Why at t pursued a big merger

DealRoom office hours with halo and paylocity. Marsha Lewis. Director of Marketing at DealRoom. Famous examples of companies mergers and acquisitions Reading this list, it can seem that most megadeals are doomed to failure at least from the perspective of their shareholders. So, let's take a closer look at the largest mergers in history.

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The firms with the requisite experience and relevant client lists suddenly found themselves strategically valuable and highly sought-after acquisition targets. Many industries are seeing an acute shortage of experienced professional staff. Cybersecurity, accounting, and engineering are just a few examples that immediately come to mind.

The reality is, intellectual property IP is the new currency of modern business. Once squirreled away and carefully guarded, IP is now actively bought and sold. For many companies, the acquisition of a firm and its IP is the quickest path to market dominance—or at least a roadblock to competitive incursions. A strategic merger, if done as part of a thoughtful growth strategy, can result in synergies that offer real value for both the acquired and the acquiring.

Cost synergies are all about cutting costs by taking advantage of overlapping operations or resources and consolidating them in one entity. But cost synergies can also result in an increase in buying and negotiating power thanks to the larger combined budget. Revenue synergies alter the competitive balance of power and create opportunities to change market dynamics, sell more products, or raise prices.

Companies can take advantage of revenue synergies and make more money in many ways, including the following:. Many professional services firms are based on a billable-hours business model, but that is certainly not the only option. Some firms generate revenue as a fixed fee or through performance incentives. Others may employ subscription models popular in the software industry. A merger may also offer a new type of service, such as brokerage, insurance or money management.

That way you avoid possible missteps from inexperience. It might be easier and more cost-effective to simply acquire the capability.

Not only is this a practical and smart shortcut to the sought-after service and expertise, you also acquire a built-in customer base and target audience. But not everyone succeeds when mergers and acquisitions are part of the overall growth strategy. Sometimes a solid strategy is derailed by problems in implementation or flaws in the logic or reasoning behind the strategy.

Different firms have different cultures. In retrospect, there were quite a few reasons why the merger was ill-fated. Market forces—the steady march of emphasis on automobiles, trucking, and airplanes for transportation—had already placed the two railroad companies in a weakened position. Rising costs and increasing regulation were also a stressor. To stave off in advance the consequences of a very bad decision by simply not making that decision at all?

That was the gist of a conversation I had with an acquaintance one recent sunny weekday as we drank coffee outdoors and talked business. We were discussing a company we both knew in the services industry that was interested in merging with a larger company. Cross-border transactions supply even greater possibilities for mistakes and failures.

But even if the market, the industry, and the economy are absolutely perfect for the merger, if two companies merge with any one of the following three principles against them, I can usually predict failure. If one company is dynamic and innovative and the employees within it are receptive to change, and the other is staid and traditional and the employees within it are resistant to change, it will be extraordinarily difficult to meld the two cultures.

Culture, though hard to define, includes the reasons that employees come to work, the motivation behind what they do, and the ideals they uphold. People choose where they work based on who they are, and certain cultures attract certain types of people. Most outsiders can simply observe two different cultures in action for a week, sense the significant differences, and even describe them effectively.

Employees also, when asked to submit a list of ten adjectives describing their own corporate culture, can easily reveal the vast differences between companies. Ask your employees to produce such a list. 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. With the decline of cash from operations and with high capital-expenditure requirements, the company undertook cost-cutting measures and laid off employees. 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:. 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.

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