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4 Biggest Merger and Acquisition Disasters

merger and acquisition failure case study

The benefits of mergers and acquisitions (M&A) include, among others:

  • Diversification of product and service offerings
  • An increase in plant capacity
  • Larger market share
  • Utilization of operational expertise and research and development (R&D)
  • Reduction of financial risk

If a merger goes well, the value of the new company should appreciate as investors anticipate synergies to be actualized, creating cost savings, and/or increased revenues  for the new entity.

However, time and again, executives face major stumbling blocks after the deal is consummated. Cultural clashes and turf wars can prevent post-integration plans from being properly executed. Different systems and processes, dilution of a company's brand, overestimation of synergies, and a lack of understanding of the target firm's business can all occur, destroying shareholder value and decreasing the company's stock price after the transaction. This article presents a few examples of busted deals in recent history.

Key Takeaways

  • A merger or acquisition is when two companies come together to take advantage of synergies.
  • The combined company is intended to be better than both individual companies due to an expected reduction of financial risks, diversification of products and services, and a larger market share, for example.
  • Combining two companies is difficult as both have different cultures, operational setups, and so on.
  • If management cannot find a clear path in uniting both companies then an M&A will fail.

New York Central and Pennsylvania Railroad

In 1968, the New York Central and Pennsylvania railroads merged to form Penn Central, which became the sixth-largest corporation in America. But just two years later, the company shocked Wall Street by filing for bankruptcy protection, making it the largest corporate bankruptcy in American history at the time.

The railroads, which were bitter industry rivals, both traced their roots back to the early- to mid-nineteenth century. Management pushed for a merger in a somewhat desperate attempt to adjust to disadvantageous trends in the industry.

Railroads operating outside of the northeastern U.S. generally enjoyed stable business from long-distance shipments of commodities , but the densely populated Northeast, with its concentration of heavy industries and various waterway shipping points, had a more diverse revenue stream. Local railroads catered to daily commuters, long-distance passengers, express freight service, and bulk freight service. These offerings provided transportation at shorter distances and resulted in less-predictable, higher-risk cash flow for the Northeast-based railroads.

Problems had been growing throughout the decade, as an increasing number of consumers and businesses began to favor, respectively, driving and trucking, using the newly constructed wide-lane highways. Short-distance transportation also involved more personnel hours (thus incurring higher labor costs), and strict government regulation restricted railroad companies' ability to adjust rates charged to shippers and passengers, making post-merger cost-cutting seemingly the only way to impact the bottom line positively. Of course, the resultant declines in service only exacerbated the loss of customers.

Penn Central presents a classic case of cost-cutting as "the only way out" in a constrained industry, but this was not the only factor contributing to its demise. Other problems included poor foresight and long-term planning on behalf of both companies' management and boards, overly optimistic expectations for positive changes after the merger, culture clash, territorialism, and poor execution of plans to integrate the companies' differing processes and systems.

Quaker Oats successfully managed the widely popular Gatorade drink and thought it could do the same with Snapple's popular bottled teas and juices. In 1993, despite warnings from Wall Street that the company was paying $1 billion too much, the company acquired Snapple for a purchase price of $1.7 billion. In addition to overpaying, management broke a fundamental law in mergers and acquisitions: Make sure you know how to run the company and bring specific value-added skill sets and expertise to the operation.

In just 27 months, Quaker Oats sold Snapple to a holding company for a mere $300 million, or a loss of $1.6 million for each day that the company owned Snapple.

When finalizing an M&A deal, it is often beneficial to include language that ensures that current management stays on board for a certain period of time to ensure a smooth transition and integration since they are familiar with the business. This can help an M&A deal be successful.

Quaker Oats' management thought it could leverage its relationships with supermarkets and large retailers; however, about half of Snapple's sales came from smaller channels, such as convenience stores, gas stations, and related independent distributors. The acquiring management also fumbled on Snapple's advertising, and the differing cultures translated into a disastrous marketing campaign for Snapple that was championed by managers not attuned to its branding sensitivities. Snapple's previously popular advertisements became diluted with inappropriate marketing signals to customers.

While these challenges befuddled Quaker Oats, gargantuan rivals Coca-Cola ( KO ) and PepsiCo ( PEP ) launched a barrage of new competing products that ate away at Snapple's positioning in the beverage market.

Oddly, there is a positive aspect to this flopped deal (as in most flopped deals): The acquirer was able to offset its capital gains elsewhere with losses generated from the bad transaction. In this case, Quaker Oats was able to recoup $250 million in capital gains taxes it paid on prior deals, thanks to losses from the Snapple acquisition. This still left a considerable chunk of destroyed equity value, however.

The consolidation of AOL Time Warner is perhaps the most prominent merger failure ever. Warner Communications merged with Time, Inc. in 1989. In 2001, America Online acquired Time Warner in a megamerger for $165 billion; the largest business combination up until that time. Respected executives at both companies sought to capitalize on the convergence of mass media and the Internet.

Shortly after the mega-merger, however, the dot-com bubble burst, which caused a significant reduction in the value of the company's AOL division. In 2002, the company reported an astonishing loss of $99 billion, the largest annual net loss ever reported, attributable to the goodwill write-off of AOL.

Around this time, the race to capture revenue from Internet search-based advertising was heating up. AOL missed out on these and other opportunities, such as the emergence of higher-bandwidth connections, due to financial constraints within the company. At the time, AOL was the leader in dial-up Internet access; thus, the company pursued Time Warner for its cable division as high-speed broadband connection became the wave of the future. However, as its dial-up subscribers dwindled, Time Warner stuck to its Road Runner Internet service provider rather than market AOL.

With their consolidated channels and business units, the combined company also did not execute on converged content of mass media and the Internet. Additionally, AOL executives realized that their know-how in the Internet sector did not translate to capabilities in running a media conglomerate with 90,000 employees. And finally, the politicized and turf-protecting culture of Time Warner made realizing anticipated synergies that much more difficult. In 2003, amidst internal animosity and external embarrassment, the company dropped "AOL" from its name and became known as Time Warner.

AOL was bought by Verizon in 2015 for $4.4 billion.

In August 2005, Sprint acquired a majority stake in Nextel Communications in a $37.8 billion stock purchase. The two combined to become the third-largest telecommunications provider, behind AT&T ( T ) and Verizon ( VZ ). Before the merger, Sprint catered to the traditional consumer market, providing long-distance and local phone connections, and wireless offerings. Nextel had a strong following from businesses, infrastructure employees, and the transportation and logistics markets, primarily due to the press-and-talk features of its phones. By gaining access to each other's customer bases, both companies hoped to grow by cross-selling their product and service offerings.

Soon after the merger, multitudes of Nextel executives and mid-level managers left the company, citing cultural differences and incompatibility. Sprint was bureaucratic; Nextel was more entrepreneurial. Nextel was attuned to customer concerns; Sprint had a horrendous reputation in customer service , experiencing the highest churn rate in the industry. In such a commoditized business, the company did not deliver on this critical success factor and lost market share. Further, a macroeconomic downturn led customers to expect more from their dollars.

If a merger or acquisition fails, it can be catastrophic, resulting in mass layoffs, a negative impact on a brand's reputation, a decrease in brand loyalty, lost revenue, increased costs, and sometimes the permanent closure of a business.

Cultural concerns exacerbated integration problems between the various business functions. Nextel employees often had to seek approval from Sprint's higher-ups in implementing corrective actions, and the lack of trust and rapport meant many such measures were not approved or executed properly. Early in the merger, the two companies maintained separate headquarters, making coordination more difficult between executives at both camps.

