THE REASON OF FAILURE IN M&A CASES

Before diving into the reasons why M&A deals fail, let's take a look at the mergers and acquisitions cases that caused great damage to businesses.

Sony acquires Columbia Pictures: $3.2 billion loss

In 1989, electronics giant Sony bought the prestigious Columbia film studio for more than $4.8 billion. However, Japan's business culture is completely different from Hollywood's cult studios. Columbia executives squandered money on bonuses and bad movies while the Tokyo headquarters did nothing. This is considered a disaster about the union of two cultures that have no similarities. This cost Sony $3.2 billion.

Microsoft acquires Nokia: Loss of nearly $6.7 billion

Microsoft decided to buy Nokia Corporation for 7 billion USD in 2013. However, Nokia Corporation could not keep up with the R&D segment compared to other Smartphone development giants, leading to Microsoft Corporation having to recognize loss of $7.6 billion and the announcement of the layoff of more than 15,000 Nokia employees worldwide. To end this unsuccessful marriage, in 2016 Microsoft sold Nokia for $ 350 million.

Ebay acquired Skype: Loss of more than 700 million USD

In 2005, Ebay spent $2.6 billion to own Skype with the expectation that the auction among members on Ebay would become easier and faster, thereby helping to increase revenue on Ebay. Obviously the value to benefit from this deal (synergies) is very potential. But in fact, after 4 years of acquisition, Ebay found that most of the members did not want to communicate with strangers via Skype if they could email, so they sold Skype to a group of private investment funds. for $1.9 billion.

Google acquired Motorola: Loss of nearly 10 billion USD

In 2012, Google announced the acquisition of Motorola for $12.5 billion. The reason for doing this is to protect and strengthen Google's patent portfolio. In addition, this is also a strategic step to protect the Android operating system developed by Google itself when there are more and more lawsuits against Google related to the copyright of this operating system. Although the reason for doing this is quite clear and reasonable, in 2014, Google had to sell Motorola for $ 2.35 billion to Arris Group.

Reasons for failure

According to GS.Nigel Denscombe Chairman and CEO of Denscombe Group, there are 7 reasons why M&A deals fail.

1. Enterprises do not accurately assess their goals, leading to overpaying for the acquired company.

2. Enterprises find it difficult to integrate the system of corporate culture, financial system, control work relationships, etc. Accordingly, the two companies have good "health", but if they integrate If not, the M&A deal may still fail.

3. The synergistic values ​​are not achieved, ie the profit earned from the assets of the two companies merging together does not increase.

4. Post-M&A companies are too ambitious, aiming for too many goals, leading to reduced performance, managers cannot control their activities.

5. Managers are too focused on M&A, neglecting their main activities.

6. The scale is too large for buyers, ie "small fish but eat big fish".

7. The acquired company has too many bad debts, making the post-M&A company more likely to go bankrupt and downgrade its credit rating.

It is easy to see that even a large-scale M&A deal can still make the above mistakes, causing businesses to fall into dire straits.

Conclusion

It can be said that M&A has great potential to bring high profits, but businesses also need to understand the potential risks in the process of mergers and acquisitions, and have an M&A specialist to support them.

Join the INMERGERS.com platform now to connect with SMEs, develop business together, bring about successful M&A deals! Contact INMERGERS via hotline: (+84) 96 355 0192 or through our website: https://inmergers.com/vn