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NATIONAL INSTITUTE OF FASHION
TECHNOLOGY, GANDHINAGAR
SBI LAGHU UDYOG LOAN SCHEMES
Submitted By-
Sunidhi Kumari
(Departmen...
MERGERS AND ACQUISITIONS
Acquisition
An acquisition occurs when a buyer acquires all or part of
assets or business of a se...
REASONS FOR FAILURE OF MERGERS AND
ACQUISITION
3
Thousands of companies are bought and sold every
year. Many of these tran...
 The numbers and assets that look good on paper may
not be the real winning factors once the deal is through.
 The theor...
 Cases of overpaying for an acquisition (with high
advisory fee) are also rampant in executing M&A deals,
leading to fina...
INADEQUATE DUE DILIGENCE
 Due Diligence is a crucial component of the merger
and acquisition process as it helps in detec...
INTEGRATION DIFFICULTIES
 Companies very often face integration difficulties,
i.e., the combined entity has to adapt a ne...
 It is not necessary that if two companies are in the same
industry then they will have the same culture.
 So, its impor...
 A major challenge for any M&A deal is understanding of
strategic intent.
 A careful appraisal can help to identify key ...
GEOGRAPHICAL CONSTRAINTS
 Geographical factor plays an important role usually during
cross border mergers. The logic is t...
EGO CLASH
 When a merger is planned, it is crucial to evaluate
the composition of board room and compatibility of
directo...
HR ISSUES
 Mergers and acquisitions are identified with job
losses, restructuring and the imposition of new
corporate cul...
MEGA MERGERS
 One of the most crucial elements of an effective
acquisition strategy is planning how one intents to
financ...
OVERESTIMATED SYNERGIES
 Mergers and acquisitions are looked upon as an
important instrument of creating synergies throug...
REGULATORY ISSUES
 The entire process of merger requires legal
approvals.
 If any of the stakeholders are not in favour ...
FAILURE OF TOP MANAGEMENT
 The owners and the top management should be involved
right from the start and rather drive and...
LACK OF COMMUNICATION
 Communication should be done clearly and honestly and
consistently.
 It should be done to the ent...
 External factors may not be fully controllable, and the
best approach in such situations is to look forward and
cut furt...
FISHBONE DIAGRAM AND EXAMPLES
19
Mergers and
Acquisition
Failures
Core
Values
Region
Culture
Others
Finance
Technology
Siz...
FINANCE
20
Mergers and
Acquisition
Failures
Finance
Valuation
Overpaying
Due Diligence
Negotiation Errors
• Examples
1. Go...
2. TIME WARNER AND AOL MERGER
21
Time Warner
 American
Multinational media and
entertainment conglomerate
 Headquarter: ...
TIME WARNER AND AOL MERGER
 When the deal was announced, the combined
companies boasted a market cap of $350 billion.
 A...
TECHNOLOGY
23
Mergers and
Acquisition
Failures
Technology
Integration Difficulties
Incompatible Process
and System
• Examp...
CULTURE
24
Mergers and
Acquisition
Failures
Culture
Misreading New
Company’s culture
Poor Strategic Fit
• Examples
1. Hewl...
HEWLETT PACKARD AND COMPAQ MERGER
25
Hewlett Packard
 Founder: William Redington
Hewlett, Dave Packard
 Headquarters: Pa...
HEWLETT PACKARD AND COMPAQ MERGER
 Horizontal merge
 Initiated: Sept 2001,
 Completed: May 2002 (8 month process)
 Big...
REGION
27
Mergers and
Acquisition
Failures
Region
Geographical
Constraint Language
Barrier
• Examples
1. Alcatel and Lucen...
ALCATEL-LUCENT MERGER FAILURE
 Alcatel: French maker of telecom equipment
 Lucent Technologies: American multinational
t...
CORE VALUES
29
Mergers and
Acquisition
Failures
Core
Values
Ego Clash
Diverging From Activities
HR Issues
• Examples
1. Sp...
SPRINT AND NEXTEL MERGER
 Sprint is a US wireless carrier based in Overland
Park, Kansas. In December 2004, it announced ...
SIZE
31
Mergers and
Acquisition
Failures
Size
Unsuitable
Target Size
Mega Mergers
• Examples
1. Time Warner and AOL merger...
BLACKBERRY-FAIRFAX MERGER
32
Blackberry
 BlackBerry is a line
of wireless handheld devices
(commonly called
smartphones) ...
