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3 Methods To Avoid Possible Traps in M&A

Thursday 13, 02 2020
The art of making a good M&A deal requires a combination of careful research, smart sentiment and attention to detail that is likely to be missed
3 Methods To Avoid Possible Traps in M&A

A merger and acquisition, despite its potential, still contains risks that affect a company's business. Therefore, in this article, we will share 3 tips to avoid some pitfalls from M&A deals.

Mergers and acquisitions (M&A) made with the purpose of acquiring new technology can create or destroy a company. At worst, a disastrous deal will result in a waste of effort and money, often millions or even billions of dollars. On the other hand, a strategic transaction can launch a company to the forefront, accelerate its gain in the market over competitors, and potentially let a large company expand to a new market. Google's YouTube purchase can be a good example. Youtube is now a multi-billion dollar source of revenue that is leading to the decline of cable TV. Facebook buying Instagram can also serve as an example, as this helps Facebook solidifying its dominance of social media.

However, vast M&A lands are also littered with examples of failures, such as Microsoft's attempt to buy its way into the mobile market by acquiring Nokia, or perhaps the most notable example - AOL's unfortunate acquisition of Time Warner during the dotcom bubble (or, more specifically, the mistake Warner made when selling to AOL).

The art of making a good M&A deal requires a combination of careful research, smart sentiment and attention to detail that is likely to be missed; The appraisal requires more than just going through the contract boxes and reviewing the balance sheet. Here are three tips to avoid some of the traps that aren't always clear, but can be the reasons that can ruin acquisition of technology deals:

Make Sure You Are Buying Core Technology Techniques And The Full Right To Those Technologies

In 2005, eBay spent $ 2.6 billion on Skype, hoping to increase revenue on its platform by providing buyers and sellers an instant means of exchange. When Skype failed to work among eBay users, most people thought that was why eBay sold Skype four years later (losing $ 936 million). But things are not so simple as there is a little known fact that: Ebay's initial purchase does not include ownership of the basic technology of Skype. At that time, Google was also trying to purchase Skype from eBay. However, they decided not to go through with the deal as they realized that they would have to negotiate not just with eBay, but also with Niklas Zennstrom, the founder of Skype, who still holds ownership of the peer-to-peer network technology. Eventually, eBay sold a large stake in Skype to a group of private investors and a few years later, Microsoft acquired the company with intellectual property.

When working on the M&A law, people should spend most of their due diligence on each transaction, checking to make sure the target company has no rights to the technology the acquisition company is trying to buy. Meanwhile, junior associates should be tasked with reading through every contract the target company has entered ... often stacked in banker boxes in several appraisal rooms. This could be a painful process, but it would help ensure there are no legal restrictions on any basic intellectual property.

>> Possible risks during an M&A transaction

Communicate With All Shareholders, Even The Ones With The Least Amount Of Shares

When Yahoo was about to buy Dialpad Communications, they encountered unexpected resistance from an uncertain source, which was an investor, who removed most of his stake in Dialpad many years earlier, showing that the company meant almost zero to him, suddenly had his own idea. When the deal was about to close, he gave his shares a higher price. This caused problems for the deal.

One thing you need to remember is that the agreement has not ended until it is signed.

Firstly, all mergers and acquisitions are full of surprises and risks so anticipate and prepare for the worst. Secondly, at the last minute, most people act for their own benefit. You could minimize the consequences of someone being able to profit by talking earlier with the shareholders. In that way, you'll buy yourself more time to negotiate complex requests and help shareholders understand what they're getting.

3 methods to avoid possible traps in M&A

Do Not Underestimate The Value Of Interaction, Coordination And Company Culture

Sometimes companies are so blinded by the potential for technology cooperation and market growth from a merger that they do not take into account an obvious and necessary element - people. One of the most notorious examples of a post-M&A cultural disagreement is the 2005 merger of Sprint and Kansas-based Nextel. The conservative Sprint executives clashed with Nextel employees. A meeting of Nextel managers illustrates this perfectly: Nextel CEO wore khaki pants and shouted "Stay with Verizon !," while his Sprint partner, wearing a suit, was giving a presentation. Lack of cooperation affected the ability to effectively consolidate in many different ways and eventually forced the Sprint CEO to resign.

Recently, Dialpad has acquired TalkIQ, a technology leader in artificial intelligence and machine learning, and their shared culture and values are key to the success of this deal. A few months before the acquisition, they had worked together as partners and in weekly technical meetings, they saw the two teams working naturally as a whole. This makes perfect sense because the TalkIQ CEO has worked together for many years with Dialpad's technical vice president to oversee the massive growth of Google AdWords. They remain in touch and are close friends after leaving Google to pursue various career opportunities. You cannot describe how important interaction, coordination, and culture are.

​Good mergers are often not easy to get. There is a range of things that lead to failure - financial losses, stock declines, lost market opportunities, failed dreams. Being prepared for all the possibilities, as well as anticipating the various difficulties and risks that may arise will increase the likelihood of a working alliance, smooth cooperation and success.

​>> ​Attracting FDI to Vietnam through M&A deals

Categories:
M&A Business Skills

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