Businesses not making hay with M&A

considering a merger, mergers and investments, corporate investment, international investors, venture capital deals, shareholder, corporate law firm, Argali Abogados, Looking for an M&A opportunity to grow your business? It’s not quite the quick fix it is often seen to be and attitudes towards the concept are changing.

According to a recent study by the Harvard Business Review, 70 to 90 per cent of M&A deals end in abysmal failure.

Here are a few examples it gives.

2015: Microsoft writes off 96 per cent of the value of the business it acquired from Nokia the previous year.

2014: Google sells the handset business it bought from Motorola in 2012. The buying price was $12.9 billion. The selling price, $2.9 billion.

2011: News Corporation sells MySpace for $35 million dollars six years after shelling out $580 million for it.

HOW NOT TO DO IT 

And this year, a record number of deals have failed according to Goldman Sachs Group Inc.

So why do so many M&A ventures fail? The Harvard Business Review says the answer is simple. Rather than focusing on what companies can give to an acquisition, they prefer to look at what they can get out of it.

This was the case with all the failed examples above; Microsoft and Google seeking to position themselves within the smartphone hardware market while News Corp. were looking to make an entrance into social networking.

HOW TO DO IT 

So we’ve seen how not to do it. What happens when the aims going into an M&A deal are very different? Let’s have a look at what happened when Disney changed the corporate ethic and made a move on its designs on Pixar.

Disney was running at a loss when it acquired Pixar which was, at the time, a rapidly growing animation studio. Wall Street logic dictated that Disney would quickly integrate Pixar, which would strongly resist the process. But Disney CEO Bob Iger had different ideas as he turned the corporate rules on their head.

‘There is an assumption in the corporate world that you need to integrate swiftly. My philosophy is exactly the opposite. You need to be respectful and patient,’ he says.

Rather than swallowing Pixar, Iger went the other way. He took the younger company’s creative leaders and put them in charge of his own team, thinking they could bring new energy and ideas. In doing so, he kept the people behind Pixar’s success happy, productive and feeling like they were contributing to the venture. An extra sweetener was that they were all able to keep their own existing corporate identities including contracts, benefits and email addresses as well as the Pixar logos.

This was the beginning of one of the few M&A major success stories of recent years. Financially things soon started looking up with an annual shareholder return of 22 per cent. But it was also positive creatively with the culmination represented by Frozen, the most successful animated film of all time.

MOVING FORWARD 

So what really is the secret to success? Well there’s never really one answer but KPMG put together a report this year to help businesses to target and succeed with their own ventures.

Looking at positive factors, the report says, ‘Successful acquirers focus on integration, valuation and due diligence to reach strategic goals and increase shareholder value.’

For more information, please contact corporate law firm Argali Abogados

 

 

 

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