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.
A merger occurs when two companies combine into one entity .
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 problems are:
Theoretical valuation vs. the practical proposition of future benefits
The important contribution of cultural fit models such as the one proposed by Cartwright and Cooper (1996) is that they illustrate that model of culture compatibility in M&A
Appointing M&A advisors at high costs for various services is almost mandatory for any mid to large size deal. But leaving everything to them just because they get a high fee is a clear sign leading to failure. Advisors usually have a limited role, till the deal is done. Following that, the new entity is the onus of the owner.
The Bank of America/Countrywide failure was also due to the overall financial sector collapsing, with mortgage companies being the worst hit.
At Sprint, the top-down and number-drivenmanagement approach showed a strong indication of a bureaucracy-autocracy model. This model strongly conﬂicted with Nextel's startup culture that was showing a strong signof technology and codetermination.
Veramark Terminates Merger Agreement with Varsity Acquisition LLC, Agrees to be Acquired by Hubspoke Holdings, Inc.
Reasons For Mergers and Acquisition Failure
NATIONAL INSTITUTE OF FASHION
SBI LAGHU UDYOG LOAN SCHEMES
(Department of Fashion
Reasons for Mergers and
MERGERS AND ACQUISITIONS
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.
A merger occurs when two companies combine into one
REASONS FOR FAILURE OF MERGERS AND
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:
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.
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.
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.
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
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.
MISREADING THE NEW COMPANY’S CULTURE
A major challenge for any M&A deal is understanding of
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
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.
When a merger is planned, it is crucial to evaluate
the composition of board room and compatibility of
Specific personality clashes between executives of
the two companies may occur.
This may prove a major problem, slowing down and
preventing integration of entities.
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
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.
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.
The entire process of merger requires legal
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
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
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.
LACK OF COMMUNICATION
Communication should be done clearly and honestly and
It should be done to the entire team, not just the top
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.
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.
EXTERNAL FACTORS AND CHANGES TO THE
FISHBONE DIAGRAM AND EXAMPLES
Timing of Investment
Diverging From Activities
Lack of Experience
Failure of Top
1. Google bid to acquire WhatsApp for US $10 Billion but
WhatsApp quoted US $19 Billion, thus leading to failure of
2. TIME WARNER AND AOL MERGER
Multinational media and
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
American global mass
media corporation based
in New York that develops,
grows, and invests in brands
and web sites.
Services: Online Services
CEO: Tim Armstrong
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 $99
1. EBay and Skype in 2005 (and overestimating possible
Poor Strategic Fit
1. Hewlett Packard and Compaq merger
HEWLETT PACKARD AND COMPAQ MERGER
Founder: William Redington
Hewlett, Dave Packard
Alto, California, United States
Defunct: November 1, 2015
Successor: HP Inc. and Hewlett
It developed and provided a wide
variety of hardware components
as well as software and related
services to consumers, small- and
medium-sized businesses (SMBs)
and large enterprises, including
customers in the government,
health and education sectors.
Founder: Rod Canion, Jim Harris,
County, Texas, U.S.
Founded: February 14, 1982
Defunct: 2002 (as a separate
2013 (as a subsidiary of HP, still
active outside of the US)
Corporation developed, sold, and
supported computers and related
products and services.
It rose to become the largest
supplier of PC systems during the
1990s before being overtaken
by HP in 2001
HEWLETT PACKARD AND COMPAQ MERGER
Initiated: Sept 2001,
Completed: May 2002 (8 month process)
Biggest merger in IT history
25B$ 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.
1. Alcatel and Lucent Technologies merger in 2006
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.
Diverging From Activities
1. Sprint and Nextel
2. Alcatel (United States) and Lucent (France) in 2006
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
1. Time Warner and AOL merger
2. Blackberry-Fairfax Merger Failure
BlackBerry is a line
of wireless handheld devices
smartphones) and services
designed and marketed by
BlackBerry Limited, formerly
known as Research In Motion
Founder: Doug Fregin, Mike
Head Quarter: Waterloo,
Fairfax Financial is a financial
holding company based
in Toronto, Ontario, which is
engaged in property, casualty,
insurance and reinsurance, inv
CEO: Prem Watsa
Toronto, Ontario, Canada
In September, 2013 BlackBerry entered into a deal with
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
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
Customer Service Affected
Lack of Experience
1.Ebay and Skype Merger
EBAY AND SKYPE MERGER
corporation and e-
commerce company, providing
consumer and business-to-
consumer sales services via
Headquartered in San
eBay was founded by Pierre
Omidyar in 1995
Skype is an application that
provides video chat and voice
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
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.
Failure of Top
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.
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It gives a detailed description of all factors with examples