Mergers and Acquisitions (With Real-World Examples) | From A Business Professor

PROFESSOR: Hello, everyone.

Welcome to Business School 101.

Big firms often use
mergers and acquisitions

to better expand
their businesses

and compete with
their competitors.

For example, T-Mobile and Sprint
completed their merger in 2020,

creating a new wireless carrier
with a customer base of over 100

million subscribers.

In 2014, Italian automaker
Fiat completed its acquisition

of American automaker Chrysler,
creating Fiat Chrysler

Automobiles, the world's seventh
largest automaker at the time.

Amazon acquired
Whole Foods in 2017

to gain access to
Whole Foods' customer

base and physical stores.

Google acquired YouTube in
2006 to expand its reach

in the online video
market and gain access

to YouTube's large user
base and content library.

So what are mergers
and acquisitions?

Why do firms do that?

Are there some successful and
failed real business examples

and useful strategies?

In this video, I will discuss
these questions with you.

Section 1, definition--

Mergers and
Acquisitions, or M&A,

refer to the process of
combining two or more companies

into a single
entity or acquiring

one company by another.

M&A deals can take various
forms, such as a merger, where

two companies combine to form
a new entity or an acquisition

where one company buys another.

The key difference between
a merger and an acquisition

is the level of equality between
the two companies involved.

In a merger, the two
companies are typically

of roughly equal size and
scale and come together

to form a new entity.

In an acquisition, one
company purchases another.

And the target company becomes
part of the acquiring company.

Here are two examples
to illustrate

the differences between
the merger and acquisition.

In 2016, Dell and
EMC Corporation

completed a merger in which Dell
acquired EMC for $67 billion.

The new company, Dell
Technologies, was formed.

In this case, both companies
were roughly the same size

and had complementary
businesses,

making it a good
fit for a merger.

In 2014, Facebook acquired
WhatsApp for $19 billion.

The acquisition was
not a merger of equals,

as Facebook was much
larger than WhatsApp.

In this case, Facebook was
interested in WhatsApp's

messaging technology
and its large user

base, which aligned with
Facebook's strategic goals.

Section 2, benefits-- here
are the major benefits

of merger and acquisition.

Number 1, market expansion--
one of the main reasons firms

pursue M&A deals is to
expand their market share

and access new markets.

By acquiring or merging
with another company,

a firm can gain access to
new customers, products,

and services that it
may not have had before.

Number 2, synergies
and cost savings--

M&A deals can create synergies
between the two companies

involved, allowing them
to combine their resources

and capabilities to
achieve greater efficiency

and cost savings.

Number three,
diversification-- M&A deals

can help firms diversify
their operations

and reduce their dependence
on a single product or market.

By acquiring or merging with a
company in a different industry

or market, a firm can spread
its risk and gain exposure

to new opportunities.

Number 4, acquire new
technologies or capabilities--

M&A deals can provide
a firm with access

to new technologies
or capabilities

that it may not have
developed on its own.

For example, a
company may acquire

a startup that has developed
a new technology or product.

Number 5, financial benefits--

M&A deals can provide a firm
with financial benefits,

such as access to new
sources of capital,

improved credit ratings,
or increased cash flow.

By acquiring or merging
with another company,

a firm can improve its financial
position and gain access

to new sources of funding that
it may not have had before.

Section 3, examples--
here are a few successful

and failed examples of
mergers and acquisitions.

First, the Walt Disney Company
and Pixar Animation Studios--

in 2006, the Walt Disney Company
acquired Pixar Animation Studios

for $7.4 billion.

The merger brought together two
of the most successful animation

studios in the world,
allowing Disney

to expand its
animation capabilities

and access Pixar's
cutting-edge technology.

The merger was successful in
terms of financial performance,

as the combined
company's revenue

and profits increased
significantly

in the years following the deal.

It also produced some of the
highest-grossing animated movies

of all time, including Toy
Story 3 and Finding Dory.

Second, Exxon and Mobil--

in 1999, Exxon and Mobil, two
of the world's largest oil

companies, merged
to form ExxonMobil.

The merger created the world's
largest publicly traded oil

company, with a
market capitalization

of over $400 billion.

The merger was
successful in terms

of operational performance,
as it allowed ExxonMobil

to streamline its operations,
reduce costs, and increase

efficiency.

The combined company also
benefited from improved access

to new oil reserves, which
helped to boost profits.

In addition, the merger
allowed ExxonMobil

to weather the volatility
of the oil market

in the years following the deal.