Sprint Nextel's managers and employees diverted attention and resources toward attempts at making the combination work at a time of operational and competitive challenges. Technological dynamics of the wireless and Internet connections required smooth integration between the two businesses and excellent execution amid fast change. Nextel was too big and too different for a successful combination with Sprint.

Sprint saw stiff competitive pressures from AT&T (which acquired Cingular), Verizon ( VZ ), and Apple's ( AAPL ) wildly popular iPhone. With the decline of cash from operations and with high capital-expenditure requirements, the company undertook cost-cutting measures and laid off employees. In 2008, it wrote off an astonishing $30 billion in one-time charges due to impairment to goodwill, and its stock was given a junk status rating. With a $35 billion price tag, the merger did not pay off.

When contemplating a deal, managers at both companies should list all the barriers to realizing enhanced shareholder value after the transaction is completed. These include:

  • Cultural clashes between the two entities often mean that employees do not execute post-integration plans.
  • As redundant functions often result in layoffs , scared employees will act to protect their jobs, as opposed to helping their employers "realize synergies."
  • Additionally, differences in systems and processes can make the business combination difficult and often painful right after the merger.

Managers at both entities need to communicate properly and champion the post-integration milestones step by step. They also need to be attuned to the target company's branding and customer base. The new company risks losing its customers if management is perceived as aloof and impervious to customer needs.

Finally, executives of the acquiring company should avoid paying too much for the target company. Investment bankers (who work on commission ) and internal deal champions, both having worked on a contemplated transaction for months, will often push for a deal "just to get things done." While their efforts should be recognized, it does not do justice to the acquiring group's investors if the deal ultimately does not make sense and/or management pays an excessive acquisition price beyond the expected benefits of the transaction.

Libraries-Penn State University. " Pennsylvania Railroad and New York Central Railroad Records, 1853-1965 ."

Harvard Business Review. " How Snapple Got Its Juice Back ."

U.S. Securities and Exchange Commission. " Form 8-K - March 27, 1997 ."

United Press International. " Time Warner Merger Terms Approved ."

University of Pennsylvania-Knowledge@Wharton. " Can AT&T Avoid the Merger Mistakes of AOL-Time Warner? "

The Channel Company-CRN. " AOL Time Warner to Lose Turner, Posts $99 Billion Loss ."

Ben H. Bagdikian. " The New Media Monopoly: A Completely Revised and Updated Edition with Seven New Chapters ," Page 4. Beacon Press, 2014.

Verizon. " Verizon to Acquire AOL ."

U.S. Securities and Exchange Commission. " Form 10-Q for the Quarterly Period Ended September 30, 2005 ."

United States Department of Justice. " Statement of the Department of Justice Antitrust Division on the Closing of the Investigation of Sprint Corporation's Acquisition of Nextel Communications Inc. "

U.S. Securities and Exchange Commission. " Form 10-K for the Fiscal Year Ended December 31, 2008 ."

merger and acquisition failure case study

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Journal of Business Strategy

ISSN : 0275-6668

Article publication date: 25 February 2020

Issue publication date: 4 January 2021

Despite their high number, most mergers end in failure. Academic studies of how these failures occur have remained rare, first, because of the difficulty of accessing the cases, and second, because of the difficulty of obtaining – for the purposes of qualitative analysis – objective and freely shared perceptions from the stakeholders, who tend to avoid speaking about failure. This is unfortunate, however, as failure can serve as a stimulus for organizational learning and readaptation for the future.

Design/methodology/approach

The author investigated how an organization managed failure during the post-merger integration stage. The author described the merger of two listed French companies using longitudinal data.

This in-depth case study provides new insights into failure during post-merger integration. The paper highlights the complexity of post-merger integration processes and the failures that the integration stakeholders had to address. The author underlined how they recognized failures and put into place solutions. They particularly highlighted two failures and how they were managed by the managers who acted as knowledge brokers within the new organization and by stakeholders who deconstructed the organization to ensure its future.

Research limitations/implications

The limitations are those concerning a single case study.

Practical implications

The paper identified trigger events in the merger process that prompted stakeholders to step in and manage and resolve failures during the integration period. Such triggers can be considered as steps for managers and stakeholders to solve organizational issues in the merger process. The paper highlighted the complexity of post-merger integration processes and the failures faced by integration stakeholders. The analysis thus contributes to an inclusive and integrative view of the challenges in this process.

Social implications

Despite their high number, merger and acquisition failures remain surprisingly high. This paper explored how stakeholders deal with failures by identifying which solutions are best adapted to their organization.

Originality/value

The case provides a vivid illustration of failure management during a merger process. Theoretical concepts and empirical findings from the literature are combined to present a single consistent picture.

  • Longitudinal case study
  • Learning process
  • Integration
  • In-depth study

Thelisson, A.-S. (2021), "Managing failure in the merger process: evidence from a case study", Journal of Business Strategy , Vol. 42 No. 1, pp. 33-39. https://doi.org/10.1108/JBS-10-2019-0187

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Copyright © 2020, Emerald Publishing Limited

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A blueprint for M&A success

Large mergers and acquisitions (M&A) tend to get the biggest headlines, but, as McKinsey research  indicates, executives should be paying attention to all the small deals, too. These smaller transactions, when pursued as part of a deliberate and systematic M&A program, tend to yield strong returns over the long run with comparatively low risk. And, based on our research, companies’ ability to successfully manage these deals can be a central factor in their ability to withstand economic shocks. 1 Martin Hirt, Sven Smit, Chris Bradley, Robert Uhlaner, Mihir Mysore, Yuval Atsmon, and Nicholas Northcote, “ Getting ahead of the next stage of the coronavirus ,” April 2020.

The execution of such a programmatic M&A strategy is not easy, however. Consider the situation at one global cosmetics company (a hypothetical case based on real-world experiences). Enthusiastic executives all had different ideas about which M&A opportunities the company should pursue (exhibit).

Undue influences

The hypothetical case of the global cosmetics company points to two common cognitive biases that can emerge when any company attempts to pursue programmatic M&A: the shiny-object syndrome and Maslow’s hammer.

The shiny-object syndrome —also known as extreme distraction. Companies that continually chase down the next new thing run the risk of pursuing initiatives in the wrong order, skipping foundational tasks, or duplicating efforts and investments.

The M&A team at the cosmetics company, for instance, was reactive. It was swayed by deals sourced by third parties, and it ended up inventing growth strategies around possible, exciting targets without a clear understanding of how they could generate value.

Maslow’s hammer. In his 1966 book The Psychology of Science (HarperCollins), psychologist Abraham Maslow stated, “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.” This is the approach the cosmetics company favored—establishing a well-organized M&A team but then using it to drive almost all growth rather than applying it only to those opportunities best suited to be bought, not built.

Without an M&A blueprint to provide an incontrovertible fact base and action plan, the cosmetics company’s efforts to implement programmatic deal making turned into a quixotic, time-wasting effort.

The CEO was pushing for a big bet on digital given the company’s superior financial position. Some senior leaders proposed expansion in greater China, the fastest-growing market for premium cosmetics. Other business-unit leaders saw poten­tial in the markets for organic products and men’s grooming. All had their own agendas (see sidebar, “Undue influences”).

Propelled by a healthy dose of FOMO (or fear of missing out) but lacking a clear set of priorities, the M&A team made multiple small bets on a range of businesses—even on some unexpected targets in adjacent markets (such as pet grooming). But the team did not have a clear plan for creating value from these targets nor for integrating them into the current business structure. The result? The organization ended up wasting time and resources on deals that were mostly unsuccessful, and its executives unintentionally created an unwieldy portfolio of businesses.

