It gives a detailed description of all factors with examples

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. 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. 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.  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.  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. 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. 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.  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.  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. 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. 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. 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. 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. 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. 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. 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. 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.  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. 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. 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. 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. 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. 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. CULTURE
24
Mergers and
Acquisition
Failures
Culture
Misreading New
Company’s culture
Poor Strategic Fit
• Examples
1. Hewlett Packard and Compaq merger

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. 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. REGION
27
Mergers and
Acquisition
Failures
Region
Geographical
Constraint Language
Barrier
• Examples
1. Alcatel and Lucent Technologies merger in 2006

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. BIBLIOGRAPHY
38
 Goodbye and adieu. (2008, july 31). Retrieved may 10, 2016, from The Economist:
http://www.economist.com/node/11848659
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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.  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
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