BLACKBERRY-FAIRFAX MERGER
 In September, 2013 BlackBerry entered into a deal with
Fairfax.
 Fairfax held around 10% shar...
OTHER FACTORS
34
Mergers and
Acquisition
Failures
Other
factors
Customer Service Affected
Lack of Experience
Regulatory Is...
EBAY AND SKYPE MERGER
35
ebay
 American multinational
corporation and e-
commerce company, providing
consumer-to-
consume...
EBAY AND SKYPE MERGER
 ebay’s (EBAY) purchase of Skype for USD 2.6 billion in 2005,
later to be sold at just USD 1.9 bill...
PROCESS
37
Mergers and
Acquisition
Failures
Process
Failure of Top
Management
Lack of
Communication
• Examples
1. Microsof...
BIBLIOGRAPHY
38
 Goodbye and adieu. (2008, july 31). Retrieved may 10, 2016, from The Economist:
http://www.economist.com...
 Price, J. (2012, October 26). 6 Reasons Why So Many Acquisitions Fail. Retrieved May 6, 2016, from
Business Insider: htt...
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Reasons For Mergers and Acquisition Failure

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Reasons For Mergers and Acquisition Failure

  1. 1. NATIONAL INSTITUTE OF FASHION TECHNOLOGY, GANDHINAGAR SBI LAGHU UDYOG LOAN SCHEMES Submitted By- Sunidhi Kumari (Department of Fashion Technology, Sem-VI) Submitted To- Amisha Mehta (Associate Professor) Reasons for Mergers and Acquisition Failure
  2. 2. MERGERS AND ACQUISITIONS Acquisition An acquisition occurs when a buyer acquires all or part of assets or business of a selling entity, and where both parties are actively assisting in the purchase transaction. 2 Merger A merger occurs when two companies combine into one entity
  3. 3. REASONS FOR FAILURE OF MERGERS AND ACQUISITION 3 Thousands of companies are bought and sold every year. Many of these transactions leave the buyers and sellers frustrated, because either they don’t know how the process works, or because the results are below their expectations. Some common reasons are:
  4. 4.  The numbers and assets that look good on paper may not be the real winning factors once the deal is through.  The theoretical valuation v/s the practical proposition of future benefits may vary. 4 VALUATION:
  5. 5.  Cases of overpaying for an acquisition (with high advisory fee) are also rampant in executing M&A deals, leading to financial losses and hence failures. 5 NEGOTIATIONS ERRORS
  6. 6. INADEQUATE DUE DILIGENCE  Due Diligence is a crucial component of the merger and acquisition process as it helps in detecting financial and business risks that the acquirer inherits from the target company.  Inaccurate estimation of the related risk can result in failure of the merger. 6
  7. 7. INTEGRATION DIFFICULTIES  Companies very often face integration difficulties, i.e., the combined entity has to adapt a new set of challenges in the changed circumstances.  To do this, the company should prepare plans to integrate the operations of the combined entity.  If the information available on related issues is inadequate or inaccurate, integration becomes difficult. 7
  8. 8.  It is not necessary that if two companies are in the same industry then they will have the same culture.  So, its important to understand the other company’s culture and will be far better if they enter the new company’s offices carrying themselves with the four H’s: honesty, humanity, humility, and humour. 8 MISREADING THE NEW COMPANY’S CULTURE
  9. 9.  A major challenge for any M&A deal is understanding of strategic intent.  A careful appraisal can help to identify key employees, crucial projects and products, sensitive processes and matters, impacting bottlenecks, etc.  Using these identified critical areas, efficient processes for clear integration should be designed, aided by consulting, automation or even outsourcing options being fully explored. 9 POOR STRATEGIC FIT
  10. 10. GEOGRAPHICAL CONSTRAINTS  Geographical factor plays an important role usually during cross border mergers. The logic is that international M&A are particularly difficult to integrate because they require “double layered acculturation”, whereby not only different corporate cultures, but also different national cultures have to be bridged.  Cultural differences can pose significant barriers in achieving integration benefits, and that they have to be considered at an early stage of the M&A process – as early as the evaluation and selection of a suitable target and the planning of the integration process. 10
  11. 11. EGO CLASH  When a merger is planned, it is crucial to evaluate the composition of board room and compatibility of directors.  Specific personality clashes between executives of the two companies may occur.  This may prove a major problem, slowing down and preventing integration of entities. 11
  12. 12. HR ISSUES  Mergers and acquisitions are identified with job losses, restructuring and the imposition of new corporate culture and identity.  This can create uncertainty, anxiety and resentment among the company’s employees.  These HR issues are crucial to the success of M&A. 12
