By Shindy Chen | February 9, 2016
Eric Gall: Having led the post-acquisition of Jaguar, Land Rover, Volvo and Mazda into Ford Motor Company, I have seen first-hand many of the following post-acquisition conflicts that sink deals: poor workforce cooperation, leadership conflict, lack of product synergy, market misses, etc.. Here are four more:
After months of work, why are many deals at risk of failing post-closing?
After months of work, why are many deals at risk of failing post-closing?
According to Robert Sher, founder "CEO to CEO," the probability of success for mergers is 50 percent.
Those at the negotiation table are seldom the people rolling out synergistic initiatives. Investment bankers, and out-of-touch executives can’t compensate for solid post-merger execution and strategic leadership.
Financials are certainly important, but mergers fail due to consumer and workforce behaviors such as cooperation, allocation of bandwidth, streamlining operations and technologies, target markets, and customer profiles.
“The consequences of a bad deal are far greater for a mid-market company than for a big corporation,” says Sher. “Large companies usually have enough managers and resources to patch things up. Most mid-market companies lack the finances or bandwidth to absorb a bad deal.”
Consider these four failed mergers as examples.
eBay/Skype
Culprit: Customer profiles, culture clashes
In 2005, eBay bought Skype for $2.6 billion. eBay misunderstood its customer base. Buyers and sellers were fine messaging each other through eBay. Expecting them to call each other via Skype missed the mark.
A culture clash between the two companies also occurred. Skype had a lot of management turnover. eBay sold Skype for $1.6 billion.
A culture clash between the two companies also occurred. Skype had a lot of management turnover. eBay sold Skype for $1.6 billion.
Sprint/Nextel
Culprit: Operations and technologies, customer profiles, target market, culture clashes
In 2005, Sprint purchased Nextel for $35 billion. Cultural differences — Sprint bureaucratic; Nextel entrepreneurial. Widespread distrust between leadership. Sprint’s customer service was horrendous; Nextel’s was more attuned.
Poor coordination saw both companies maintain separate headquarters. Combined technologies didn’t mesh. Nextel’s walkie-talkie did not sync with Sprint’s mainstream model. By 2013, Sprint got rid of Nextel’s network entirely.
Arby’s/Wendy’s
Culprit: Target market
In 2008, Arby’s acquired Wendy’s for $2.3 billion. There were nearly double the number of Wendy’s (6,600) than Arby’s (3,600) franchises. Wendy’s accounted for 70 percent of revenues; Arby’s performed poorly. The combined group sold 81.5 percent of Arby’s for $430 million.
AOL/Time Warner
Culprit: Culture clashes, operations and technologies
In 2001, AOL acquired Time Warner for $165 billion. AOL wanted access to content and cable networks to evolve its dial-up technologies; Time Warner wanted an internet presence. Chaos ensued as the dot-com bubble burst, forcing a $99 billion goodwill write-off of the AOL division.
Time Warner developed its Road Runner internet service instead of marketing and evolving AOL. They bumped heads on converging mass media and content outlets. In 2003, Time Warner dropped AOL from the official company name.
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For additional information regarding Florida business sales, acquisitions and valuations, please contact Eric J. Gall at Eric@EdisonAvenue.com or 239.738.6227. Also, visit our Edison Avenue website at www.EdisonAvenue.com or my personal website at www.BuySellFLbiz.com.
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