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M&A WAR STORIES - The Good, The Bad and The Ugly
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M&A WAR STORIES - The Good, The Bad and The Ugly

Author: Robert Heaton & Toby Tester

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These M&A War Stories podcasts are for anyone engaged in M&A or Divestment activity. Every week your hosts Robert Heaton & Toby Tester, along with special podcast guests, will draw on their past M&A experience through case studies and what hopefully will prove to be interesting stories. By chipping with our own thoughts and experiences our aim is that all of us professionally involved in M&A – CEOs, CFOs, Executives, Consultants and Advisors, get that little bit better next time round.
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Leadership is one of those topics that is really hard to wrap your head around because, in Robert and Toby's opinion, Leadership isn't just the person with the grandest title at the top of the tree, Leadership is invested in many people through every facet of an organization.That is particularly true in Mergers and Acquisitions where Leadership should be demonstrated by different people at varying stages of the M&A deal cycle.In this episode we unpick the leadership responsibilities of all the key players starting with the Chairperson, then the CEO, Corporate Development, Internal and External Advisors and finally exploring the leadership needed for post-deal integration.As you might expect, Robert and Toby offer the view that the post-deal integration role is the most critical in terms of leadership. What? Biased? Me and Toby? NEVER!And we close today's podcast setting the scene for the next episode where we will explore different post-deal leadership styles and whether some styles are more suited than others.
In this latest podcast, Robert and Toby have pivoted away from M&A disaster stories and moved towards an examination of leadership? Why you might ask.Well, in all of Robert and Toby's experience, good leadership (or bad leadership for that matter) has been the instrumental factor in whether an acquisition is successful. So that got the dastardly duo thinking about what exactly defines leadership? Are good leaders simply born that way or can people be developed into leadership?The answer is both. Leaders are born and bred, in a combination of nurture building on nature. There does appear to be some sort of raw material that contributes to leadership, which leads to quite different capabilities and outcomes as education is added.\Looking at famous artists could help you understand this distinction. Although everyone can learn to draw, not everyone may become a Picasso or Monet, a da Vinci or Caravaggio — and that is probably a good thing. Can you imagine a city full of world-class artists all wielding their brushes and their temperament?  It is worth remembering that the great artists nurtured their talent, studied their craft, and honed their ability over many years.By analogy, leadership is somewhat the same. It is a combination of some sort of raw material, combined with a life of learning. In this sense, leaders are bred, or created, carved out of the stone as they grow through life. Leadership is nurtured, built on nature (which creates a significant responsibility for organizations).Some people who occupy leadership positions rely on natural talent and then reach a ceiling — much like the bright student who coasts through school, only to come to grief when they find they have not developed the habits necessary for advanced study. They rely on their towering height or authoritative voice to look and sound like a leader, while the actual skills of leadership remain uncultivated.
Another acquisition dissected by the dastardly duo of Toby Tester and Robert Heaton and this week it's Google's $12.5Bn acquisition of Motorola. A deal which they then sold to Lenovo less than 2 years later, for $2.9Bn.On the first examination, this looks like a disaster, but in reality, Google came out of this break-even. Why? because Motorola had $3.2Bn in cash, the sale to Lenovo offered Google a $2.5Bn tax benefit and they retained 17,000:  Yes, you read that correctly - Seventeen Thousand patents valued at $5.5Bn that would help Google see off challenges to its Android platform.And let's not forget, an acquisition of this size is pocket money for Google and they have the ability to take measured risks on things like this. So what was Google's rationale?  The short answer, they thought they could supersize Motorola and disrupt the smartphone market but if you consider that the smartphone market is dominated by Apple and Samsung, you'd really have to think hard about how successful you might be.Bottom line, Google realized fairly quickly that this had been a mistake and they offloaded Motorola and went back to doing what they are good at.And as always, we leave you with three or four lessons that you might consider when finalizing your next acquisition.
