Worst Mergers and Acquisitions in History of Data RoomsAuthor: Joe Gamse
2015 was a blockbuster year for M&A, and the same held true for deal-making in the tech sector, which came to an enormous $718 billion – 14% of the total $5 trillion. The trend looks set to continue, with Dealogic reporting the highest level of tech M&A so far this year since 2000. But the tech sector has also seen its fair share of deals going spectacularly wrong – here are some of the worst failure in history of data rooms …
AOL & Time Warner
This particular acquisition ranks as one of the worst M&A deals ever. In 2000, AOL was riding high on the dot-com bubble, and was the leading internet service provider in America. By purchasing Time Warner for around $180 billion, and creating a company worth $360 billion, AOL hoped to capitalize on its dominance by distributing the media company’s content across its networks. For Time Warner, meanwhile, the sheer reach that AOL could offer made the prospect of a join-up extremely attractive.
So what went wrong? The first problem was the bursting of the tech bubble – by the end of 2002, the company was forced into a goodwill write-off of almost $100 billion, and its market cap dropped from $226 billion to just $20 billion. AOL also wasn’t able to shift its services from dial-up to broadband, and there were rumors of difficult culture clashes between the two sets of staff.
Alcatel & Lucent
Next up is a 2006 $13.4 billion merger between two telecom companies – Alcatel and Lucent. The former was a French leader in fixed line and broadband services, the latter a US wireless provider spun off from AT&T in the 90s. In theory, the partnership looked promising – but by 2008, Alcatel Lucent had endured six quarterly losses, write-downs of $4.5 billion, and the halving of its share price.
Again, cultural issues came to the fore. Lucent was far more centralized and hierarchical, and obsessed with cutting costs; Alcatel had a much looser management structure, and put a greater emphasis on marketing than their American counterparts.
Ebay & Skype
In 2005, Ebay thought it was onto something big. By buying Skype for $2.6 billion, they were purchasing the communication medium of the future – users would be able to speak to each other for free from anywhere in the world. In a way, they were right; 6 years later, Microsoft thought Skype was worth $8.5 billion.
The only flaw was that Ebay users didn’t actually want to speak to each other – in fact, they enjoyed the anonymity and convenience that the site offered. Ebay was also run as a fairly conservative company, while Skype was aiming to be a disruptive force. The online auction site eventually bit the bullet, selling Skype on to private investors for $1.9 billion in 2009.
Sprint and Nextel Communications
When Sprint acquired a majority stake in Nextel in 2005 – at a cost of $35 billion – the resulting company became the third-largest telecom provider in the US, behind AT&T and Verizon. Sprint was focused on providing local, long-distance and wireless services to consumers, while Nextel had a strong presence in the commercial market. The plan was to maximize revenue by pooling customers and services.
Again, differences in culture and practice proved damaging. Sprint was run as a bureaucracy, Nextel in an entrepreneurial spirit; Sprint’s customer service was awful, while Nextel’s was excellent. The two businesses weren’t successfully integrated either – there was a lack of trust, and the two companies even maintained their separate headquarters. By 2008, $30 billion in one-time changes had to be written off.
There’s never a guarantee that an M&A deal will come off – particularly in the fast-changing world of technology. The best companies can do is ensure they have has much information at their disposal as possible – whether through virtual data rooms or high-caliber advisory services.
How can use of data rooms help to avoid similar disasters?
The cultural issues are not the ones to overcome easily. However, streamlining due diligence process and making it more organized can certainly help to come to solution that is favorable for everyone evolved.
One of the most important parts of due diligence process is communication. As long as there is a reasonable dialogue between the parties, there is a guarantee that the process can be carried out. The Q&A section of a virtual data room is designed to help people enable conversation with each other in an organized and timely manner. You can learn more about it here.