merger and acquisition - reasons for failure and counter measures
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MERGERS & ACQUISITIONS Reasons for failures and Corrective measures
Aakash Kulkarni MGBSEP13IBWM001
Chetan Makharia MGBSEP13IBWM008
Frederick Fransjaya MGBSEP13IBWM011
Nitish Pyara Singh MGBSEP13IBWM018
AGENDAIntroductionReason for choosing this topicObjective of this researchLiterature reviewSchematic diagramFramework - Fishbone Expert OpinionsSummaryConclusion
INTRODUCTIONMergers 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.
REASON FOR CHOOSING THIS TOPIC
FIGURE 1: QUARTERLY ANALYSIS M & A AS PER VALUE AND THE NUMBER OF DEALS
Source: MergerMarket
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.
WHY M&A ?1. Operational benefits Revenue Enhancement by gaining Pricing power
Cost saving in terms of Advertising, R&D2. Financial benefits Reduction in cost of Financing Risk Reduction through Diversification 3. Strategic Motives Example – Facebook acquiring
PARAMETERS OF SUCCESS MEASUREMENTEcono
mies of
Scale
Change in Brand Value
Creation of Barriers to Entry
Risk Reduction
Improvement in Manageme
ntCost
Efficiency
Change in Marke
t share
Ease of
getting Raw Materials
Increase in Sales
FAILURE RATES
FIGURE 2: Global TMT Trend: Quarterly
SOURCE: Mergermarket: TMT M&A Trend Report
REASON FOR FAILURES
SCHEMATIC DIAGRAM
FRAMEWORK - FISHBONE
Cause and Effect IdentificationBrainstorming sessionAvoid team’s thinking to fall into
repetitive thoughtsPrioritize to further analysis and
corrective actions
FRAMEWORK - FISHBONE
FINANCE
Example• Google bid to acquire Whatsapp for US $10
Bn but Whatsapp quoted US $19 Bn, thus leading to failure of this deal• Time Warner and AOL merger during the dot
com bubble burst which led to US $99 Bn loss to AOL.
TECHNOLOGY
Example• EBay and Skype in 2005 (and overestimating
possible synergy)
CULTURE
Example• Hewlett Packard and Compaq merger in 2001
that resulted in US $13 billion loss in market value.
REGION
Example• Alcatel (United States) and Lucent (France)
in 2006
CORE VALUES
Example• Sprint and Nextel, clash between the
entrepreneurial
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
OTHER FACTORS
Example• Veramark Terminates Merger Agreement with
Varsity Acquisition LLC, Agrees to be Acquired by Hubspoke Holdings, Inc.
• Ebay and Skype in 2005 that predicted the wrong synergy
PROCESS
Example• 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 this deal collapsed.
FISHBONE DIAGRAM
SUMMARYCulture 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.
CONCLUSION - 1Solutions:
◦Investment Banks and Auditing Firms which assist M & A must provide Valuation 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.
CONCLUSION - 2Solutions:
◦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
THANK YOU FOR YOUR TIME