  13. 13. MEGA MERGERS  One of the most crucial elements of an effective acquisition strategy is planning how one intents to finance the deal through an ideal capital structure.  The acquirer may decide to acquire the target through cash. To pay the price of acquisition, the acquirer may borrow heavily from the market. 13
  14. 14. OVERESTIMATED SYNERGIES  Mergers and acquisitions are looked upon as an important instrument of creating synergies through increased revenues, reduction in net working capital and improvement in the investment intensity.  It is important to know required capacity potential v/s current bandwidth of the merger. 14
  15. 15. REGULATORY ISSUES  The entire process of merger requires legal approvals.  If any of the stakeholders are not in favour of the merger, they might create legal obstacles and slow down the entire process.  This result in regulatory delays and increase the risk of deterioration of the business.  While evaluating a merger proposal, care should be taken to ensure that regualatory hassles do not crop up. 15
  16. 16. FAILURE OF TOP MANAGEMENT  The owners and the top management should be involved right from the start and rather drive and structure the deal on their own, letting advisors take the assistance role.  The inherent benefit will be tremendous knowledge- gaining experience for the company, which will be a lifelong benefit.  M&A advisors should be appointed, but leaving everything to them just because they get a high fee is a clear sign leading to failure. 16
  17. 17. LACK OF COMMUNICATION  Communication should be done clearly and honestly and consistently.  It should be done to the entire team, not just the top executives.  At the time of an acquisition stress levels are high; messages are misinterpreted; rumours spread.  If there’s bad news, be sure to deliver it all it once, not piecemeal, and make the negotiations clear. 17
  18. 18.  External factors may not be fully controllable, and the best approach in such situations is to look forward and cut further losses, which may include completely shutting down the business or taking similar hard decisions. 18 EXTERNAL FACTORS AND CHANGES TO THE BUSINESS ENVIRONMENT
  19. 19. FISHBONE DIAGRAM AND EXAMPLES 19 Mergers and Acquisition Failures Core Values Region Culture Others Finance Technology Size Process Negotiation Errors Due Diligence Valuation Timing of Investment Incompatible Process and System Integration Difficulties Misreading New Company’s culture Poor Strategic Fit Geographical Constraint Language Barrier Ego Clash Diverging From Activities HR Issues Lack of Experience Regulatory Issues Overestimate Possible Synergies Failure of Top Management Lack of Communication Unsuitable Target Size Mega Mergers
  20. 20. FINANCE 20 Mergers and Acquisition Failures Finance Valuation Overpaying Due Diligence Negotiation Errors • Examples 1. Google bid to acquire WhatsApp for US $10 Billion but WhatsApp quoted US $19 Billion, thus leading to failure of this deal.
  21. 21. 2. TIME WARNER AND AOL MERGER 21 Time Warner  American Multinational media and entertainment conglomerate  Headquarter: Time Warner Center, New York City  It is currently the world's third largest television networks and filmed TV & entertainment company in terms of revenue.  Founder: Steve Ross AOL  American global mass media corporation based in New York that develops, grows, and invests in brands and web sites.  Services: Online Services  Founded: 1983  CEO: Tim Armstrong
  22. 22. TIME WARNER AND AOL MERGER  When the deal was announced, the combined companies boasted a market cap of $350 billion.  After the split, AOL became worth of $3.6 billion and Time Warner $68.9 billion.  AOL used an inflated stock price to pay more than $160 billion for a business that had just north of $1 billion in earnings. (AOL's earnings were smaller.)  When it was clear that AOL had overpaid, the company was forced to take a huge write-down.  Time Warner and AOL merger was approximately $99 billion loss. 22
  23. 23. TECHNOLOGY 23 Mergers and Acquisition Failures Technology Integration Difficulties Incompatible Process and System • Examples 1. EBay and Skype in 2005 (and overestimating possible synergy)
  24. 24. CULTURE 24 Mergers and Acquisition Failures Culture Misreading New Company’s culture Poor Strategic Fit • Examples 1. Hewlett Packard and Compaq merger
  25. 25. HEWLETT PACKARD AND COMPAQ MERGER 25 Hewlett Packard  Founder: William Redington Hewlett, Dave Packard  Headquarters: Palo Alto, California, United States  Defunct: November 1, 2015  Successor: HP Inc. and Hewlett Packard Enterprise  It developed and provided a wide variety of hardware components as well as software and related services to consumers, small- and medium-sized businesses (SMBs) and large enterprises, including customers in the government, health and education sectors. Compaq  Founder: Rod Canion, Jim Harris, Bill Murto  Headquarters: Harris County, Texas, U.S.  Founded: February 14, 1982  Defunct: 2002 (as a separate company) 2013 (as a subsidiary of HP, still active outside of the US)  Compaq Computer Corporation developed, sold, and supported computers and related products and services.  It rose to become the largest supplier of PC systems during the 1990s before being overtaken by HP in 2001
