{"id":60098,"date":"2023-11-22T10:22:33","date_gmt":"2023-11-22T01:22:33","guid":{"rendered":"https:\/\/monolith.law\/en\/?p=60098"},"modified":"2024-03-04T19:53:49","modified_gmt":"2024-03-04T10:53:49","slug":"ma-secret-successful","status":"publish","type":"post","link":"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful","title":{"rendered":"What are the Secrets to Successful Corporate Acquisitions Learned from M&amp;A Failure Cases?"},"content":{"rendered":"\n<p>Many companies have considered Mergers and Acquisitions (M&amp;A) as a means to expand their business. However, the number of cases that actually succeed through M&amp;A is not so high. Despite the not-so-high success rate of M&amp;A, why do many companies fail? Based on common failure examples, we will explain the secrets to successful M&amp;A.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_53 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<span class=\"ez-toc-title-toggle\"><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#What_Constitutes_a_Failure_in_M_A\" title=\"What Constitutes a Failure in M&amp;A?\">What Constitutes a Failure in M&amp;A?<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#The_Purpose_of_M_A\" title=\"The Purpose of M&amp;A\">The Purpose of M&amp;A<\/a><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#Entry_into_New_Business_Areas\" title=\"Entry into New Business Areas\">Entry into New Business Areas<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#Synergy_with_Core_Business\" title=\"Synergy with Core Business\">Synergy with Core Business<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#What_is_a_Failure_in_M_A\" title=\"What is a Failure in M&amp;A?\">What is a Failure in M&amp;A?<\/a><ul class='ez-toc-list-level-4'><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#Failure_to_Achieve_Expected_Acquisition_Effects\" title=\"Failure to Achieve Expected Acquisition Effects\">Failure to Achieve Expected Acquisition Effects<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#Unexpected_Losses_After_Acquisition\" title=\"Unexpected Losses After Acquisition\">Unexpected Losses After Acquisition<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#Bankruptcy_in_the_Worst_Case\" title=\"Bankruptcy in the Worst Case\">Bankruptcy in the Worst Case<\/a><\/li><\/ul><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#Examples_of_M_A_Failures\" title=\"Examples of M&amp;A Failures\">Examples of M&amp;A Failures<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#M_A_by_DeNA\" title=\"M&amp;A by DeNA\">M&amp;A by DeNA<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#M_A_by_Microsoft\" title=\"M&amp;A by Microsoft\">M&amp;A by Microsoft<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#Learning_the_Secrets_of_Successful_M_A_from_Failure_Cases\" title=\"Learning the Secrets of Successful M&amp;A from Failure Cases\">Learning the Secrets of Successful M&amp;A from Failure Cases<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#Utilizing_External_Experts_for_Due_Diligence\" title=\"Utilizing External Experts for Due Diligence\">Utilizing External Experts for Due Diligence<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#Setting_Acquisition_Price_Considering_Risks\" title=\"Setting Acquisition Price Considering Risks\">Setting Acquisition Price Considering Risks<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#Competitor_Research_for_New_Business_Entry\" title=\"Competitor Research for New Business Entry\">Competitor Research for New Business Entry<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#Proper_Implementation_of_PMI_Integration_Work\" title=\"Proper Implementation of PMI (Integration Work)\">Proper Implementation of PMI (Integration Work)<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/monolith.law\/en\/general-corporate\/ma-secret-successful\/#Summary\" title=\"Summary\">Summary<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Constitutes_a_Failure_in_M_A\"><\/span>What Constitutes a Failure in M&amp;A?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Before we delve into examples of M&amp;A failures, it&#8217;s important to understand what exactly constitutes a failure in M&amp;A.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"The_Purpose_of_M_A\"><\/span>The Purpose of M&amp;A<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Most companies consider M&amp;A because they anticipate significant benefits to their business management. The following are commonly cited purposes of M&amp;A:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Entry_into_New_Business_Areas\"><\/span>Entry into New Business Areas<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>In rapidly evolving industries such as IT, it can take a long time to develop a new business from scratch, including talent cultivation, market research, and marketing. This could potentially result in missed investment opportunities.<\/p>\n\n\n\n<p>Therefore, if a company wants to enter a new business area, it can accelerate its business expansion by acquiring another company that is already involved in that business through M&amp;A.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Synergy_with_Core_Business\"><\/span>Synergy with Core Business<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>A traditionally cited purpose of M&amp;A is the synergy it can create with the core business. Synergy refers to the combined effect. By integrating with another company through M&amp;A, it is expected that the results will exceed the simple sum of the sales or profits of the two companies.<\/p>\n\n\n\n<p>For example, a software development company acquiring a company with a software sales platform to increase its customer base is a typical example of an M&amp;A aiming for synergy.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_a_Failure_in_M_A\"><\/span>What is a Failure in M&amp;A?