You might have thought that Robert and Toby would have run out of M&A disaster stories by now? Oh, Ye of little faith.  THis week we explore Sprint's majority shareholding acquisition of Nextel to try and unpack how a $35 Billion investment in 2005, resulted in a $30 Billion write-off just three years later.The deal vision made sense and there were significant economies and efficiencies to make the combined business a challenging #3 globally to AT&T and Verizon. Better still, there was significant cross-sell opportunities between Sprint's typical consumer customers and Nextel's B2B customers. Well it made sense on paper BUT:There's a heck of a lot going on in this particular story and we remain 'Gobsmacked' (that's Rob's descriptive superiority coming through) at how and why this deal should have such a litany of challenges. To SummariseSignificant cultural differences with Sprint being very bureaucratic and Nextel being more entrepreneurialThose cultural differences resulted in very early exits by Nextel's senior leaders and managers leaving a void of experience to manage post deal value creationAbsolute opposite reputations for customer service with Nextel demonstrating very strong customer service  and Sprint with a disastrous reputation for poor customer service An economic downturn that saw customers demanding more value for their dollar and increased pressure from global competitors AT&T and VerizonSimilarly, job security fears led to more focus on applying resources to the integration efforts that actually focused on external business growth and customer service / loyalty.AND the obvious factor of external advisors being much too focused on their deal success bonuses and keen to push the deal through regardless. So there you have it - yet again, the recipe for how to successfully navigate a $35 Billion investment and turn it into a $30 Billion single write-off in just three years.
This week Robert and Toby discuss the failed 'merger. between automotive giants Chrysler and Daimer-Benz. On paper this was supposed to be a win-win. The $36 Billion 'Merger of Equals' was supposed to raise Benz's market share in the U.S. auto market. Chrysler was supposed to improve its vehicles through Daimler-Benz' car expertise and the combined strength of Daim;er-Chrysler would stave off competition from the Japanese and deliver synergies and other benefits worth $8 Billion Nine years later PE Group Cerberus paid $7.4B for Chrysler. This is a fifth of the price paid. Chrysler was demerged and the tombstone proclaimed it to be The most unsuccessful merger of modern times.So what went so badly wrong?  Well, cultural issues at both companies certainly didn't help. The tyranny of distance between the jont CEO's (one in the Us and one in Germany) A view by Daimler-Benz that anything with the Chrysler name on it was inferior, seriously lost opportunity to leverage Chrysler's industry beating 2 year timeframe for concept -to showroom and massive differences in pay-scales and reward bonuses are just a menu of challenges that stopped any post merger integration efforts.The Post MortemBy 2001, the value of the combined company had dropped to roughly that of Daimler-Benz before the merger.Potential synergy savings ($8B)  between the two companies did not seem to take effect. By 2003 the Chrysler Group had cut some 26,000 jobs and was still losing moneyThe internal turbulence within the company and the disappointing integration led to further falling profits. In 2007 Cerberus Capital Management paid  $7.4 billion for Chrysler group.The German automaker went back to Daimler.Chrysler was demerged.The key lesson is summed up nicely by Toby and will probably go down in history as one of his greatest quotes.Every day, wrong companies are purchased for the wrong purpose, with wrong measures for valuation. This results in wrong things integrated into wrong operating models. 
 A Frenchman and an American walk into a bar and over pissaladière and fried chilli chicken wings come up with the idea of working together and operating efficiently from their respective home turf to compete cost effectively with  competitors from China and Asia Pacific. What could possibly go wrongOn face value, the merger of Alcatel and Lucent was a necessity to ward off serious global competition from Huawei and other telecom competitors. The combined strength of both organisations made sense and joining their respective technologies even more so. BUT - dig down under the covers and there are several ingredients that make a recipe for disaster. French cuisine and America's lack of anything  'cuisine' would result in a disastrous recipe and this was no different in the 2006 merger of US based Alcatel and French based Lucent.  So what were the unsavoury ingredients?Good old CULTURE. And in this case, cultural differences that played out not only at the company level but also in a national sense.Tyranny of distance - two company's separated by huge distances and timezones does not make for efficiency leadership and agile decision makingLanguage and National cultural challenges. THis aspect doesn't need explaining.Disconnect and delay between strategic vision and execution at the operating levelLimited ability to compete cost effectively on a global stageAs always, there are good and not so good lessons to be learned, but you might need to listen to the podcast to find that out.
