Merger And Acquisition - Reasons for Failure and Counter Measures

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Merger And Acquisition - Reasons for Failure and Counter Measures

  1. 1. MERGERS &ACQUISITIONS Reasons for failures and Corrective measures Aakash Kulkarni MGBSEP13IBWM001 Chetan Makharia MGBSEP13IBWM008 Frederick Fransjaya MGBSEP13IBWM011 Nitish Pyara Singh MGBSEP13IBWM018
  2. 2. AGENDA  Introduction  Reason for choosing this topic  Objective of this research  Literature review  Schematic diagram  Framework - Fishbone  Expert Opinions  Summary  Conclusion
  3. 3. INTRODUCTION  Mergers and Acquisitions (M&A) is one of the major aspects of a company which deals with the Management, Corporate Strategy and Corporate Finance.  A Merger is when 2 companies which are of similar size and revenue decide to join together.  An Acquisition is when one large company acquires a small company for present or future benefits.
  4. 4. REASON FOR CHOOSING THIS TOPIC FIGURE 1: QUARTERLY ANALYSIS M & A AS PERVALUE ANDTHE NUMBER OF DEALS Source: MergerMarket
  5. 5. OBJECTIVES OF THIS RESEARCH  Find reasons for the rise in number of M & A failures.  Identify the “INDEPENDENT” variables and “INTER-DEPENDENT” variables which are causing these failures.  Provide a concise report with IMPLEMENTABLE solutions to help reduce these failures.
  6. 6. WHY M&A ? 1. Operational benefits  Revenue Enhancement by gaining Pricing power  Cost saving in terms of Advertising, R&D 2. Financial benefits  Reduction in cost of Financing  Risk Reduction through Diversification 3. Strategic Motives Example – Facebook acquiring Whatsapp
  7. 7. PARAMETERS OF SUCCESS MEASUREMENT Economies of Scale Change in BrandValue Creation of Barriers to Entry Risk Reduction Improvement in Management Cost Efficiency Change in Market share Ease of getting Raw Materials Increase in Sales
  8. 8. FAILURE RATES FIGURE 2: GlobalTMTTrend: Quarterly SOURCE: Mergermarket: TMT M&A Trend Report
  9. 9. REASON FOR FAILURES
  10. 10. SCHEMATIC DIAGRAM
  11. 11. FRAMEWORK - FISHBONE  Cause and Effect Identification  Brainstorming session  Avoid team’s thinking to fall into repetitive thoughts  Prioritize to further analysis and corrective actions
  12. 12. FRAMEWORK - FISHBONE
  13. 13. FINANCE Example • Google bid to acquire Whatsapp for US $10 Bn but Whatsapp quoted US $19 Bn, thus leading to failure of this deal • TimeWarner and AOL merger during the dot com bubble burst which led to US $99 Bn loss to AOL.
  14. 14. TECHNOLOGY Example • EBay and Skype in 2005 (and overestimating possible synergy)
  15. 15. CULTURE Example • Hewlett Packard and Compaq merger in 2001 that resulted in US $13 billion loss in market value.
  16. 16. REGION Example • Alcatel (United States) and Lucent (France) in 2006
  17. 17. COREVALUES Example • Sprint and Nextel, clash between the entrepreneurial
  18. 18. SIZE Example • Blackberry buyout by Fairfax in 2013 • Holcim and Lafarge merger is likely to be successful as the size of both the companies is equal and the size of the deal is larger
  19. 19. OTHER FACTORS Example • VeramarkTerminates Merger Agreement withVarsity Acquisition LLC,Agrees to be Acquired by Hubspoke Holdings, Inc. • Ebay and Skype in 2005 that predicted the wrong synergy
  20. 20. PROCESS Example • Microsoft offered to buyYahoo for 40 billion, but since the BOD ofYahoo were not able to effectively communicate and deliver in the Pre-Merger meeting this deal collapsed.
  21. 21. FISHBONE DIAGRAM
  22. 22. SUMMARY  Culture and Core values play a vital role in the Pre-Merger and Post-Merger situations.  Valuation of a company and the standards followed play an important role.  Technology, Size and Other reasons can be controlled through careful and preemptive measures.
  23. 23. CONCLUSION - 1  Solutions: ◦ Investment Banks and Auditing Firms which assist M & A must provideValuation on a common ground.This also helps remove the communication difference between the companies. ◦ Cultural differences can be mitigated by improving the understanding and purpose of the Merger and Post-Merger, HR executives help integrate the 2 companies into one.
  24. 24. CONCLUSION - 2  Solutions: ◦ Valuation: Before a merger commences, a company must ensure that the amount they are paying for the M & A is not greater than the combined present value of the future Cash flows of the company. ◦ Appointing or hiring experienced professionals who help foresee problems which may cause the deal to fail and also this helps the deal to be completed earlier as it’s done in a structured process. ◦ “Jumping in earlier has always been higher risk and with higher risk comes greater reward” - Jim Grebey

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