Failed M&As: Lessons from the Graveyard

Businessman experiencing failed M&A
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Usually, when you’re listening to someone talk about big business moves, they’re talking about success stories. They’re regaling you with tails of Bezos-like moguls and Musk-level tech giants. They want to light a spark in you and show you that you can reach those same insane heights if you just try hard enough. 

That’s perfectly fine. Inspiring budding business professionals is a good thing, and they’ll need it to get through the hardships of business ownership. 

However, when it comes to M&A, you’re more likely to learn from the mistakes of companies that tried to handle mergers and acquisitions before you and ended up in a worse spot than they started in. 

That’s a real concern with M&A endeavors. There’s always a risk, and these are massive investments we’re talking about. 

Seeing where other companies went wrong can help you avoid making those same mistakes, and that can save you millions when it comes to M&A. 

Let’s take a look at a few high-profile cases of failed M&A

1: Time Warner and AOL

Time Warner has been a juggernaut in entertainment for decades, and in 2001, it tried to acquire one of the first giants in the online world. 

On paper, this looked like a dream acquisition. One of the biggest entertainment companies was going to purchase the company responsible for many communication innovations during the early years of the Internet, and the possibilities were endless. 

However, it wouldn’t end up being the dream acquisition that many thought it would. It was an absolute disaster

The deal was worth $ 65 billion. That was in 2001 when billionaires weren’t constantly flying right past that figure. It was one of the largest deals to ever happen at the time and, at the same time, one of the biggest failed M&As

The actual mergers and acquisitions process went smoothly, and the deal concluded without issue. What happened afterward was a financial disaster.

One year after the acquisition, Time Warner had to write down 99 billion dollars. It was a massive loss, and it happened for one major reason.

Time Warner didn’t know what it was doing in the online space. It was a cinema and entertainment company that mostly dealt in film and production.

Suddenly, taking on the needs of an online platform proved to be too much, and the company took one of the biggest losses in business history. 

Both companies are still around, but AOL isn’t the household name it once was, and Time Warner has made several financial blunders that have damaged its reputation. 

2: Daimler-Benz and Chrysler

Now, we enter the automotive world, and once again, this was supposed to be a dream acquisition. 

Daimler-Benz, as you probably know by Mercedes-Benz, was merging with another automotive juggernaut: Chrysler. The deal did go through, but even on paper, this looked like a bad idea.

Failed M&As - Mercedes Benz & Crysler

This is largely because the two companies had wildly different internal cultures. While both companies sold luxury cars, Chrysler was known for keeping a level playing field for all employees.

There wasn’t a solid hierarchy, and it was very similar to the idea of the “employee-owned” concept that floats around today. Substantial salaries far above industry standard were also common. 

However, Daimler-Benz was a more conservative company at the time. It followed a standard business structure with a top-down hierarchy and more average wages across the board. 

Once the merger took place, everything fell apart within a decade. In fact, Daimler-Benz sold off over 80% of Chrysler by 2009, and the overall losses amounted to $ 36 billion

Now, Daimler-Benz is The Mercedes-Benz Group, and Chrysler is part of Cerberus Capital Management. The financial disruption was a major problem for both companies involved. 

The key point is that companies that don’t operate similarly typically won’t function well after a merger. They’re just too different, and their business models conflict to the point that both brands are damaged beyond repair. 

3: Motorola and Google

Reading this in 2023, you’re probably shocked that a conglomerate like Google ever cared about a company on the sidelines like Motorola. However, 2012 was a different time. 

The idea was that Google would be able to make a proprietary phone to house its now world-renowned Android operating system.

If you remember Microsoft and several other companies trying to enter the smartphone arena, you know how hard it is to get a foothold. 

As such, Google paid more than $ 12 billion to merge with Motorola, and it thought that it would be getting the top-tier phones that Motorola was known for, but with Android pre-loaded onto them.

Failed M&As - Google & Motorola

That didn’t happen. 

Google wasn’t satisfied with the results that Motorola provided, and it decided that the deal was a bad decision.

It then paid $ 2.9 billion more to separate from the company before having the Nexus phones made in 2014 by Motorola’s competitors, and it continued making the bulk of its Android-based revenue continues to come from licensing the operating system to non-apple and non-Microsoft smart device manufacturers. 

While Google made it out of the deal just fine and turned into an unstoppable internet juggernaut, Motorola is now a few rungs down on the mobile phone list. However, it is still around. 

The moral of the story for this one is that you have to do your due diligence and know exactly what the other company is going to provide in terms of results. There’s always a risk, though. Google trusted one of the biggest names in phones and still didn’t get the results it expected at the time. 

4: The Microsoft Phone Incident

Microsoft Phone, pre-loaded with every gamer’s favorite AI sidekick, was supposed to be a revolutionary change in the smart device world. This was to come from the marriage of Microsoft and Nokia. 

Microsoft looked to enter the handheld phone market, but as Google did in 2012, Microsoft thought that the best route to take was to acquire another renowned, yet struggling, phone company and have them develop their phones with the Windows OS on it. 