  26. 26. HEWLETT PACKARD AND COMPAQ MERGER  Horizontal merge  Initiated: Sept 2001,  Completed: May 2002 (8 month process)  Biggest merger in IT history  25B$ all stock purchase  1 million working hours spent on merger integration  Hewlett Packard and Compaq merger in 2001 that resulted in US $13 billion loss in market value due to cultural clash and poor strategies of cost cutting while monitoring revenues. 26
  27. 27. REGION 27 Mergers and Acquisition Failures Region Geographical Constraint Language Barrier • Examples 1. Alcatel and Lucent Technologies merger in 2006
  28. 28. ALCATEL-LUCENT MERGER FAILURE  Alcatel: French maker of telecom equipment  Lucent Technologies: American multinational telecommunication equipment company headquartered in New Jersey, US.  In 2001, the first negotiation failed due to conflicts on ownership structure, final merging deal happened in 2006.Alcatel paid 10.6 Billion $ for Lucent Technologies.  Managerial and cross cultural conflicts.  Both CEO and chairman resigned. New Leader were hired to solve integration and communication Issues. 28
  29. 29. CORE VALUES 29 Mergers and Acquisition Failures Core Values Ego Clash Diverging From Activities HR Issues • Examples 1. Sprint and Nextel 2. Alcatel (United States) and Lucent (France) in 2006
  30. 30. SPRINT AND NEXTEL MERGER  Sprint is a US wireless carrier based in Overland Park, Kansas. In December 2004, it announced its plan to acquire Nextel Communications to create the third-largest wireless provider in the US. The deal was completed in August 2005.  Some of the reasons of failure were:  Job reduction creating conflicts and mistrust  Sprint’s bureaucratic model over Nextel’s organic and entrepreneurial model  Politics in the companies 30
  31. 31. SIZE 31 Mergers and Acquisition Failures Size Unsuitable Target Size Mega Mergers • Examples 1. Time Warner and AOL merger 2. Blackberry-Fairfax Merger Failure
  32. 32. BLACKBERRY-FAIRFAX MERGER 32 Blackberry  BlackBerry is a line of wireless handheld devices (commonly called smartphones) and services designed and marketed by BlackBerry Limited, formerly known as Research In Motion Limited (RIM).  Founder: Doug Fregin, Mike Lazaridis  Head Quarter: Waterloo, Ontario, Canada Fairfax  Fairfax Financial is a financial holding company based in Toronto, Ontario, which is engaged in property, casualty, an life insurance and reinsurance, inv estment management, and insurance claims management.  Founded: 1985  CEO: Prem Watsa  HeadQuarter: Toronto, Ontario, Canada
  33. 33. BLACKBERRY-FAIRFAX MERGER  In September, 2013 BlackBerry entered into a deal with Fairfax.  Fairfax held around 10% share in the company.  According to the deal, Fairfax signed a letter of intent to buy the company for around $4.7 billion within six weeks.  It was not a done deal. BlackBerry publicized, rather loudly, that it was willing to consider an offer if someone would pay more than $4.7 billion.  Six weeks later, the Fairfax deal was scrapped. 33
  34. 34. OTHER FACTORS 34 Mergers and Acquisition Failures Other factors Customer Service Affected Lack of Experience Regulatory Issues • Examples 1.Ebay and Skype Merger Overestimate Possible Synergies
  35. 35. EBAY AND SKYPE MERGER 35 ebay  American multinational corporation and e- commerce company, providing consumer-to- consumer and business-to- consumer sales services via the internet.  Headquartered in San Jose, California  eBay was founded by Pierre Omidyar in 1995 Skype  Skype is an application that provides video chat and voice call services.  First released in August 2003, Skype was created by the Swede Niklas Zennström and the Dane Janus Friis  Microsoft bought Skype in May 2011 for $8.5 billion
  36. 36. EBAY AND SKYPE MERGER  ebay’s (EBAY) purchase of Skype for USD 2.6 billion in 2005, later to be sold at just USD 1.9 billion after four years, was a failure due to challenges in technical integration and over- expectations from customers.  ebay expected synergy coming from Skype being established as the communication medium between buyers & sellers on its marketplace platform, which unfortunately did not become popular among its market participants. 36
  37. 37. PROCESS 37 Mergers and Acquisition Failures Process Failure of Top Management Lack of Communication • Examples 1. Microsoft offered to buy Yahoo for 40 billion, but since the BOD of Yahoo were not able to effectively communicate and deliver in the Pre-Merger meeting, the deal collapsed.