Third Daimler-Benz and
Chrysler-- in 1998, Daimler-Benz

acquired Chrysler in a
deal valued at $36 billion,

creating DaimlerChrysler.

The merger was
intended to create

a global automotive
powerhouse that

could compete with rivals such
as Toyota and General Motors.

However, the two
companies struggled

to integrate their
operations and cultures,

and the merger
ultimately failed.

DaimlerChrysler
suffered from a lack

of clear leadership, cultural
clashes, and a failure

to capitalize on synergies.

The company's profits declined.

And in 2007, Daimler
sold Chrysler

to a private equity
firm for a fraction

of its original purchase price.

Fourth, Microsoft and Nokia--

in 2014, Microsoft acquired
Nokia's handset business

for $7.2 billion, with the
goal of expanding its presence

in the mobile market.

However, the
acquisition turned out

to be a failure as
Microsoft struggled

to integrate Nokia's hardware
business with its software

and services.

Microsoft's mobile business
continued to decline.

And in 2016, the
company announced

that it would sell its
feature phone business

to a subsidiary of Foxconn.

Section 4, failed reasons--

according to a study by the
Harvard Business Review,

up to 70% of M&A
deals fail to deliver

the intended value or benefits.

Here are several reasons
why mergers and acquisitions

can fail.

Number 1, cultural clash--

companies that have
different cultures and ways

of doing business may struggle
to integrate their operations

and work effectively together.

Number 2, poor due diligence--
a lack of thorough due diligence

can result in unexpected
problems and hidden liabilities

that can damage the
success of an M&A deal.

Number 3, overpayment-- paying
too much for an acquisition

can result in a failure to
generate a positive return

on investment and
put the company

in a precarious
financial position.

Number 4, integration
challenges--

the process of
integrating two companies

can be complex and difficult,
leading to delays, confusion,

and loss of key talent.

Number 5, strategic
misalignment-- companies

may fail to align their
strategic goals and objectives,

resulting in conflicting
priorities and difficulty

in achieving synergies.

Number 6, regulatory issues.

M&A deals may require
regulatory approval.

And failure to obtain
necessary approvals

can prevent the deal
from going through

or result in significant delays.

Number 7, failure to
communicate-- failure

to communicate effectively
with stakeholders, employees,

and customers can lead to
uncertainty and resistance

to change, making it
difficult to achieve

post-merger integration
and success.

Section 5, strategies-- to
avoid making the above mistakes,

here are some key steps to
prepare for an M&A deal.

First, develop a clear strategy.

Before pursuing an
M&A deal, companies

need to develop a
clear strategy that

aligns with their long-term
goals and objectives.

This strategy should
consider factors

such as the target company's
industry, financial position,

and potential for synergies.

Second, conduct due diligence.

Conducting thorough
due diligence

is crucial to identifying
potential risks

and opportunities
associated with an M&A deal.

This includes analyzing
financial statements,

legal documents, and other key
information about the target

company.

Third, secure financing.

M&A deals often require
significant amounts of capital,

so it's important
to secure financing

in advance of the deal.

This may involve working
with banks, investors,

or other sources of funding.

Fourth, plan for integration.

Successful M&A deals
require careful planning

for post-merger integration.

This includes developing
a plan for integrating

the target company's operations,
employees, and culture

with the acquiring companies.

Fifth, communicate effectively.

M&A deals can be unsettling
for employees, customers,

and other stakeholders.

So it's important to
communicate effectively

throughout the process.

This includes keeping employees
and other stakeholders informed

of the deal's progress and
addressing any concerns

or questions they may have.

Sixth, seek legal
and financial advice.

M&A deals are complex and
involve many legal and financial

considerations.

So it's important to seek advice
from experienced professionals.

This includes working
with lawyers, accountants,

and other advisors who
can provide guidance

on the legal, financial, and
tax implications of the deal.

Section 6, summary--
mergers and acquisitions

refer to the process of
combining two or more companies

into a single
entity or acquiring

one company by another.

M&A deals can be complex and
involve many legal, financial,

and regulatory considerations.

They typically involve
extensive due diligence

to assess the risks and benefits
of the deal, negotiation

of terms and conditions, and
obtaining regulatory approvals.

The success of an M&A deal
depends on various factors,

such as strategic fit,
cultural compatibility,

and effective integration
of the two companies.

All right, that's all
for today's topic.

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regarding this video,

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