<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In essence, a failure in M&amp;A refers to the inability to achieve the purposes of M&amp;A as explained above. Specifically, M&amp;A is considered a failure in the following cases:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Failure_to_Achieve_Expected_Acquisition_Effects\"><\/span>Failure to Achieve Expected Acquisition Effects<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>There is always a purpose for an M&amp;A. For example, in the case mentioned above, the purpose of the acquisition is to achieve synergy effects through M&amp;A with a company that has sales capabilities. However, it often happens that the expected effects are not achieved after the M&amp;A.<\/p>\n\n\n\n<p>For instance, a company may have conducted an M&amp;A thinking that the other company has sales capabilities, but it turns out that key employees who were responsible for most of the sales have already resigned.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Unexpected_Losses_After_Acquisition\"><\/span>Unexpected Losses After Acquisition<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/monolith.law\/wp-content\/uploads\/2020\/11\/ma-secret-successful1.jpg\" alt=\"\" class=\"wp-image-21633\" \/><\/figure>\n\n\n\n<p>A common reason for M&amp;A failure is the recording of unexpected losses after the acquisition. In M&amp;A, depending on the structure, it is common to also inherit the debts of the acquired company. Therefore, financial and legal due diligence is always conducted before concluding an M&amp;A contract to identify the target company&#8217;s debts. The details of the structure used in M&amp;A are explained in detail in the following article.<\/p>\n\n\n\n<p><a href=\"https:\/\/monolith.law\/corporate\/merger-acquisition\" target=\"_blank\" rel=\"noreferrer noopener\">https:\/\/monolith.law\/corporate\/merger-acquisition[ja]<\/a><\/p>\n\n\n\n<p>However, in cases where this due diligence is not entrusted to experts, significant debts may not be discovered. The existence of such hidden debts may become apparent after the acquisition, resulting in significant losses.<\/p>\n\n\n\n<p>In addition, when calculating the consideration for M&amp;A, the &#8220;goodwill&#8221; of the company to be acquired is added. Goodwill refers to the brand value and connections of the company to be acquired, which influence the profitability of the business and are usually considered when calculating the acquisition price.<\/p>\n\n\n\n<p>However, goodwill is an intangible value and is difficult to accurately evaluate. After the acquisition, goodwill is amortized over a long period of time, but if the acquisition effects initially expected are not achieved and the evaluation amount falls below the acquisition price, a loss is recorded through impairment.<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Bankruptcy_in_the_Worst_Case\"><\/span>Bankruptcy in the Worst Case<span class=\"ez-toc-section-end\"><\/span><\/h4>\n\n\n\n<p>If an M&amp;A fails, the stock price of a listed company may fall, or the management team may be held accountable for the acquisition. Depending on the degree of deterioration in the financial situation, although it is the worst-case scenario, it is necessary to be prepared for the possibility of being driven into bankruptcy as a result of the M&amp;A.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Examples_of_M_A_Failures\"><\/span>Examples of M&amp;A Failures<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Let&#8217;s take a look at some publicized cases where M&amp;As were carried out but were deemed failures. In this section, we will discuss examples within the IT industry.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"M_A_by_DeNA\"><\/span>M&amp;A by DeNA<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A recent and notable example of a failed M&amp;A in the IT industry is that of DeNA. DeNA, a major company involved in the development of game apps, acquired a curation site operating company for about 5 billion yen in 2014.<\/p>\n\n\n\n<p>However, this curation site became a major issue as it was found to be publishing numerous articles that infringed on copyrights and contained unscientific medical information, leading to the closure of the site.<\/p>\n\n\n\n<p>This M&amp;A was carried out with the expectation of revenue from the curation site, but with the closure of the site itself, which was supposed to be a pillar of revenue, it became impossible to achieve the purpose of the acquisition. As a result, DeNA was forced to write off 3.8 billion yen.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"M_A_by_Microsoft\"><\/span>M&amp;A by Microsoft<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Microsoft, a U.S. company, has also experienced a failed M&amp;A in the past. In 2014, Microsoft acquired Nokia&#8217;s communications device business for $7.2 billion with the aim of entering the smartphone business.<\/p>\n\n\n\n<p>Nokia had a global share in the pre-smartphone era, but at the time of the acquisition, its performance was declining due to competition from companies like Apple.<\/p>\n\n\n\n<p>On the other hand, Microsoft was also significantly behind Apple and Google in the smartphone business. Therefore, they decided to acquire Nokia, which had a strength in communication devices, to enter the smartphone business at an early stage.<\/p>\n\n\n\n<p>However, even after the M&amp;A, Microsoft&#8217;s performance did not contribute as much as expected, and they ultimately had to write off $7.6 billion, which exceeded the acquisition price. It is also said that due to the failure of this M&amp;A, Microsoft had to give up on entering the smartphone business.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Learning_the_Secrets_of_Successful_M_A_from_Failure_Cases\"><\/span>Learning the Secrets of Successful M&amp;A from Failure Cases<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/monolith.law\/wp-content\/uploads\/2020\/11\/ma-secret-successful2.jpg\" alt=\"\" class=\"wp-image-21634\" \/><\/figure>\n\n\n\n<p>There&#8217;s no doubt that mergers and acquisitions (M&amp;A) between companies can be attractive to business leaders. Therefore, to effectively utilize M&amp;A, it&#8217;s crucial to analyze failure cases and avoid risks to get closer to success.