Why Do Deals Fail?

Why Do Deals Fail?


Why So Many M&A Deals Fail | TechCrunch

@Fabricio F. Costa
M&A success
@Seyi Taylor
You mean like AOL/Techcrunch right?
@Ashkan Karbasfrooshan
Seyi, I'm an outside contributor and not an aol/tc/huffpo employee (though my company WatchMojo has a distribution deal with AOL/5Min) - but since you bring it up and it's a fair question, here are my 2 cents: All blogs face this challenge of moving from a personality-driven publication to a business that would survive its founder. Rafat Ali, Michael Arrington and Henry Blodget are priceless assets whose departure would without a doubt affect the respective blog. However, MA did a great job of bringing on a lot of business and editorial talent and while the events since the AOL deal and HP integration have without a doubt been dramatic (and oh so public), I think that so long as: 1- TC manages to bring on new, talented writers as full-timers or contributors like yours truly ;) 2- AOL/HP manages to drive more traffic to TC and TC organically grows audience 3- Sales keep climbing, then the AOL/TC deal could very well turn out to be a very successful model for content acquisitions even if/when the founder departs, no matter how instrumental he/she might be. Let's not forget that content is tricky: when Lorne Michaels left SNL early on, the show tanked. He came back, the show recovered. So while yes, there has been drama involved, I would say over time, if this deal would be analyzed in case studies at business schools, it could very well turn out to be a successful one based on 1, 2 and 3 outlined above. Again, I'm not saying I have no bias, but I am trying to provide some objective thoughts on the matter given the subject matter and your comment.
@Seyi Taylor
Ashkan Karbasfrooshan Like you rightly conclude, time will tell.
@Victor Osaretinvbeniyaghagha Asemota II
Ashkan Karbasfrooshan, in business school I did my dissertation on M&As and I developed a very pessimistic view of high profile deals because I saw a lot of what you have pointed out about "the investment banker wants to put up the proverbial tombstone on their Deals page" rather than sustained value. I particularly like the McKinsey Quarterly article http://www.mckinseyquarterly.com/Not_by_M_A_alone_1399. The article provides a sensible range of alternative deal options beyond M&A. I don't know why Silicon Valley companies don't consider joint ventures and nonequity alliances instead of the high profile deals that make news when they are sealed and most of the time are just ego trips for all the parties to the deal. AOL/Bebo as bad as it was should not be compared to AOL/TechCrunch. As for AOL/Techcrunch my belief is that TC got drunk on its own Kool aid and badly wanted the big deal without considering other deal options as well as consequences. The blame for the failure (or possibility of failure) of the deal should not be that of AOL alone. The seller in this case made a bad mistake and didn't look at other more sensible non equity possibilities.
@Gary Aleksandrovich Sheynkman
Awesome article. Every single one of those is correct (5 M&A deals under my belt this year).
@John C Randall
Culture and communications so often overlooked due to rose color glasses. Good thinking and thanks for sharing.
@VentureArchetypes, LLC
This is really, really good. Notice how many of these pitfalls ultimately boil down to either lack of communication + transparency, or misaligned expectations. Being uber-transparent can be awkward when in the middle of the negotiating "dance" (and when emotions are running high and visions of the payday loom near), but really being open about why each party is doing the deal and what each party's roles and obligations will be post-closing and through the integration phase (i.e. 18 mos. or so), is, imo, a key ingredient for successful transactions. And, from the founder's perspective, knowing that many / most deals (at least partially) unravel once the ink is dry can help shape the negotiations. As one example-- founders should avoid having a big portion of the deal consideration be in the form of an earnout if you really won't be able to influence the metric triggering that earnout-- i.e., if you get paid by hitting certain revenue targets for the next 2 years, but you lose key members of your sales team, the commission structure for the remaining ones is way lower, and you have no control over marketing, which is now run by the acquiring company's team...etc., etc... the list of potential mis-alignments is long. If you're into this topic, or are a startup thinking about (or in the process of) an exit, check out video.startupexits.com where we have interviews with M&A teams from Google, AOL, Facebook, Yahoo, MSFT, LinkedIn, Intuit, and many others. Good way to understand how the deal process works at each of these active acquirers. And, we're putting on a conference on this topic on January 19th with M&A guys from DropBox, Evernote, Groupon and eBay, as well as talks by Jack Abraham (sold Milo.com) and Aydin Senkut (20+ exits). Check it out www.startupexits.com and because I'm in a good mood, here's a discount code: "TC25" :) Thanks, Nathan.
@Victor Osaretinvbeniyaghagha Asemota II
In business school I did my dissertation on M&As and I developed a very pessimistic view of high profile deals because I saw a lot of what you have pointed out about "the investment banker wants to put up the proverbial tombstone on their Deals page" rather than sustained value. I particularly like the McKinsey Quarterly article http://www.mckinseyquarterly.com/Not_by_M_A_alone_1399. The article provides a sensible range of alternative deal options beyond M&A. I don't know why Silicon Valley companies don't consider joint ventures and nonequity alliances instead of the high profile deals that make news when they are sealed and most of the time are just ego trips for all the parties to the deal. AOL/Bebo as bad as it was should not be compared to AOL/TechCrunch. As for AOL/Techcrunch my belief is that TC got drunk on its own Kool aid and badly wanted the big deal without considering other deal options as well as consequences. The blame for the failure (or possibility of failure) of the deal should not be that of AOL alone. The seller in this case made a bad mistake and didn't look at other more sensible non equity possibilities.
@Richard Betts
I have been through a couple of acquisitions, so this article is interesting reading. Its not just technology that makes a start-up successful. Retention is a major issue for any large organization, you have teams of people working like a well oiled machine. Once you start pulling those teams apart to fit into the new processes and management structure, the machine begins to slow or worse break completely. Once you loose one key individual, it doesn't take long for momentum to build and before you know it, 50% of key people have departed within the first year. How can larger organizations fix this, I am not sure they can. In start-ups you tend to see entrepreneurial people who thrive in an unstructured minimal process environment. Thrown into a environment where there seems to be processes for processes, most will throw in the towel.
@John G Smith
A lot of fancy brainstorming here.. success or failure of M&A boils down to value and a poor assessment of price. The failed mergers are a result of the acquirer over paying, ego or bidding war most frequently. The other factors are just symptoms of the real problem, paid $10 for a $5 box of rocks.
@Srini Kumar
Until G+, Google lacked a chassis onto which to bolt acquisitions, and fumbled often. From here on out, smooth integration is far easier; this is a dynamic capability that G+ now has, in the absence of which, M&A was hit or miss. I'd add this kind of "coding infrastructure" to your excellent list: http://tinyvox.com/u53.