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What constitutes a failure in M&A?

Simply put, value destruction.

At DealRoom, nosotros've hosted hundreds of successful deals. From our perspective, if the ultimate goal of Thousand&A is value creation, the opposite has to be the destruction of it.

There's more than one way to destroy value, as the list which follows will show. On this list alone, the best part of US$200 billion was diddled on acquisitions which failed.

Just think of where some of these companies could have better invested that money.

Earlier we dive into each case, I should mention here our other blogpost most successful acquisition examples hither.

i. America Online and Fourth dimension Warner (2001): The states$65 billion

To those familiar with lists similar these, the presence of AOL and Fourth dimension Warner at the summit of this list will come as fiddling surprise.

Speaking about G&A failures and non mentioning this transaction would be like interviewing Neil Armstrong and non mentioning the moon.

The managers behind this bargain were rushing to become into new media, without truly understanding the dynamics of the new media landscape.

Without an agreement of the mural, the danger existed that the participants would overpay. And then they did.

A yr afterward the bargain, the company reported a write-down of US$99 billion - the largest annual net loss ever reported.

2. Daimler-Benz and Chrysler (1998): US$36 billion

The Daimler-Benz and Chrysler is regularly used by MBA courses as the textbook instance of how culture clashes will inevitably lead to the failure of a deal.

It has been said in some quarters that the ii cultures were too different to always be brought together.

Conclusion making at Daimler-Benz was methodical, at Chrysler information technology was creative and unstructured; salaries at Daimler-Benz were conservative, much less and then at Chrysler; finally, there was the flat hierarchy that existed at Chrysler compared to the top-down structure at Daimler-Benz.

The effect?

Within a decade, Daimler had sold lxxx% of Chrysler to Cerberus Capital letter Management for US$vii billion - a United states of america$20 billion poke in the centre to anyone that says culture doesn't matter.

Read also:

Integrating Unique Cultures in M&A

3. Google and Motorola (2012): US$12.v billion

When Google made its motility for Motorola in 2012, to many, a transaction between the ii fabricated perfect sense from a strategic perspective: Google's Android operating system was already the 2nd biggest player in the market, and acquiring Motorola would give it the opportunity to develop high-quality mobile handsets.

But this second part of the equation - making high-quality handsets - has been the undoing of dozens of companies in the telephony manufacture.

The aforementioned awaited Motorola. Google thought so poorly of its new handsets that it contracted others, including Samsung and LG, to develop its Nexus handsets. In 2014, Motorola was divested for just Usa$two.9 billion.

Read also:

Google's Modern Arroyo to Mergers and Acquisitions

4. Microsoft and Nokia (2013): US$vii billion

For Google and Motorola in 2012, read Microsoft and Nokia a yr afterward in 2013. With smartphones, and shortly after tablets, slowly get-go their ascent to ubiquity, it was vogue for the biggest players in technology to announce that they would soon be producing their own handset devices.

And it seemed like they all viewed the short-cut to achieving this being acquiring an existing handset maker. In Microsoft's example, this was Nokia.

Although in one case the earth'southward biggest handset manufacturer, Nokia had failed to continue upwards with developments. By the time it closed down in 2015, Microsoft had written off US$7.6 billion and laid off over 15,000 Nokia employees.

Read besides:

Bridging the Gap Betwixt Corporate Evolution and Integration

five. KMart and Sears (2005): The states$11 billion

Economies of scale are 1 of the reasons that are cited for many transactions in M&A, simply economies of scale are not an finish in themselves. You can take two fading companies, like KMart and Sears Roebuck, merge them, and you'll take an even bigger problem than the one y'all started with.

The combined Sears Holdings, was the 3rd biggest retailer in the United States at the fourth dimension of the deal, just e-commerce was but virtually to accept-off.

Information technology also coincided with a series of cuts at Sears Holdings, at a fourth dimension when it probably needed investment in stores, inventory and an online strategy, more than than ever. Information technology filed for bankruptcy in 2018 after 125 years in beingness.

vi. eBay and Skype (2005): US$2.6 billion

Information technology's interesting how many of the worst K&A failures of all fourth dimension happen around the same period: the changeover to digital and how many dealmakers failed to understand the dynamics of the changeover.

Another such example is provided by eBay'south conquering of Skype. The theory was that this would permit advice between buyers and sellers on eBay, smoothing transaction catamenia and generating more than revenue - beautiful synergies.

What eBay didn't bargain for was that people don't really want to talk to strangers virtually transactions if they tin can only e-mail them. eBay before long saw there was no existent need for the acquisition and concluded up selling two thirds of Skype for US$ane.9 billion just four years later.

7. Bank of America and Countrywide (2008): U.s.$two billion

It seems baroque now, but when Banking company of America acquired Countrywide at the beginning of 2008 for a cost of "simply" U.s.$2 billion, many thought information technology was a shrewd investment.

Even though every economical indicator in the United States was already pointing downwards, the deal in theory stood to combine the country'southward biggest retail bank with its biggest mortgage provider.

This does have a ring to it. The issue is that what constituted 'mortgage' in the first decade of the 21st century in the Usa was yet to become apparent.

Bank of America had basically acquired bad debt for US$2 billion. It ultimately ended up paying United states$50 billion for the conquering, making one wonder where the financial due diligence was when information technology was needed nearly.

8. Mattel and the Learning Company (1998): U.s.$3.8 billion

How could anybody non get behind a bargain that was billed as 'Barbie meets Carmen Sandiego'?

That was ane of the premises behind Mattel acquiring the Learning Company in 1998.

Sensing a motion away from traditional toys towards video game consoles, Mattel felt that the Learning Company would requite it a software platform to build on.

Even the CEO of the Learning Visitor said of the deal at the time: "the lines of distinction between consumer software and toys brainstorm to grey or blur when you go out past two years.'

It was telling that he also thought of a completely interactive children'south plush toy only wouldn't commit to how long it would accept to get in on the market place.

Just two years later, Mattel sold the Learning Company for about a tenth of what it bought it for, with no strategy, no products and no synergies to show for the acquisition.

Read also:

Successful and Failed Mergers and Acquisitions to Larn From

Decision

What exercise all of these deals take in common?

A narrative. It's easy to sell the idea of a retail bank buying a mortgage provider, a traditional toy maker merging with a technology platform or a software maker ownership a handset maker to shareholders.

But a narrative isn't plenty. You can overpay for a visitor which may even be a adept fit (AOL/Time Warner), misunderstand the dynamics of a market place (Google and Nokia) or only not perform enough due diligence (Banking company of America and Countrywide).

Avoiding M&A failures means paying more than attending to details like these and less to the one thousand narrative behind the deal.

Source: https://dealroom.net/blog/biggest-mergers-and-acquisitions-failures

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