The M&A blueprint prompts business leaders to conduct a thorough self-assessment along with a comprehensive market assessment.

As this example illustrates, success in programmatic M&A requires much more than just executing on a long string of deals. Acquirers must articulate exactly why and where they need M&A to deliver on specific themes and objectives underlying their overarching corporate strategies. In addition, they must give careful thought as to how they plan to pursue programmatic M&A—including constructing a high-level business case and preliminary integration plans for each area in which they want to pursue M&A.

Taken together, these factors combine into what we call an M&A blueprint. In this article we discuss how it can be implemented to help organizations remain unrelentingly focused on their investment thesis throughout the deal process. Having a clear M&A blueprint is even more critical as com­panies begin to consider how to rebound from COVID-19. Without an M&A blueprint, it will be more difficult for companies to distinguish between through-cycle opportunities  that are consistent with their corporate strategy and “low hanging, distressed asset” deals that are not.

M&A blueprint: The building blocks

The M&A blueprint can help executives answer three main questions: Why and where should we use programmatic M&A to achieve our corporate strategy? And how should we use programmatic M&A to achieve our corporate strategy? Answering these questions will require asking still more clarifying questions about specific organizational strengths and capabilities, resources available, and other inputs to effective deal making.

Understanding ‘why’ and ‘where’

The M&A blueprint prompts business leaders to conduct a thorough self-assessment along with a comprehensive market assessment. The self-assessment helps establish the baseline from which to identify gaps in corporate ambitions as well as the opportunities for M&A to fill these gaps. It involves examining a company’s key sources of competitive advantage and testing their scalability to determine whether they would still play to the company’s advantage after a transaction. For its part, the market assessment acts as a “sense check” for business leaders, ensuring that the company’s M&A strategy capitalizes on the most recent and relevant trends, accounts for potential disruptions, and acknowledges competitors’ likely actions and reactions.

An M&A blueprint should also define any boundary conditions, or limits to the company’s use of M&A. These conditions, which are typically imposed by the CFO or the board investment committee, provide an important reality check: they define the con­straints on certain types or sizes of deals, thereby further narrowing the scope of potential targets. In setting these conditions, business leaders should account for preexisting financial hurdles—for instance, a rule that “deals must be accretive in the first year” likely would not apply to deals targeting growth and might therefore overly constrain M&A activity. Establishing these boundary conditions at the outset—with explicit agreement from the CFO and the board—can help put teeth into investment commitments and align everyone on negotiable and nonnegotiable terms.

Taken together, the self-assessment, market assessment, and review of boundary conditions can help executives understand the circumstances under which the pursuit of M&A makes the most sense, as well as the markets they are best positioned to enter. Indeed, the output of business leaders’ discussions about “why and where” will be a set of M&A themes that reflect the company’s best value-creation opportunities—those for which the company has the capabilities and resources to achieve intended strategic goals.

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What does a good M&A theme entail? For each theme, senior leaders should identify important deal criteria (categorizing potential targets by geog­raphy, sales channel, product type, and so on) as well as standard screening metrics like company size, number of employees, revenue growth, product port­folio, ownership, and so on. With this detailed information, organizations and M&A deal teams can continually cultivate potential targets within focused M&A themes while still being opportunistic about deals that present themselves.

Once these themes have been identified, business leaders should test them to ensure that they can execute against them—for instance, are there enough targets available, and do the right targets exist to fill gaps in the company’s capabilities? The M&A blueprint will be particularly critical in target-rich environments to help narrow down the list of potentials.

A “gold standard” M&A blueprint is detailed and focused on critical competitive information (value-creation levers, company capabilities, and so on). To understand whether their companies’ M&A themes are detailed enough, business leaders should consider whether they would be comfortable broadcasting those themes to competitors. The answer should be “no.” If the answer is “yes,” more work on the blueprint will be needed, as it and the related themes are likely not specific enough to be useful to M&A teams.

Understanding ‘how’

An M&A blueprint also prompts senior leaders to come up with a plan for “how” they will use M&A to further their overarching corporate strategies. Specifically, the M&A blueprint should delineate the high-level business case and preliminary integration plans associated with each M&A theme.

The business case should explain how the acqui­ring company plans to add value to the target or targets within a given M&A theme—for instance, the capital and operating expenditures needed (beyond the acquisition price) to integrate and scale the asset or assets. It should also outline the operational changes and capabilities that will be required to integrate the new assets—for instance, the creation of a new business unit or a set of new business processes to manage an acquired digital platform.

One large US healthcare company had committed to a strategy of building scale in its services businesses through M&A. First, it consolidated existing disparate service businesses under a new brand and organized them into three distinct units: pharmacy-care services, diversified health and wellness services, and data-analytics and tech­nology services. These became their three M&A themes. Then, over a ten-year period, this program­matic acquirer closed more than 60 deals, spending well over $20 billion, as it sought to fill out its portfolio along these three themes. The organization knew where it wanted to play and how.

Of course, the business case should include a preliminary integration plan for the acquired asset or assets that is consistent with the deal’s value-creation thesis—for instance, all shared services will be absorbed by the acquirer, and the target company’s product portfolio will be cross-sold to the acquirer’s existing customers.

Through their use of the M&A blueprint, business leaders can stay focused on those parts of the deal that can create the most value—especially impor­tant when companies are pursuing multiple deals within the same M&A theme. What’s more, they can prepare functional leaders, suppliers, and others well in advance for the actions they may need to take to integrate an asset or multiple assets.

Repeat performance: The continuing case for programmatic M&A

How lots of small M&A deals add up to big value

M&a blueprint: putting it all together.

An M&A blueprint cannot and should not be developed based on “gut instinct” by a single execu­tive or defined post hoc to validate the theory behind an exciting deal. An executive or business-unit leader should lead its development but should be supported by corporate-strategy and corporate-development executives. The blueprint itself can take the form of a frequently updated and disseminated written report, or it can be a standing agenda item in every M&A and corporate-strategy meeting. Regardless of format, it can help decision makers assess critical factors relating to deal sourcing, due diligence, and integration planning before making any moves and taking steps to identify targets.

Looking back at the case of the cosmetics company, it becomes clear how an M&A blueprint could have helped the organization prioritize a bunch of scattershot ideas into a comprehensive programmatic M&A strategy.

With its market assessment, for instance, it might have seen that the market for digital cosmetics is projected to grow five times faster than the market for nondigital cosmetics. What’s more, market data might have revealed that customers want and expect to buy cosmetics through digital channels, and that there is no clear leader in the space. In its self-assessment, the M&A team might also have seen a gap in the company’s product portfolio com­pared with peers. And a look at boundary conditions might have revealed the time and latitude required to pay off initial acquisition investments, enabling the team to look beyond “base hit” deals with lower acquisition costs.

The M&A blueprint would have led the cosmetics company to a different outcome—perhaps a laser focus on acquiring the set of assets and capabilities needed to build a digital platform for selling cosmetics.

Spending time up front creating an M&A blueprint will pay off over the long term—particularly given the volume of deals associated with a programmatic M&A strategy. With M&A themes and criteria well defined and understood by all, companies can not only be more proactive but also more opportunistic. The top team will be aligned on strategy and focused on deal must-haves prior to reaching out to potential targets. Negotiations with potential targets can be grounded in the business case. Diligence processes can be accelerated and focused only on the most critical sources of value. Integration planning can begin early, with a focus on realizing the strategic intent of the deal rather than just stabilizing companies, people, and processes in the wake of change. Most important, the M&A blueprint can help executives tell a compelling story (inside and outside the company) about its deal-making strategy and its vision for the future.