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Utilizing_External_Experts_for_Due_Diligence\"><\/span>Utilizing External Experts for Due Diligence<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In the case of DeNA, the main cause of failure was illegal activities on the site operated by the acquired company. Concerning web content, issues such as copyright infringement and the validity of affiliate sites dealing with medical information were initially questioned in some quarters.<\/p>\n\n\n\n<p>When acquiring a business like a website, which is prone to legal issues, it can be said that it was necessary to thoroughly scrutinize the legality and validity of the content through due diligence, utilizing external experts such as lawyers, certified public accountants, and tax accountants.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Setting_Acquisition_Price_Considering_Risks\"><\/span>Setting Acquisition Price Considering Risks<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>In the case of DeNA, given the nature of the website, it should have been anticipated that site closure due to copyright infringement or other reasons could occur, and this should have been factored into the acquisition price calculation.<\/p>\n\n\n\n<p>When conducting a risky acquisition, it is necessary to negotiate to keep the acquisition price down, assuming that problems may occur, or to make a contract that requires the acquired company or its representative to bear the damage if problems arise.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Competitor_Research_for_New_Business_Entry\"><\/span>Competitor Research for New Business Entry<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The M&amp;A case of Microsoft is pointed out that the failure was due to the fact that competitors in the smartphone business, such as Apple, were too strong.<\/p>\n\n\n\n<p>Initially, Nokia, the acquisition target, was a struggling company. Even with the synergy with Microsoft, it can be seen that the competitive environment was too tough to compete.<\/p>\n\n\n\n<p>This point is a very difficult management decision, but at least for the business entering a new field through M&amp;A, competitor research is essential, and if the competition is too strong, it may be a management decision to postpone the new entry itself.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Proper_Implementation_of_PMI_Integration_Work\"><\/span>Proper Implementation of PMI (Integration Work)<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/monolith.law\/wp-content\/uploads\/2020\/11\/ma-secret-successful3.jpg\" alt=\"\" class=\"wp-image-21635\" \/><\/figure>\n\n\n\n<p>Regarding the acquisition of Nokia by Microsoft, it is pointed out that the failure was due to the inability to properly integrate the corporate cultures of both companies. Surprisingly, this corporate integration work often becomes a problem in M&amp;A situations. It is also called PMI (Post-Merger Integration) in professional terms.<\/p>\n\n\n\n<p>PMI involves merging employees and corporate cultures, as well as integrating accounting methods and other systems and workflows related to operations.<\/p>\n\n\n\n<p>Immediately after an M&amp;A, both the acquiring company and the target company experience significant confusion. To minimize this confusion and merge both parties as soon as possible, it is important to thoroughly plan the implementation of PMI before the M&amp;A is carried out.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Summary\"><\/span>Summary<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In order to avoid failure in M&amp;A, it is essential to conduct due diligence with the help of professionals such as lawyers before implementing M&amp;A.<\/p>\n\n\n\n<p>Furthermore, in the case of introduction cases by M&amp;A brokerage firms, it is important not to simply follow the brokerage firm&#8217;s advice, but to independently scrutinize the risks and the appropriateness of the acquisition price with your own experts. For more details on advisory contracts concluded with brokerage firms and others, please refer to the article below.<\/p>\n\n\n\n<p><a href=\"https:\/\/monolith.law\/corporate\/advisory-contract-points\" target=\"_blank\" rel=\"noreferrer noopener\">https:\/\/monolith.law\/corporate\/advisory-contract-points[ja]<\/a><\/p>\n\n\n\n<p>If successful, M&amp;A can significantly increase a company&#8217;s performance in a short period of time. Therefore, many companies have been continuously searching for excellent companies to be acquired through M&amp;A. For this reason, it is important to minimize risks as much as possible to maximize the effects of M&amp;A.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Many companies have considered Mergers and Acquisitions (M&amp;A) as a means to expand their business. However, the number of cases that actually succeed through M&amp;A is not so high. Despite the no [&hellip;]<\/p>\n","protected":false},"author":32,"featured_media":61104,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[18],"tags":[24,27],"acf":[],"_links":{"self":[{"href":"https:\/\/monolith.law\/en\/wp-json\/wp\/v2\/posts\/60098"}],"collection":[{"href":"https:\/\/monolith.law\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/monolith.law\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/monolith.law\/en\/wp-json\/wp\/v2\/users\/32"}],"replies":[{"embeddable":true,"href":"https:\/\/monolith.law\/en\/wp-json\/wp\/v2\/comments?post=60098"}],"version-history":[{"count":1,"href":"https:\/\/monolith.law\/en\/wp-json\/wp\/v2\/posts\/60098\/revisions"}],"predecessor-version":[{"id":61105,"href":"https:\/\/monolith.law\/en\/wp-json\/wp\/v2\/posts\/60098\/revisions\/61105"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/monolith.law\/en\/wp-json\/wp\/v2\/media\/61104"}],"wp:attachment":[{"href":"https:\/\/monolith.law\/en\/wp-json\/wp\/v2\/media?parent=60098"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/monolith.law\/en\/wp-json\/wp\/v2\/categories?post=60098"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/monolith.law\/en\/wp-json\/wp\/v2\/tags?post=60098"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}