Top 5 M&A failed deals: What can you learn from them?
Article 4 minute read

Top 5 M&A failed deals: What can you learn from them?

24 October 2018

Mergers & acquisitions (M&A) are one of the fastest ways for a company to expand its presence into a new country or industry. But M&A is not easy. Here are the top 5 M&A deals that never took off and what we can learn from them.

A successful merger or acquisition relies on several factors: trust between both parties, financial status of the participants, a successful due diligence process, a favourable regulatory environment, agreement from shareholders, and more. Through years of experience, we’ve found that it’s the little things that can make or break a deal and rack up a potentially large bill.

Here are the top five recent M&A deals that didn’t materialize and the likely reasons behind why.

1. Pfizer and Allergan

Deal Size US$152bn

Back in 2016, a deal between both of these pharmaceutical companies would have caused the biggest takeover in 15 years. It would also have provided Pfizer the chance to relocate its headquarters abroad, ultimately lowering its tax bill.

However, the Obama administration tweaked the tax rules aimed at preventing ‘corporate inversions’, as American companies had been attempting to reduce their tax bills by shifting profits abroad. Those changes removed the financial advantages Pfizer hoped to get from buying Allergan, eventually causing the deal to be abandoned.

Cause: Regulatory environment

What we think could have been done better: Tax regulations are being reviewed and updated almost daily all around the globe. From substance requirements to transaction monitoring and even BEPS, we’ve seen it all. It is critical to have professionals providing timely updates and forecasting ahead. By reviewing the group and holding structure regularly, we work closely with our clients and their advisors to manage the potential risks and scenarios that may arise with impending deals.

2. Kraft Heinz and Unilever

Deal Size US$143bn

In 2017, U.S. food giant Kraft Heinz shocked the business world by announcing a plan to buy Anglo-Dutch stalwart Unilever for US$143bn. Yet, two days after the announcement of the takeover bid, Kraft Heinz withdrew its offer, after Unilever had strongly rejected the bid.

Though much of the media focused on the political dimensions of the deal, one of the prime reasons the takeover did not happen was arguably a clash of corporate cultures.

Cause: Due diligence and communication

What we think could have been done better: Mergers sound nice but the actual integration is both a science and an art to implement and it all comes down to the people on the ground. Differences in language, working style and often work hours, response time, among others can create much frustration. Bringing in management from the headquarters into a new country without any help creates possible problems for the business. Clients who approach us early during deal negotiations to bridge the gap between headquarters and local country requirements during transition periods, fare much better at integration than those that look for help after mass resignations from staff or angry notices from customers.

3. Honeywell and United Technologies

Deal Size US$90bn

When the two industrial conglomerates discussed a potential merger in 2015, the aim was to create a giant that would produce everything from thermostats to jet engines. The deal fell apart as United Technologies’ stock price declined and the two firms executives disagreed over the control of the merged entity.

Since United Technologies refused to accede to the demands, Honeywell was forced to walk away.

Cause: Communication and corporate culture

What we think could have been done better: They should have looked for a third voice at the start of the discussions to help step into transactions where there are multiple parties fighting over different priorities with different point of views. As trustees, independent directors, neutral bookkeepers and tax agents, we bring clarity and transparency to the table, which keeps the business growing and ultimately benefits all parties.

4. Mondelez International and Hershey

Deal Size US$23bn

Mondelez, the owner of Cadbury and Nabisco, intended to buy its confectionery competitor, Hershey, but dropped the pursuit after the latter rejected the offer in 2016.

A number of factors were blamed, including Hershey’s demands for a higher price and the legal uncertainty that surrounded Hershey’s biggest shareholder.

Cause: Due diligence and valuation

What we think could have been done better: The best mergers are those where companies are able to dive deep during their financial and legal due diligence while pulling in local in country experts, such as TMF Group, to perform physical due diligence on site.

5. Ant Financial and MoneyGram

Deal Size US$1.2bn

The U.S. government blocked the US$1.2bn plan by Ant Financial, a financial arm of Chinese e-commerce giant Alibaba Group, to take over US-based money transfer company MoneyGram International over national security concerns.

Alex Holmes, CEO of MoneyGram, said: “The geopolitical environment has changed considerably since we first announced the proposed transaction with Ant Financial nearly a year ago.

“Despite our best efforts to work co-operatively with the US government, it has now become clear that the Committee on Foreign Investment in the United States will not approve this merger.”

Cause: Geopolitical environment

What we think could have been done better: Global M&A deals can be a sensitive topic to individual governments. Corporations should always speak to administrators to find out how potential geopolitical issues may pose risks. We often find clients coming to us after the deal is done trying to find alternative solutions due to in country restrictions arising from embargos, trade wars or nationalistic issues.

Get help from an expert

Although some of these deals were scrapped due to external factors, corporations may not always have the resources or expertise to maximise their chances of succeeding in an M&A deal. Working with an experienced global expert is vital. TMF Group has the resources and knowledge that can help with any M&A activity.

Want to know more about how TMF Group can help your business with M&A and carve outs? Take a look at our QuickStart to Carve Outs services or make an enquiry with us today. 

Written by

Jocelyn Oh

Associate Director, TMF Group

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