Marriages are made in heaven and M&As in the boardrooms.

Some go well
and some fall apart. In recent years we have witnessed many successful
mergers and acquisitions. However, there were few deals which were a huge
disaster. The reason being lack of or improper due diligence. Let’s us have a
look at some of the failed ones that have led to a change in due diligence
carried out in today’s age

First is Time Warner & American online which happened in (2004)

The infamous America Online (AOL) acquisition of Time Warner took place
during some exciting times, when the word ‘Internet’ was itself a breeze of
innovation, changes and hopes. Expectations were great, and the dream was
to capitalize on the confluence of internet and mass media. But it was not
meant to be. A rushed and conventional due diligence failed to identify the
transaction’s WEAKNESS. On top of that, management issues of running a
huge media conglomerate proved to be one more due diligence oversight.
The transaction resulted into one of the greatest M&A failures and biggest
due diligence disasters, the loss was around $99 billion .

Next is Daimler Benz and Chrysler which happened in (1998)

The announcement of the DaimlerChrysler transaction drove a supposable

enthusiasm. Two legends and two huge markets: what could possibly go
wrong? There are blamers and guilty figures on both sides. Some state that
it was the cultural differences that lead to an eventual ‘civil war’ within the
conglomerate. Others stick with the idea that it was the inability of Daimler
to take adequate decisions in the most appropriate moments. Yet others say
that it was the fault of Chrysler’s declining attractiveness on the ever-
growing competitive American market. However, what everyone does agree
on, is that there actually was no due diligence before the transaction, one
that would make all the existing and probable issues float and attract the
deserved attention ahead of the deal. One of Daimler’s board member
later confided that the advice was requested from Goldman Sachs in order to
make the transaction happen, and not for the sake of due diligence itself,
because the company’s management was mostly blinded by Chrysler’s
profits. This due diligence oversight cost the company about some $36
billion.

Next is HP & Autonomy which happened in (2012)

HP’s acquisition of Autonomy for $10.2 billion was somewhat uneventful, and
did not cause too much noise neither before, nor immediately after the
transaction. However, it took a few months until HP management started to
understand the consequences of a poor due diligence. It turned out, that a
series of issues were overlooked, such as inaccurate income statements,
balance sheets, cash flows and footnotes. The overall conclusion was that
Autonomy was significantly overpriced, and HP had to write down almost $9
billion. Numerous filed suits from HP’s shareholders followed for the
incapacity to do a proper due diligence before the transaction. The latter
became one of the most wasteful purchases of a software asset. Overall loss
was 11bn dollars

Quaker Oats & Snapple which happened in (1998)

In their momentum on the beverages market after a success with Gatorade,

Quaker Oats decided to acquire Snapple, well known for its teas and juices.
However, they learned the hard way about the importance of a sound due
diligence. In this case, several oversights can be mentioned. First of all, the
whole transaction was argued to be overestimated, Snapple’s purchase price
ending up to be $1.7 billion. According to various analyses, that’s about a
billion dollars more than the so-considered price of the company. Secondly,
they failed at intellectual property and competition analysis, ending up to
infringe the fundamental law of mergers and acquisitions. Thirdly, the
logistics and marketing were set up erroneously. Altogether, the acquisition
resulted in a daily loss of $2 million for the whole duration of ownership, as
Snapple was sold for $300 million. The overall loss was 1.4bn dollars

History shows us, that before concluding a deal, a due diligence checking
should not only regard the past and present of the companies involved, it
should also consider possible cultural clashes, possible layoffs, managerial
challenges, consequences of system differences and many other particular
factors.

The examples discussed earlier are just a few fish from an entire ocean of
due diligence failures. But due diligence is not just for merger and acquisition
transactions and other transactions mentioned in the presentation.
Regardless of the type of the deal, you should always know who you are
dealing with.

I would like to conclude this presentation by saying, “A proper due diligence

process done in time will keep you safe from the risks and strict regulations
compliant.” Thankyou