Sophie Clarke is a consultant in McKinsey’s New Jersey office, where Liz Wol is an associate partner; Robert Uhlaner is a senior partner in the San Francisco office.

The authors wish to thank Anthony Chui, Jack Gordon, Steve Santulli, and Lexi Wang for their contributions to this article.

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Managing failure in the merger process: evidence from a case study

Purpose Despite their high number, most mergers end in failure. Academic studies of how these failures occur have remained rare, first, because of the difficulty of accessing the cases, and second, because of the difficulty of obtaining – for the purposes of qualitative analysis – objective and freely shared perceptions from the stakeholders, who tend to avoid speaking about failure. This is unfortunate, however, as failure can serve as a stimulus for organizational learning and readaptation for the future. Design/methodology/approach The author investigated how an organization managed failure during the post-merger integration stage. The author described the merger of two listed French companies using longitudinal data. Findings This in-depth case study provides new insights into failure during post-merger integration. The paper highlights the complexity of post-merger integration processes and the failures that the integration stakeholders had to address. The author underlined how they recognized failures and put into place solutions. They particularly highlighted two failures and how they were managed by the managers who acted as knowledge brokers within the new organization and by stakeholders who deconstructed the organization to ensure its future. Research limitations/implications The limitations are those concerning a single case study. Practical implications The paper identified trigger events in the merger process that prompted stakeholders to step in and manage and resolve failures during the integration period. Such triggers can be considered as steps for managers and stakeholders to solve organizational issues in the merger process. The paper highlighted the complexity of post-merger integration processes and the failures faced by integration stakeholders. The analysis thus contributes to an inclusive and integrative view of the challenges in this process. Social implications Despite their high number, merger and acquisition failures remain surprisingly high. This paper explored how stakeholders deal with failures by identifying which solutions are best adapted to their organization. Originality/value The case provides a vivid illustration of failure management during a merger process. Theoretical concepts and empirical findings from the literature are combined to present a single consistent picture.

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Secrets of succession: how one family business reached the ninth generation

Purpose The purpose of this paper is to provide insight into the specific structures and routines of family firms and to highlight their strengths and weaknesses using a case study. Design/methodology/approach The case describes a French SME in the construction sector that is undergoing succession from the eighth to the ninth generation. Both generations have offered their viewpoints. The succession context allows us to better distinguish what makes a family firm uniquely resilient and what may easily turn into a weakness. Findings The case indicates that the trust that family owners have cultivated with employees allows the firm to operate less formally and with less rigid procedures. It also encourages employees to take initiatives and contributes to their greater engagement. On the other hand, it may expose the firm to more structured and well-organized competitors. Research limitations/implications The limitations are those relative to the use of a single case. Practical implications Succession is a delicate process that needs to be well prepared and executed without any haste. It involves retaining the firm’s strengths, such as the social capital that the family has patiently amassed. But it also represents an opportunity to review the firm’s practices and to introduce a good dose of innovation. Originality/value The case provides a vivid illustration of what makes family firms so distinctive. Theoretical concepts and empirical findings from the literature are put together in a single consistent picture.

Reaching organizational ambidexterity in the merger process: a temporal switching

Purpose The purpose of this paper is to explore how a company reaches organizational ambidexterity during a merger process. Organizational ambidexterity refers to the proactive adaptations of an organization to simultaneously explore and exploit. Design/methodology/approach The paper presents a longitudinal case study of a public-private merger of two listed French companies. The data were collected from participant observation, interviews and archival documentation over two years. Findings The balance between autonomy and control by the parent companies evolves during the post-merger integration. The findings reveal that there was no concordance between the oscillations between autonomy and control on the part of the parent companies and the new organization’s exploration/exploitation strategies. However, the progressive evolution of control and autonomy from the parent companies engendered organizational ambidexterity during the third phase integration. Practical implications The study adds insight into how organizations can develop ways to manage organizational ambidexterity dynamics by employing temporal mechanisms, referring to an organization’s shifting sequentially between exploration and exploitation. The case highlights how temporal switching between exploration and exploitation occurs to ultimately enable ambidexterity. Originality/value Although organizational ambidexterity is recognized as a key element for post-merger integration, how it is achieved over the course of the merger process has received little attention. The study highlights that in the case of public-private mergers, the parent companies influence exploration and/or exploitation strategies. The paper adds insights on whether exploration and exploitation can be differentiated over time and whether exploration and exploitation can be reconciled at the same time.

A paradoxical approach symbiotic to postmerger integration: a French longitudinal case study

Purpose This paper aims to examine post-merger integration (PMI) through the lens of paradox to determine how paradoxes contribute to successful integration. Although PMI has been identified as crucial to understand merger success or failure, the literature on PMI drivers remains inconclusive. Design/methodology/approach Drawing on the theory of paradox and two key elements of PMI, strategic interdependency (SI) and organizational autonomy (OA), the authors describe the merger of two listed French companies using longitudinal data. Findings The authors identify how the paradox between OA and SI was triggered and fostered PMI success by leading to symbiotic integration. They also show that two capabilities were central in helping the paradox to evolve: preserving the specificities of the organizations and pooling their respective capabilities. These capabilities result from basic decisions and actions during the integration implementation, such as highlighting the expertise of the target firm, refocusing the core activity while valorizing each company’s expertise, clarifying the identity of the new organization on the market and enhancing joint piloting and transferring both general management capacity and functional abilities during the reorganization period. Practical implications The authors offer several useful insights for managers trying to manage paradoxical tension throughout the merger process. This study encourages managers to embrace inconsistencies as they make decisions and to shift to dynamic decision-making as a way to adapt to complex contexts. Originality/value This study adopts a global and inclusive approach to focus on OA and SI and flesh out a picture of the integration process. It proposes a dynamic process model to conceptualize the stage-wise nature of the PMI process by highlighting the interrelations between OA and SI dynamics.

Allianz and its fateful acquisition of Dresdner Bank

Purpose The Allianz acquisition of Dresdner Bank was announced as one of the most important deals of the year, in 2001. It was certainly one of the largest. In April 2001, the Munich-based insurance firm, Allianz, bought Dresdner Bank for more than €20 bn. Unfortunately, such optimism was unfounded. The projected synergies never materialized and in August 2008, Allianz sold Dresdner Bank to Commerzbank for €9.8 bn. The company had lost more than half its value in just seven years. The purpose of this article is to analyze how this happened. Design/methodology/approach The article is a case study of the acquisition Dresdner, looking specifically at problems of post-merger integration. Findings The article shows that problems of corporate culture were a serious handicap to the success of the merger. Originality/value The briefing saves busy executives and researchers hours of reading time by selecting only the very best, most pertinent information and presenting it in a condensed and easy-to-digest format.

Knowledge transfer roles of subsidiaries in MNCs’ networks

Purpose Although there have been a considerable number of studies regarding subsidiary role typology in multinationals’ management literature, there appear to be few studies that consider knowledge-based role typology from the network-based perspective. The purpose of this study is to fill this gap and extend the study of Gupta and Govindarajan (1991). Thus, the study focuses on answering the following research question: Do subsidiaries have different roles in terms of knowledge flows within a multinational company (MNC)? Design/methodology/approach This empirical study has been carried out as an explorative single case study. An MNC with 15 foreign subsidiaries headquartered in Turkey, which operated in the manufacturing of household appliances and consumer electronics, has been selected as the case. Knowledge transfer is analyzed in this MNC from the network perspective. Findings Four role typologies are detected for subsidiaries of the MNC: collector transmitter, collector diffuser, converter transmitter and converter diffuser. Research limitations/implications Findings of this study are specific to this case. Testing the findings in a sample consisting of subsidiaries of MNCs producing transnational products may contribute to the generalizability of these roles. Practical implications This study offers potentially important findings for MNC managers to use. First, in this study, knowledge flows' route could be defined within MNCs’ dual network. Second, role typologies could inform MNC managers to design their MNCs’ knowledge network. Originality/value The suggested typologies are expected to more accurately define the roles of subsidiaries within contemporary MNCs which are accepted to be transformed from hierarchical structures to network-based organizations.