This deal was done in 2013, and it was worth $ 7 billion

At first, the deal picked up some steam with the newly branded Windows Phone gaining a sizable fanbase, but by 2015, Nokia was gone. The deal did not help the business, and along with other major issues, Windows Phone was unsuccessful. 

Microsoft lost $ 7 billion, and 15,000 employees were laid off due to the financial losses of the platform’s failure.

Now, Microsoft is still a massive name, but the Nokia brand that many of us grew up with is gone. 

This is a good example of the risk that comes with acquiring any business. Even with a well-known and reputable brand like Nokia under its wing, Microsoft’s plan didn’t pan out; billions were lost, and thousands of employees became unemployed. 

The primary reasons for the failure were the hardware provided by Nokia being lackluster and Microsoft not having a foothold in the market dominated by Samsung and Apple. 

5: Sears and Kmart

It’s likely that, unless you’re in your 30s, you haven’t even heard of Sears or Kmart. However, in the ’90s and early ’00s, they were juggernauts of the retail world. Kmart was just as big as Walmart, and Sears was beloved for its affordable home appliances and tools, along with general retail store-style products. 

However, neither of them were doing well in 2005. They were both on their way to bankruptcy, and the retail staples you know of today simply outperformed them in that period. 

Their joint idea to fix that was to merge. 

This was an $11-billion deal, and it did breathe some life into both companies, but it soon fell short. Kmart has just recently closed its last store, and Sears Holdings declared bankruptcy in 2018. However, both had become so obscure since 2005 that most people likely thought they had closed entirely. 

This is a good example of 2 brands needing to focus on keeping up with the competition but choosing to use cheap tricks to outpace tech advances unsuccessfully.

6: Skype and eBay

This is not a pairing that anyone in the modern world would even think of. Even in 2005, when the deal took place, it was largely seen as an odd choice. However, eBay chose to spend $ 2.6 billion purchasing Skype that year

The second-hand retail company had a good idea on paper. They wanted to use the Skype infrastructure to facilitate real-time, face-to-face conversations between buyers and sellers. It would be like going to the world’s biggest yard sale but getting to stay on your couch. 

However, there was a problem with that. There was already a text communication feature that allowed buyers and sellers to communicate, and as the internet has made face-to-face conversations less desirable due to the convenience of instant messaging in an increasingly anti-social culture, there was a very simple reason behind this failure. 

No one wanted to have a video call with a random internet stranger when they had all the info they needed to make a purchase. 

As a result, Skype was sold off, at least 2/3 of it was, for $ 1.9 billion shortly after, and Skype has largely taken a backseat as a brand in the virtual communication world. It powers Facebook’s video chat system, but it’s not as prevalent as it once was. 

This is simply a reminder that not every idea that sounds good on paper actually makes sense. If culture is trending one way, and your vision trends the opposite, you’re likely going to lose money when buying or selling a business.

7: The Learning Company and Mattel

Mattel is one of the biggest toy manufacturers on the planet to this day, but unless you were a 90s kid, you likely don’t remember The Learning Company.

Mattel is the company behind Barbie, Hot Wheels, and other timeless classics that all of us grew up with and our kids enjoy today. The Learning Company is well known for educational materials such as Where in the World is Carmen San Diego? 

That doesn’t sound horrible at first. A fun, beloved brand merging with an educational brand should be a good thing. At first glance, you’d probably think of educational Barbies and Hot Wheels that required STEM-focused building sessions and operations. 

Unfortunately, nothing really came from it. The Learning Company’s CEO had big ideas, and Mattel certainly thought of some products in the background, but at the end of it, in 2000, Mattel was forced to sell The Learning Company for $ 60 million. Keep in mind that the company paid almost $ 4 billion to acquire it. 

To make things worse, nothing came of it. There were no products made, no concepts to fall back on for later, or anything else. Mattel simply wasted more than $ 3 billion, and it was yet another record-setting loss

Luckily, Mattel is still around today, and The Learning Company is still around; it’s just not as prevalent as it used to be. 

8: Countrywide and Bank of America

This is yet another reminder of one of the biggest banking issues in US history. In 2008, right as the housing and banking crisis began, Bank of America thought it got a great deal by acquiring the nation’s leading mortgage provider for just $ 2 billion.

Failed M&As - Bank of America & Countrywide

However, if you were around in 2008 and old enough to understand mortgages, you probably know what happened here. 

Due to the economic crisis, a massive number of homes, many of which were mortgaged by Countrywide, were foreclosed on, and mortgages went unpaid. 

Instead of getting an awesome deal on a leading company, Bank of America took on the mortgage debt of practically everyone who got a home with the help of Countrywide, who could no longer make payments. 

This was a sad moment in US history for normal citizens, and Bank of America got to feel the pain of it, as well

Prevent Poor M&A Results with Final Ascent

There are countless examples of failed M&As. Even if you do your due diligence and buy the perfect company, there is always a small chance you won’t make anything off the purchase. 

Final Ascent is here to help. 

We take a start-to-finish approach to helping you sell or buy businesses, and we provide M&A services across all industries.

Contact us today.

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