  38. 38. BIBLIOGRAPHY 38  Goodbye and adieu. (2008, july 31). Retrieved may 10, 2016, from The Economist: http://www.economist.com/node/11848659  Was BlackBerry’s Fairfax deal destined to fail? (2013, November 4). Retrieved May 10, 2016, from Times Of India: http://blogs.timesofindia.indiatimes.com/WebWise/was-blackberry-s- fairfax-deal-destined-to-fail/  Why do up to 90% of Mergers and Acquisitions Fail? (2015, January 28). Retrieved May 7, 2016, from Europe Business Review: http://www.businessrevieweurope.eu/finance/390/Why- do-up-to-90-of-Mergers-and-Acquisitions-Fail  Benner, K. (2015, january 15). Lessons From the AOL-Time Warner Disaster. Retrieved may 10, 2016, from Bloomberg View: http://www.bloomberg.com/view/articles/2015-01-14/lessons- from-the-aoltime-warner-disaster  Bragg, S. M. (n.d.). Mergers and Acquisition: A condensed Practitioner's Guide. New Jersey: John Wiley and Sons.  Bruno Cassiman, M. G. (n.d.). Mergers & Acquisitions: The Innovation Impact. Edward Elgar .  Dewanna E. McQuade, N. M. (2010). Sprint Customer Service. Retrieved may 10, 2016, from Journal of Business Studies Quarterly: http://jbsq.org/wp- content/uploads/2010/12/JBSQ_5H.pdf  Hoang, T. V. (2007). Critical Success Factors in Mergers & Acquisition Projects.  Michael Reed, M. A. (n.d.). Factors Affecting International Mergers and Acquisitions. Retrieved May 6, 2016, from https://www.ifama.org/files/Reed.pdf
  39. 39.  Price, J. (2012, October 26). 6 Reasons Why So Many Acquisitions Fail. Retrieved May 6, 2016, from Business Insider: http://www.businessinsider.com/why-acquisitions-fail-2012-10?IR=T  Sheth, S. (n.d.). The Top Reasons Why M&A Deals Fail. Retrieved May 10, 2016, from Investopedia: http://www.investopedia.com/articles/investing/111014/top-reasons-why-ma-deals-fail.asp  Siegenthaler, P. J. (2010, August 3). Ten reasons mergers and acquisitions fail. Retrieved May 7, 2016, from The Telegraph: http://www.telegraph.co.uk/finance/businessclub/7924100/Ten-reasons-mergers- and-acquisitions-fail.html  Stahl, G. K. (2003). Meta Analyses of the performance Implications of cultural differences in M&A. Retrieved may 10, 2016, from INSEAD: https://flora.insead.edu/fichiersti_wp/inseadwp2003/2003-99.pdf  The HP Compac Merger. (n.d.). Retrieved may 10, 2016, from http://www.cata.ca/files/PDF/Resource_Centres/hightech/reports/studies/quebec-HPQ-merger.pdf  Voigt, G. K. (2005). IMPACT OF CULTURAL DIFFERENCES ON M&A PERFORMANCE. Retrieved may 10, 2016, from https://karhen.home.xs4all.nl/Papers/4/IMPACT%20OF%20CULTURAL%20DIFFERENCES%20ON%2 0MERGER%20AND%20ACQUISITION%20PERFORMANCE%20- %20A%20CRITICAL%20RESEARCH%20REVIEW%20AND%20AN%20INTEGRATIVE%20MODEL.pdf  Why Acquisitions Fail - the 20 Key Reasons. (n.d.). Retrieved May 10, 2016, from Pearson: http://www.pearsoned.co.uk/bookshop/article.asp?item=439 39

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