Frozen child: schema therapy for a forensic patient in a service for men with a diagnosis of severe personality disorder

Purpose Schema therapy has gone through various adaptations, including the identification of various schema modes. The purpose of this paper is to suggest that there may be a further dissociative mode, the “frozen child” mode, which is active for some patients, particularly those that have experienced extreme childhood trauma. Design/methodology/approach The paper is participant observer case study which is based on the personal reflections of a forensic patient who completed a treatment programme which includes schema therapy. Findings The proposed mode, “frozen child”, is supported by theoretical indicators in the literature. It is proposed that patients develop this mode as a protective strategy and that unless recognised and worked with, can prevent successful completion of therapy. Research limitations/implications Based on a single case study, this concept is presented as a hypothesis that requires validation as the use of the case study makes generalisation difficult. Practical implications It is suggested that if validated, this may be one of the blocks therapists have previously encountered that has led to the view that people with severe personality disorder are “untreatable”. Suggestions are made as to how patients with this mode, if validated, can be treated with recommendations as to the most appropriate processes to potentiate such therapy. Originality/value The suggestion of this potential “new schema mode” is based on service user initiative, arising from a collaborative enterprise between service user and clinician, as recommended in recent government policies.

Innovation and cross-functional teams

Purpose The aim of this paper is to characterize how innovation may happen through cross-functional teams (CFT) in an organization of the public sector. Design/methodology/approach A case study helped to characterize several behavior patterns, team structures and respective links with generating innovation in internal processes and public answering contexts. Findings The results highlight that formal-temporary teams present a higher capacity to generate incremental innovation in products, whereas permanent-informal teams have a higher capacity to generate innovation in the internal processes and public answering contexts. Research limitations/implications The limitations of this research relate to the fact that this is a single case study, and although it is an important case to examine innovation and CFTs, by its very nature, it is not possible to extend and generalize the obtained data to other organizations. The evaluation of its propositions was merely qualitative, and future research is needed to validate its characteristics. Practical implications Several settings of CFTs are presented, as well as their ability to generate different types of innovation, such as the computerization of documents, petitions and papers, which decreases the time to answer the taxpayer. Moreover, CFTs can help to create products, such as computer programs that can be used not only locally but also in several public organizations related to tax management. Originality/value The field research provides the perceptions of the respondents regarding CFT characteristics that can lead to specific types of innovation, as well as the types of products or services that can be generated by these processes.

Implementation of lean in IT SME company: an Italian case

Purpose In spite of huge advancement of Lean in the manufacturing sector, its advantage in the service sector is not fully investigated. The purpose of this paper is to cover this gap in particular for the information technology (IT) sector through the implementation of the Lean philosophy in a small- and medium-sized enterprise (SME), operating in the IT sector. Design/methodology/approach A case study is conducted and following the A3 model, Lean is deployed in the case company. Data were collected through on-site interviews, waste sources were identified and then countermeasures for their reduction were proposed and adopted. Findings This study reveals that the implementation of the Lean practices in an SME operating in the IT sector offers good operative and financial results, thanks to the higher productivity obtained through the reduction of non-value-added activities. Research limitations/implications This paper reports a single case study, not enough to generalize the results. Moreover, more Lean tools and practices should be tested in IT companies to assess their effectiveness. Practical implications This paper increments the knowledge base for the application of Lean and A3 model outside the manufacturing industry. This paper should assist practitioners and consultants who have the desire to understand a better way of Lean implementation in fast-growing IT industry and in SME. Originality/value Research on Lean implementation in an SME company and in IT sector is scarce. This study aims to assess the efficiency of the adoption of Lean practices following the A3 model. The results could be highly valuable for similar companies (dimension or sector), especially those that are facing transition situations in terms of size and at the same time want to improve their operations performance, efficiency and avoid waste.

The impact of business networks on foreign subsidiaries development

Purpose The purpose of this paper is to explore two specific areas pertaining to industrial networks and international business (IB). First, the authors look at how business relationships influence the internationalization in time, from the establishment of the first subsidiary in a foreign market to the following ones, and in space, that is, across different markets. Second, the authors investigate how an increasing external network dependence of subsidiaries in their internationalization may cause a detachment of a subsidiary from the mother company as its knowledge becomes insufficient to guide a subsidiary’s internationalization. Design/methodology/approach This paper utilizes an exploratory, longitudinal, single-case study of Loccioni – a manufacturer of measuring and automatic control systems for industrial customers – to illustrate the specific dynamics of the influences of industrial networks on the internationalization of subsidiaries. Findings The case study helps to elucidate the roles, entailing also free will and own initiative, of small suppliers’ subsidiaries which operate inside several global factories, and how “surfing” on many different global factories, by means of several local subsidiaries, actually supports these suppliers’ own international developments. This notion adds to our understanding of the global factory phenomenon a supplier focus that stresses how the role of suppliers is not merely that of being passive recipients of activities and directions from a focal orchestrating firm, but can also be that of initiative-takers themselves. Originality/value The paper contributes to the IMP tradition by providing a multi-layered and geographically more fine-grained view of the network embedding companies that operate on internationalized markets. This paper thereby sheds light on a less investigated area of research within the IMP tradition: the link between internationalization in different countries and the interconnectedness between the industrial networks spanning these countries. At the same time, this paper contributes to IB theories by showing how a late-internationalizing SME can enter highly international markets by “plugging into” several established “Global Factories” as a way to exploit further opportunities for international expansion.

How performance measurement influences stakeholders in not-for-profit organizations

Purpose The purpose of this paper is to examine the influences of performance measurement (PM) on not-for-profit (NFP) organizations’ stakeholders by studying how PM practices interact with understandings of legitimate performance goals. This study invokes institutional logics theory to explain interactions between PM and stakeholders. Design/methodology/approach An in-depth case study is conducted in a large NFP organization in the UK. Managers, employees, and external partners are interviewed and observed, and performance-related documents analyzed. Findings Both stakeholders and PM practices are found to have dominant institutional logics that portray certain goals as legitimate. PM practices can reinforce, reconcile, or inhibit stakeholders’ understandings and propensity to act toward goals, depending on the extent to which practices share the dominant logic of the stakeholders they interact with. Research limitations/implications A theoretical framework is proposed for how PM practices first interact with stakeholders at a cognitive level and second influence action. This research is based on a single case study, which limits generalizability of findings; however, results may be transferable to other environments where PM is aimed at balancing competing stakeholder objectives and organizational priorities. Practical implications PM affects the experience of stakeholders by interacting with their understanding of legitimate performance goals. PM systems should be designed and implemented on the basis of both their formal ability to represent organizational aims and objectives, and their influence on stakeholders. Originality/value Findings advance PM theory by offering an explanation for how PM influences attention and actions at an individual micro level.

