“Sometimes your best investments are the ones you don’t make”
resonates perfectly with this week’s article “ Seven ways to fail big”. After
reading the article some of the famous mergers and acquisitions failures I
could think of are :
Kmart – Sears
The establishment of Sears Holding Corporation, a result of merging
two struggling retailers Kmart and Sears was supposed to improve their retail
market share and the integration of their product lines was supposed to serve
as a moat against big box competitors. ESL Investments invested in their merger
with the intent of maximizing their economies of scale.
Synergy Mirage: Although both were retail giants, their
modus operandi and market segment varied significantly. Sears was known for
home appliances and outdoor products whereas Kmart encompassed apparel ,
grocery etc. ESL assumed that their combined customer base would drastically broaden their retail market share. Following the merger, that wasn’t the case thereby forcing
them to work independently paving a way
to a disaster.
Faulty Financial Engineering: Incompetent strategy stripped
the company of its assets over time. The Capex value of both companies together
before the merger plunged drastically
after the merger. Sears had the lowest rate of capital investment to sales and prioritized
share buy backs leading to value destruction.
Stubbornly staying the course: With the merger, the
corporation did not try to reinvent its existing store format or dabble in ecommerce
to gain increased market in order to compete with Walmart and Target. Lack of
innovation and customer focus was
another reason for this downfall.
Pseudo- Adjacencies: Before the merger, Sears tried
to diversify by purchasing a lot of Kmart retail outlets. After the merger they
planned to achieve cost savings by combining supply chain and administrative
overheads without realizing it was not a great move considering their product
and market segment were different.
In my opinion, All the above factors decimated Sears holding
corporation and it was forced to file for bankruptcy in 2018. Thus, leading to
the biggest downfall in the history of retail.
eBay & Skype
Online auction giant eBay acquired VoIP business Skype in
2005 for $2.6 billion assuming that by integrating Skype to their platform would
help buyers and sellers better connect with each other and can call using skype.
The reason for the failure of this merger turns out to be :
Bets on the wrong technology
eBay’s assumption that skype would facilitate in connecting
the buyers, sellers and shippers using VoIP backfired. They had their bets on a
wrong technology and didn’t invest their time to do a customer analysis and align
it with their organization’s framework. People preferred maintaining anonymity
as vendors, or shippers and preferred email conversations than talking on call.
With this investment on wrong technology eBay incurred lot of losses and had to
eventually sell Skype to private investors at $1.9 billion.
In my opinion eBay should have tried to understand its
customer segment and their needs before making a decision on this investment. It
was a good initiative in theory but didn’t integrate with their overall company
mission thereby leading to this fiasco.
To conclude, companies that don’t innovate or do a strategic
market analysis(customer & products) tend to make rash decisions in acquiring
companies. In this cut throat market, to survive one must keep reinventing and
make judicious merger/acquisition decisions to be successful .
References
3.
https://www.pcworld.com/article/171267/skype_ebay_divorce_what_went_wrong.html
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