and M&A becomes a tempting route to relevance. Indeed, 2024 saw FMCG deal activity hit $2.1 billion, and consulting firms anticipate continued buoyancy in 2025–26. Sector insiders cite synergies, digital scaling, and portfolio diversification as key rationales. On paper, it all makes sense. But scratch the surface, and deeper concerns emerge - about integration, intent, and long-term value creation.

In his sobering paper on the acquisitions, Prof. Aneel Karnani of the University of Michigan argues that many acquisitions, especially those by firms from emerging markets, fail to create shareholder value. The reasons? Weak post-merger integration, agency problems, and easy access to capital. These observations aren’t just historical footnotes. They offer a timely warning as Indian consumer companies rush into new-age deals. According to Karnani, many acquisitions are justified by vague strategic narratives: “future-fit,” “digital-first,” “category expansion”, while the actual synergies remain speculative or unproven.

The Hubris Trap: A Managerial Blind Spot

One of Karnani’s most compelling arguments is the “hubris syndrome”, wherein leaders overestimate their ability to manage diverse brands and integrate dissimilar cultures. In such cases, acquisitions become more about managerial self-image than organizational coherence. Even when firms cite strategic rationale, the urge to win deals, occupy media space, and craft legacy narratives can overpower prudence. This is not to claim that all current FMCG acquisitions are motivated by hubris. But in the present wave of consolidation, where headlines often outpace execution plans, the possibility of psychological overreach must be acknowledged. A particularly worrying trend is the framing of M&As as a panacea for sluggish organic growth. If general trade is underperforming, buying revenue through acquisitions may look attractive. But if such purchases are not accompanied by deep integration and strategic alignment, they may end up masking internal inertia rather than solving it.

Financial Motives and the Illusion of Growth

Another under-acknowledged issue is that acquisitions sometimes serve financial, not strategic, goals. A company sitting on cash reserves may choose to deploy capital in M&As rather than invest in brand building or innovation. In the short term, this may show up as revenue accretion or EBITDA growth. But longer-term, the risks compound. For instance, a health supplement company with a strong e-commerce play may look attractive from a valuation standpoint. But if its brand equity is tied to a specific founder persona or a niche customer base, scaling it through conventional FMCG distribution might dilute its identity. Similarly, a personal care brand acquired for ₹3,000 crore may generate impressive GMV, but weak offline traction and high customer acquisition costs may undercut returns. What appears financially savvy at the outset can unravel if integration is treated as a back-office formality.

Strategic Fit vs. Strategic Fashion

A core tenet of strategic management is that firms must acquire what they cannot build internally. But this assumes that the acquired asset brings a distinct, hard-to-replicate capability, be it IP, distribution muscle, or loyal customers, that the acquirer lacks and cannot easily develop. Unfortunately, not all current M&A activity meets this threshold. Many new-age brands being acquired operate in spaces that, while fast-growing, are also prone to low switching costs and trend volatility. The danger is that firms are chasing category “gaps” rather than truly synergistic fits. Take the example of heritage FMCG players acquiring D2C pet care or natural deodorant brands. These categories are indeed growing, but consumer loyalty is still fluid, and barriers to entry are minimal. In such markets, acquisition may win market access but not necessarily customer stickiness. The real test, therefore, lies in the post-acquisition phase: Can the acquired entity be integrated without suffocating its agility? Can distribution systems, R&D teams, and brand philosophies find common ground? Without thoughtful answers to these questions, the risk of value erosion remains high.

Toward a More Thoughtful M&A Ethos

Acquisitions can work when guided by clarity, restraint, and long-term alignment. Some firms have tapped into emerging trends or scaled regional champions through timely deals. But such successes are rare. For India’s FMCG sector, now at a strategic crossroads, the challenge lies in distinguishing real strategic need from the noise of fleeting trends. Not every viral brand deserves a place in the portfolio. Even when a target fits, integration, not dealmaking, is the real test. Aligning cultures, operations, and brand narratives is what creates lasting value. Meanwhile, the temptation to buy what could be built must be resisted. Internal innovation, though slower, builds durable capabilities. Finally, the presence of capital is no reason for indiscriminate spending. Easy money can blur judgment. Acquisitions are tools, not trophies, their value depends on how and why they are used. Without discipline and reflection, the current deal frenzy may result in castles built on sand.

Dr. Kiran Mahasuar is an Assistant Professor in the Strategy, Innovation, & Entrepreneurship Area at IMT Ghaziabad. (Views expressed are personal)