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Mergers & Acquisitions Trigger Unique Cyber Challenges: What Businesses Should Do to Overcome It

By Kyle Kappel, US Leader for Cyber, and Hugh Nguyen, US Practice Leader, M&A Technology Center of Excellence

Cybersecurity threats are increasing exponentially each year, impacting functions across the enterprise, and the M&A process is no exception. The often-overlooked vulnerabilities and threats that arise during these transactions are cause for concern, prompting the need for organizations to prioritize cybersecurity measures to safeguard sensitive data and protect their investments. 

The Challenges

When companies merge, it creates significant cybersecurity challenges in two main ways: firstly, challenges arise in integrating disparate security infrastructures, and secondly, an M&A transaction brings together diverse organizational cultures which presents its own challenges from a cyber perspective. Yet the limited involvement of IT and cybersecurity within M&A teams can lead to cybersecurity considerations taking a back seat early in the process, potentially resulting in unforeseen vulnerabilities and risks.

Let’s take a look at each of these two substantial challenges.

When two companies merge or one acquires another, they often have different systems, protocols, and technologies in place to protect their data and networks. Integrating these diverse security infrastructures can be a complex task, as it requires aligning and harmonizing different approaches to cybersecurity. Failure to properly integrate these systems can create gaps in security, leaving the newly formed entity vulnerable to cyber threats.

Separately, organizations face the difficulty of integrating diverse organizational cultures. Each company involved in the merger or acquisition may have its own unique approach to cybersecurity, including different policies, practices, and levels of awareness. Bringing these cultures together can create friction and inconsistencies in cybersecurity practices. It is crucial to establish a unified cybersecurity culture that aligns with the overall security objectives of the newly formed entity. Failure to do so can result in confusion, gaps in security awareness, and potential vulnerabilities that can be exploited by cybercriminals.

Advice to Businesses

So, what should businesses do to overcome the cyber risks inherent in the M&A process?  

KPMG has four key recommendations:

  • Require a Security Assessment of the Target Firm : Including the cybersecurity team in the process from the outset can help avoid many headaches down the line. It is essential to ensure that the security team or the Chief Information Security Officer (CISO) is brought in early in the process, and always has a seat at the table.
  • Understand the Risk of the Data Environment : Acquiring or merging companies must be able to evaluate security requirements that could impact the data environment. This understanding is crucial for assessing the state of security in the acquired company. Organizations without broad internet-facing landscapes may still be subject to security risk due to poor or non-existing governance of API usage and single sign-on (SSO).
  • Conduct Cybersecurity Due Diligence : Prior to M&A activities, it is essential to conduct thorough cybersecurity due diligence to uncover any security risks and liabilities, as well as the costs for remediation. This assessment will help inform investment decisions and legal documents.
  • Engage Early in the Transaction : Building a view of cyber risks and costs from the outset of the deal can help quantify the liability and develop a robust cyber story, enhancing the case for a strong exit valuation.

The Bottom Line

In today's rapidly evolving cybersecurity landscape, businesses involved in M&A must prioritize cybersecurity measures to overcome the challenges that arise during these transactions. By conducting thorough cybersecurity due diligence, engaging early in the transaction, and quantifying cyber liability, organizations can safeguard sensitive data and protect their investments, ultimately ensuring a more secure transition.

Media Contact

Melanie Malluk Batley

Melanie Malluk Batley

Associate Director, Corporate Communications, KPMG US

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M&A: The One Thing You Need to Get Right

  • Roger L. Martin

merger and acquisition failure case study

The financial world set a record in 2015 for mergers and acquisitions. It’s too soon to have data on how those deals will work out, but the signs are not promising. Last year Microsoft wrote off 96% of the value of the handset business it had acquired from Nokia in 2014 for $7.9 billion. The rule, confirmed by nearly all studies, remains true: M&A is a mug’s game, in which some 70% to 90% of acquisitions are abysmal failures. The author has an explanation for this persistent failure and offers a way forward. Acquirers, he notes, tend to look at acquisitions as a way of obtaining value for themselves—access to a new market or capability.

The trouble is, if you spot a valuable asset or capability in a company, others will too, and the value will be lost in a bidding war. But if you have something that will make the acquisition more competitive, the picture changes. As long as the acquired company is incapable of making that enhancement on its own or (ideally) with any other company, the buyer, rather than the seller, will earn the rewards. Martin describes four ways to enhance the competitiveness of a target:

  • Be a smarter provider of growth capital.
  • Provide better managerial oversight.
  • Transfer valuable skills to the acquisition.
  • Share valuable capabilities with the acquisition.

It’s all about adding value to the target company.

Idea in Brief

The problem.

Although M&As are a tempting strategy for fast growth—and psychologically gratifying for CEOs—most of them are extremely expensive mistakes.

Why It Happens

Companies tend to look at acquisitions as a way of obtaining value for themselves—access to a new market or capability, for example. But if you spot opportunity in a company, others will too, and the value will be lost in a bidding war.

The Solution

Look for ways to give value to the acquired company rather than take it—by being a smarter provider of capital, offering better managerial oversight, transferring a skill, or sharing a resource. These approaches have been behind the handful of deals that have succeeded.

The financial world set a record in 2015 for mergers and acquisitions. The value of such deals eclipsed the previous record, set in 2007, which had surpassed an earlier peak in 1999. This is perhaps not auspicious: It seems (pace the late Prince) that we are partying as if it were 1999—and 2007 to boot. The headiness of those years didn’t bode well for either 2000–2002 or 2008–2009.

  • Roger L. Martin is a former dean of the Rotman School of Management, an adviser to CEOs, and the author of A New Way to Think (Harvard Business Review Press, 2022).

Partner Center

Ace Your M&A Case Study Using These 5 Key Steps

  • Last Updated November, 2022

Mergers and acquisitions (M&A) are high-stakes strategic decisions where a firm(s) decides to acquire or merge with another firm. As M&A transactions can have a huge impact on the financials of a business, consulting firms play a pivotal role in helping to identify M&A opportunities and to project the impact of these decisions. 

M&A cases are common case types used in interviews at McKinsey, Bain, BCG, and other top management consulting firms. A typical M&A case study interview would start something like this:

The president of a national drugstore chain is considering acquiring a large, national health insurance provider. The merger would combine one company’s network of pharmacies and pharmacy management business with the health insurance operations of the other, vertically integrating the companies. He would like our help analyzing the potential benefits to customers and shareholders.

M&A cases are easy to tackle once you understand the framework and have practiced good cases. Keep reading for insights to help you ace your next M&A case study interview.

In this article, we’ll discuss:

  • Why mergers & acquisitions happen.
  • Real-world M&A examples and their implications.
  • How to approach an M&A case study interview.
  • An end-to-end M&A case study example.

Let’s get started!

Why Do Mergers & Acquisitions Happen?

There are many reasons for corporations to enter M&A transactions. They will vary based on each side of the table. 

For the buyer, the reasons can be:

  • Driving revenue growth. As companies mature and their organic revenue growth (i.e., from their own business) slows, M&A becomes a key way to increase market share and enter new markets.
  • Strengthening market position. With a larger market share, companies can capture more of an industry’s profits through higher sales volumes and/or greater pricing power, while vertical integration (e.g., buying a supplier) allows for faster responses to changes in customer demand.
  • Capturing cost synergies. Large businesses can drive down input costs with scale economics as well as consolidate back-office operations to lower overhead costs. (Example of scale economies: larger corporations can negotiate higher discounts on the products and services they buy. Example of consolidated back-office operations: each organization may have 50 people in their finance department, but the combined organization might only need 70, eliminating 30 salaries.)
  • Undertaking PE deals. Private equity firms will buy a majority stake in a company to take control and transform the operations of the business (e.g., bring in new top management or fund growth to increase profitability).
  • Accessing new technology and top talent. This is especially common in highly competitive and innovation-driven industries such as technology and biotech. 

