Deals from Hell

1

Introduction

“Merger” is the consolidation of two firms that creates a new entity in the eyes of the law. The French have a good word for it: fusion—conveying the emergence of a new structure out of two old ones. An “acquisition” on the other hand, is simply a purchase.The distinction is important to lawyers, accountants, and tax specialists, but less so in terms of its economic impact. Businesspeople use the terms interchangeably. The acronym, “M&A,” stands for it all.

M&A enters and leaves the public mind with waves of activity, such as those depicted in Figure 1.1. These waves roughly synchronize with equity market conditions and thus carry with them the cachet of excess, hype, and passion that swirl in the booms. Over time, M&A activity radically transforms industries, typically shrinking the number of players, inflating the size of those who remain, and kindling anxieties about the power of corporations in society. Every M&A boom has a bust, typically spangled with a few spectacular collapses of merged firms. These failures significantly shape the public mind, and especially business strategies and public policy. We should study M&A failure not merely as a form of entertainment, but as a foundation for sensible policies and practices in future M&A waves.

Failure pervades business, and most firms fail eventually.Venture capitalists typically reject 90-95 percent of proposals they see. Up to 90 percent ¹ of new businesses fail not long after founding. Even mature businesses ...