OCTOBER 2016 / NO. 1
TAGS: MERGERS & ACQUISITIONS, MICROSOFT, NOKIA, HP, AUTONOMY, NEWS CORPORATION, MYSPACE, DAIMLER-BENZ, CHRYSLER, AOL, TIME WARNER, DOW CHEMICAL, DUPONT, AB INBEV, SABMILLER, BAYER, MONSANTO, TATA STEEL, THYSSENKRUPP, BIG BOYS BIG EGOS, NARCISSISM, CEO

Failures in Mergers & Acquisitions continue as ‘business as usual’

“Mergers & Acquisitions is a mug’s game: typically, some 70-90% of acquisitions are abysmal failures”, Harvard Business Review/June 2016
This statement is the key message in a crucial publication in HBR in June 2016, about the extremely expensive mistakes in M&A, which seem to be unstoppable! This has been going on for 40-50 years! Let’s look at some examples:
  • Microsoft wrote off US$ 7.9 billion in 2015 after its acquisition of Nokia’s handset business
  • HP wrote off US$ 8.8 billion of its US$ 11.1 billion acquisition of Autonomy
  • News Corporation sold MySpace for US$ 35 million after acquiring it for US$ 580 million in 2010
  • Daimler-Benz wrote off US$ 35.2 billion in 2005 on the acquisition of Chrysler in 1998 of US$ 36 billion
  • The merger between AOL and Time Warner for US$ 164 million was the biggest M&A failure in history
None of the acquiring companies understood their new markets, which contributed to the ultimate failure of those deals.
The article in HBR provides a simple reason why most acquisitions fail. Companies which focus on what they are going to get from an acquisition are less likely to succeed than those that focus on what they have to such a venture.
An acquirer can improve its target’s competitiveness in four ways: by being a smarter provider of growth capital (1), by providing better managerial oversight (2), by transferring valuable skills (3), and by sharing valuable capabilities (4). No single one is sufficient, however all four together improve the likelihood of successful mergers and acquisitions.
Four interesting M&A’s are currently in progress and/or integration. Three are expected to fail. The companies involved are:
  • Dow Chemical and DuPont, both in the US
  • AB InBev in Belgium, and SABMiller in the UK
  • Bayer in Germany, and Monsanto in the US
  • Tata Steel in the Netherlands/UK and ThyssenKrupp in Germany
Why this is this still going to happen? In our latest book “Big Boys Big Ego’s and Strategic Intelligence”, we explained that M&A activity is one of the fifteen key variables that determine the level of positive and destructive narcissism of CEOs.
“Narcissistic CEOs want drama, because they need attention and applause. They, therefore choose visible actions instead of slow changes to the status quo”, Donald Hambrick
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