For the seller, the reasons can be: 

  • Accessing resources. A smaller business can benefit from the capabilities (e.g., product distribution or knowledge) of a larger business in driving growth.
  • Gaining needed liquidity. Businesses facing financial difficulties may look for a well-capitalized business to acquire them, alleviating the stress.
  • Creating shareholder exit opportunities . This is very common for startups where founders and investors want to liquidate their shares.

There are many other variables in the complex process of merging two companies. That’s why advisors are always needed to help management to make the best long-term decision.

Real-world Merger and Acquisition Examples and Their Implications

Let’s go through a couple recent merger and acquisition examples and briefly explain how they will impact the companies.

Nail the case & fit interview with strategies from former MBB Interviewers that have helped 89.6% of our clients pass the case interview.

KKR Acquisition of Ocean Yield

KKR, one of the largest private equity firms in the world, bought a 60% stake worth over $800 million in Ocean Yield, a Norwegian company operating in the ship leasing industry. KKR is expected to drive revenue growth (e.g., add-on acquisitions) and improve operational efficiency (e.g., reduce costs by moving some business operations to lower-cost countries) by leveraging its capital, network, and expertise. KKR will ultimately seek to profit from this investment by selling Ocean Yield or selling shares through an IPO.

ConocoPhillips Acquisition of Concho Resources

ConocoPhillips, one of the largest oil and gas companies in the world with a current market cap of $150 billion, acquired Concho Resources which also operates in oil and gas exploration and production in North America. The combination of the companies is expected to generate financial and operational benefits such as:

  • Provide access to low-cost oil and gas reserves which should improve investment returns.
  • Strengthen the balance sheet (cash position) to improve resilience through economic downturns.
  • Generate annual cost savings of $500 million.
  • Combine know-how and best practices in oil exploration and production operations and improve focus on ESG commitments (environmental, social, and governance).

How to Approach an M&A Case Study Interview

Like any other case interview, you want to spend the first few moments thinking through all the elements of the problem and structuring your approach. Also, there is no one right way to approach an M&A case but it should include the following: 

  • Breakdown of value drivers (revenue growth and cost synergies) 
  • Understanding of the investment cost
  • Understanding of the risks. (For example, if the newly formed company would be too large relative to its industry competitors, regulators might block a merger as anti-competitive.) 

Example issue tree for an M&A case study: 

  • Will the deal allow them to expand into new geographies or product categories?
  • Will each of the companies be able to cross-sell the others’ products? 
  • Will they have more leverage over prices? 
  • Will it lower input costs? 
  • Decrease overhead costs? 
  • How much will the investment cost? 
  • Will the value of incremental revenues and/or cost savings generate incremental profit? 
  • What is the payback period or IRR (internal rate of return)? 
  • What are the regulatory risks that could prevent the transaction from occurring? 
  • How will competitors react to the transaction?
  • What will be the impact on the morale of the employees? Is the deal going to impact the turnover rate? 

An End-to-end BCG M&A Case Study Example

Case prompt:

Your client is the CEO of a major English soccer team. He’s called you while brimming with excitement after receiving news that Lionel Messi is looking for a new team. Players of Messi’s quality rarely become available and would surely improve any team. However, with COVID-19 restricting budgets, money is tight and the team needs to generate a return. He’d like you to figure out what the right amount of money to offer is.

First, you’ll need to ensure you understand the problem you need to solve in this M&A case by repeating it back to your interviewer. If you need a refresher on the 4 Steps to Solving a Consulting Case Interview , check out our guide.

Second, you’ll outline your approach to the case. Stop reading and consider how you’d structure your analysis of this case. After you outline your approach, read on and see what issues you addressed, and which you didn’t consider. Remember that you want your structure to be MECE and to have a couple of levels in your Issue Tree .

Example M&A Case Study Issue Tree

  • Revenue: What are the incremental ticket sales? Jersey sales? TV/ad revenues?
  • Costs: What are the acquisition fees and salary costs? 
  • How will the competitors respond? Will this start a talent arms race?  
  • Will his goal contribution (the core success metric for a soccer forward) stay high?
  • Age / Career Arc? – How many more years will he be able to play?
  • Will he want to come to this team?
  • Are there cheaper alternatives to recruiting Messi?
  • Language barriers?
  • Injury risk (could increase with age)
  • Could he ask to leave our club in a few years?
  • Style of play – Will he work well with the rest of the team?

Analysis of an M&A Case Study

After you outline the structure you’ll use to solve this case, your interviewer hands you an exhibit with information on recent transfers of top forwards.

In soccer transfers, the acquiring team must pay the player’s current team a transfer fee. They then negotiate a contract with the player.

From this exhibit, you see that the average transfer fee for forwards is multiple is about $5 million times the player’s goal contributions. You should also note that older players will trade at lower multiples because they will not continue playing for as long. 

Based on this data, you’ll want to ask your interviewer how old Messi is and you’ll find out that he’s 35. We can say that Messi should be trading at 2-3x last season’s goal contributions. Ask for Messi’s goal contribution and will find out that it is 55 goals. We can conclude that Messi should trade at about $140 million. 

Now that you understand the up-front costs of bringing Messi onto the team, you need to analyze the incremental revenue the team will gain.

Calculating Incremental Revenue in an M&A Case Example

In your conversation with your interviewer on the value Messi will bring to the team, you learn the following: 

  • The team plays 25 home matches per year, with an average ticket price of $50. The stadium has 60,000 seats and is 83.33% full.
  • Each fan typically spends $10 on food and beverages.
  • TV rights are assigned based on popularity – the team currently receives $150 million per year in revenue.
  • Sponsors currently pay $50 million a year.
  • In the past, the team has sold 1 million jerseys for $100 each, but only receives a 25% margin.

Current Revenue Calculation:

  • Ticket revenues: 60,000 seats * 83.33% (5/6) fill rate * $50 ticket * 25 games = $62.5 million.
  • Food & beverage revenues: 60,000 seats * 83.33% * $10 food and beverage * 25 games = $12.5 million.
  • TV, streaming broadcast, and sponsorship revenues: Broadcast ($150 million) + Sponsorship ($50 million) = $200 million.
  • Jersey and merchandise revenues: 1 million jerseys * $100 jersey * 25% margin = $25 million.
  • Total revenues = $300 million.

You’ll need to ask questions about how acquiring Messi will change the team’s revenues. When you do, you’ll learn the following: 

  • Given Messi’s significant commercial draw, the team would expect to sell out every home game, and charge $15 more per ticket.
  • Broadcast revenue would increase by 10% and sponsorship would double.
  • Last year, Messi had the highest-selling jersey in the world, selling 2 million units. The team expects to sell that many each year of his contract, but it would cannibalize 50% of their current jersey sales. Pricing and margins would remain the same.
  • Messi is the second highest-paid player in the world, with a salary of $100 million per year. His agents take a 10% fee annually.

Future Revenue Calculation:

  • 60,000 seats * 100% fill rate * $65 ticket * 25 games = $97.5 million.
  • 60,000 seats * 100% * $10 food and beverage * 25 games = $15 million.
  • Broadcast ($150 million*110% = $165 million) + Sponsorship ($100 million) = $265 million.
  • 2 million new jerseys + 1 million old jerseys * (50% cannibalization rate) = 2.5 million total jerseys * $100 * 25% margin = $62.5 million.
  • Total revenues = $440 million.

This leads to incremental revenue of $140 million per year. 

