Top 5 Mergers that turned out to be a Flop! What can we learn from them?
Mergers and acquisitions are often hailed as strategic moves designed to create synergies, expand market reach, and enhance shareholder value. However, not all mergers live up to their expectations. In this article, we explore five mergers that flopped and extract valuable lessons from their failure
Why Are Mergers Done?
Mergers are typically pursued to achieve several strategic objectives:
- Synergy Creation: Companies merge to create synergies, where the combined entity is expected to be more valuable than the sum of its parts.
- Market Expansion: Mergers allow companies to enter new markets and expand their customer base.
- Cost Reduction: Economies of scale can be achieved, leading to cost savings in operations.
- Diversification: Companies can diversify their product lines and reduce dependency on a single market.
- Competitive Advantage: Mergers can strengthen a company's position in the market and reduce competition.
Top 5 Failed Mergers
Jet Airways and Air Sahara (2006)
In 2006, Jet Airways acquired Air Sahara for ₹1,800 crore with the aim of expanding its network. Instead of integrating Air Sahara fully, Jet Airways rebranded it as JetLite. This move led to operational inefficiencies and increased costs, as maintaining two separate brands created confusion among customers and employees. By 2015, Jet Airways had to write off its entire investment in JetLite, amounting to a significant financial loss.
Lesson: Brand Integration is Crucial
Effective brand integration can streamline operations and create a cohesive market presence. Failure to do so can result in increased costs and diluted brand value.
Ola and FoodPanda (2017)
In 2017, Ola acquired FoodPanda's food delivery business for $40-50 million in equity, hoping to capture a significant share of the online food delivery market. However, the acquisition was plagued by operational challenges and stiff competition from established players like Swiggy and Zomato. By 2019, FoodPanda's order volumes had dwindled to just 5,000 per day, forcing Ola to suspend its operations to stem further losses.
Lesson: Understand Market Dynamics
Acquisitions should be aligned with market trends and consumer demands. Misreading market dynamics can lead to disastrous outcomes.
Microsoft and Nokia (2014)
Microsoft's acquisition of Nokia's mobile phone division in 2014 for $7.2 billion was intended to boost its presence in the smartphone market. Despite the substantial investment, Windows Phone's market share remained stagnant at 3%, overshadowed by Android's 79%. The integration challenges and strategic missteps led Microsoft to write off $7.6 billion, marking the acquisition as a notable failure.
Lesson: Timing and Market Compatibility Matter
Entering a saturated market with a declining product can lead to failure. Timing and product compatibility with market needs are critical.
Flipkart and Jabong (2016)
Flipkart's subsidiary Myntra acquired Jabong for $70 million in 2016 to strengthen its position in online fashion. However, Jabong's user base and sales plummeted post-acquisition, with an 11% drop in active users and a 13% decrease in app downloads by December 2019. This decline led Flipkart to shut down Jabong in July 2020.
Lesson: Sustaining Growth Post-Merger
Sustaining growth post-merger requires continuous innovation and customer engagement. Neglecting these can lead to decline.
Future Retail and Bharti Retail (2015)
Future Retail acquired Bharti Retail in a ₹750 crore all-stock deal in 2015 to become one of India's largest retail chains. Despite initial optimism, the merged entity struggled with competition from e-commerce giants, regulatory issues, and debt. These challenges led to cash flow problems and hindered the anticipated benefits of the merger.
Lesson: Due Diligence and Financial Health
Thorough due diligence and maintaining financial health post-merger are essential to avoid regulatory and financial pitfalls.
Conclusion: Learnings and Mistakes
The failures of these mergers highlight several critical takeaways:
- Brand Integration: Ensure seamless brand integration to avoid confusion and operational inefficiencies.
- Market Understanding: Thoroughly understand market dynamics and consumer behavior before making acquisitions.
- Timing: Choose the right time for acquisitions to align with market trends and technological advancements.
- Post-Merger Growth: Focus on sustaining growth through innovation and customer engagement post-merger.
- Financial and Regulatory Preparedness: Conduct comprehensive due diligence and prepare for financial and regulatory challenges.
By learning from these high-profile failures, companies can better navigate the complexities of mergers and acquisitions, ensuring that their strategic moves lead to success rather than flop.
Edited by Rahul Bansal