  • Next, we need to know the incremental annual profits. Messi will have a very high salary which is expected to be $110 million per year. This leads to incremental annual profits of $30 million.
  • With an upfront cost of $140 million and incremental annual profits of $30 million, the payback period for acquiring Messi is just under 5 years.

Presenting Your Recommendation in an M&A Case

  • Messi will require a transfer fee of approximately $140 million. The breakeven period is a little less than 5 years. 
  • There are probably other financial opportunities that would pay back faster, but a player of the quality of Messi will boost the morale of the club and improve the quality of play, which should build the long-term value of the brand.
  • Further due diligence on incremental revenue potential.
  • Messi’s ability to play at the highest level for more than 5 years.
  • Potential for winning additional sponsorship deals.

5 Tips for Solving M&A Case Study Interviews

In this article, we’ve covered:

  • The rationale for M&A.
  • Recent M&A transactions and their implications.
  • The framework for solving M&A case interviews.
  • AnM&A case study example.

Still have questions?

If you have more questions about M&A case study interviews, leave them in the comments below. One of My Consulting Offer’s case coaches will answer them.

Other people prepping for mergers and acquisition cases found the following pages helpful:

  • Our Ultimate Guide to Case Interview Prep
  • Types of Case Interviews
  • Consulting Case Interview Examples
  • Market Entry Case Framework
  • Consulting Behavioral Interviews

Help with Case Study Interview Prep

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  2. THE MLM MERGER AND CONTINUED FAILURE OF MULTILEVEL MARKETING

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  6. Amalgamation/ merger & Acquisition? #amalgamation #merger

COMMENTS

  1. The 8 Biggest Mergers and Acquisitions Failures of All Time

    1. America Online and Time Warner (2001): US$65 billion To those familiar with lists like these, the presence of AOL and Time Warner at the top of this list will come as little surprise. Speaking about M&A failures and not mentioning this transaction would be like interviewing Neil Armstrong and not mentioning the moon.

  2. 4 Cases When M&A Strategy Failed for the Acquirer (EBAY, BAC)

    The following four case studies show how mergers can create problems. An M&A strategy can create synergies, but it can also create cultural clashes. eBay and Skype In 2005, eBay Inc. (NASDAQ:...

  3. The Case for M&A in a Downturn

    Summary. As companies begin planning for a post-Covid future, there may be opportunities to make one or more long-sought acquisitions. Deal premiums are likely to come down and assets that...

  4. Don't Make This Common M&A Mistake

    March 16, 2020 Huber & Starke/Getty Images Post Summary. The standard explanation for failed M&A deals points to integration as the problem. It turns out that this is more of a problem for...

  5. So Many M&A Deals Fail Because Companies Overlook This Simple Strategy

    May 10, 2016 Post Post We have all seen or heard of high-profile cases where M&A deals didn't work out. AOL-Time Warner, HP-Compaq, Quaker-Snapple — these are just some of the big ones. An analysis...

  6. Lessons from Failed M&A: Analyzing Case Studies to Avoid Common

    In conclusion, analyzing case studies of failed M&A provides invaluable lessons for companies looking to engage in successful mergers and acquisitions. By understanding the basics of M&A, recognizing the common pitfalls, and implementing effective strategies, organizations can navigate the complex M&A landscape with confidence and avoid the ...

  7. 4 Biggest Merger and Acquisition Disasters

    Corporate Finance M&A 4 Biggest Merger and Acquisition Disasters By Marvin Dumont Updated February 21, 2022 Reviewed by Amy Drury Fact checked by Timothy Li The benefits of mergers and...

  8. Why large M&A deals fail

    Our research shows that in any given year, about 10 percent of all large mergers and acquisitions are canceled—a significant number when you consider that about 450 such deals are announced each year.. The consequences of deal abandonment can be severe, affecting both the reputation and share price of the parties involved. Besides companies incurring the obvious one-off costs like advisory ...

  9. Managing failure in the merger process: evidence from a case study

    Findings This in-depth case study provides new insights into failure during post-merger integration. The paper highlights the complexity of post-merger integration processes and the...

  10. Managing failure in the merger process: evidence from a case study

    Findings. This in-depth case study provides new insights into failure during post-merger integration. The paper highlights the complexity of post-merger integration processes and the failures that the integration stakeholders had to address. The author underlined how they recognized failures and put into place solutions.

  11. Mergers and Acquisitions: Failures and causes, an ...

    Mergers and Acquisitions: Failures and causes, an evidence-based approach Authors: Mohd Abdul Moid Siddiqui Institute for Integrated Learning in Management Ayesha Farooq Abstract Merger...

  12. Mergers and acquisitions

    Less than a decade after the frantic merger activity of the late 1960s, we are again in the midst of a major wave of corporate acquisitions. In contrast to the 1960s, when acquirers were mainly ...

  13. Top 11 Mergers and Acquisitions Failures of All Time

    1999 CBS and Viacom Merger ($35 Billion) Viacom Inc. and CBS Corp. announced a blockbuster $35.6 billion merger in 1999, making it the most significant media acquisition. The deal combined the ...

  14. A blueprint for M&A success

    The hypothetical case of the global cosmetics company points to two common cognitive biases that can emerge when any company attempts to pursue programmatic M&A: the shiny-object syndrome and Maslow's hammer.. The shiny-object syndrome—also known as extreme distraction.Companies that continually chase down the next new thing run the risk of pursuing initiatives in the wrong order, skipping ...

  15. Mergers & Acquisitions: Articles, Research, & Case Studies on Mergers

    The study examines managers' responses when facing an increased threat of their firm being acquired. Results add to our knowledge of the use of antitakeover provisions, showing that managers, particularly in high-innovation firms, increase certain provisions to protect long-term innovation output in the presence of elevated acquisition risk.

  16. Managing failure in the merger process: evidence from a case study

    Findings This in-depth case study provides new insights into failure during post-merger integration. The paper highlights the complexity of post-merger integration processes and the failures that the integration stakeholders had to address. The author underlined how they recognized failures and put into place solutions.

  17. Factors Influencing Success and Failure in Mergers and Acquisitions : a

    The findings of this study are expected to provide insight and better understanding of company performance and post-merger acquisition achievements, especially in the context of PT Indosat Tbk (IOH).

  18. The Big Idea: The New M&A Playbook

    Yet study after study puts the failure rate of mergers and acquisitions somewhere between 70% and 90%. A lot of researchers have tried to explain those abysmal statistics, usually by...

  19. PDF Cultural issues in mergers and acquisitions

    How to harness culture to promote an effective integration Culture usually is a soft concept; it is a set of implicit influences that people cannot account for completely or accurately. Premerger due diligence will ferret out things that are measurable, with an emphasis on financial data.

  20. Mergers & Acquisitions Trigger Unique Cyber Challenges: What Businesses

    Failure to properly integrate these systems can create gaps in security, leaving the newly formed entity vulnerable to cyber threats. Separately, organizations face the difficulty of integrating diverse organizational cultures. ... Each company involved in the merger or acquisition may have its own unique approach to cybersecurity, including ...

  21. M&A: The One Thing You Need to Get Right

    The rule, confirmed by nearly all studies, remains true: M&A is a mug's game, in which some 70% to 90% of acquisitions are abysmal failures. The author has an explanation for this persistent ...

  22. Ace Your M&A Case Study Using These 5 Key Steps

    Mergers and acquisitions (M&A) are high-stakes strategic decisions where a firm(s) decides to acquire or merge with another firm. As M&A transactions can have a huge impact on the financials of a business, consulting firms play a pivotal role in helping to identify M&A opportunities and to project the impact of these decisions.