In today's episode Robert draws on personal experience of Oracles acquisition of Peoplesoft and subsequently J.D.Edwards. Robert was part of J.D.Edwards global leadership at the time so watched this deal evolve from the inside.  And whilst his career suffered as a result (Oracle removed the J.D.Edwards leadership team) Robert has to admire the brilliance of Ellison's strategy and execution.This was Larry Ellison at his finest.  He saw Peoplesoft and J.D.Edwards agreeing-to merge and pounced one week later with a hostile takeover bid. Despite protestations and legal challenges from Peoplesoft's Board, the deal went through.So why does Robert see this deal as particularly brilliant?  Well in a nutshell, the deal was a true reflection of Ellison's brilliance. In one very clearly executed vision he:Removed Peoplesoft and J.D.Edwards competitive threat.  As a merged business they could have seriously challenged Oracles dominant position in the Tier 1 marketplaceImmediately gained access to more than 8,000 additional customers who Ellison planned to convert over to Oracle applicationsGained the opportunity to move most of those customers onto Oracle's databaseAvoided any necessity to integrate either business (it simply wasn't necessary)Accessed the 18-20% annual maintenance (cash) that Peoplesoft and J.D.Edwardfs customers paid for support on what were essentially very stable productsSo bottom line, this was a very clear vision that was swiftly executed by stealth and surprise with immediate benefits flowing straight into Oracles coffers.
Robert & Toby continue to unpack some of the worst M&A deals in corporate history and this week it's the disastrous $350 Billion merger / acquisition between AOL and Time Warner.On the surface, this 1999 deal was the stuff of dreams and it made a lot of sense in many ways BUT - This was DOT.COM era, the bubble had just burst and high speed broadband internet was rapidly replacing Time Warners dial up modem technology. Worse still, the dream was never transformed into a clear vision. Significant cultural differences were completely ignored and there was a significant absence of any plan on how the dream was going to materialise into reality.  Added to that is Toby's view that the two companies failed to consider how their respective capabilities could be combined for the greater good of the combined entities. In many ways, this was a dream deal concocted over dinner by the respective CEO's. The dream had lots of lofty words and press releases but was  never translated into into a meaningful vision, strategy and execution plan.The end result in just 2 years was a MASSIVE $99 Billion write down and the final unwinding of the business in 2009And a quote that Robert uses on the bottom of all his emails sums this up nicelySTRATEGY = EXECUTION.   All the great ideas and visions in the world are worthless if they can't be implemented rapidly and efficiently" Colin Powell 
Last week we asked the question Could it get any worse? Well, Toby has excelled as usual and the acquisition of Autonomy must go down in history as one of the worst, most value-destroying deals in the history of the Tech Industry and Corporate America.This story is a bit like “Air Crash Investigations”. It’s not just one factor that conspired in a complete M&A disaster, but a number. Let’s list them:A CEO desperate to make a deal and rushed the processTwo diametrically opposing cultures:A large unwieldy and bureaucratic buyerAn aggressive “in-your-face” software firm big on personality, entrepreneurship and suspect sales practicesA board with several new people with limited time to focus on the deal.A CFO who said “don’t do the deal”; roundly ignored.A Due Diligence process with limited financial transparency and an over reliance on ‘audited’ accounts.A lack of integration planning that would handle different cultures and make the deal work.A very optimistic valuation indeed;  way above market expectations.AND a $8Bn write-down within one year of the deal closingSo apologies for our listeners, this one is over 30 minutes duration, but it's necessary to cover all of the salient points of this tech industry disaster.
In the past weeks, we've been reviewing some thew worst M&A disasters in corporate history and this week I think Toby has found one of, if not THE worst M&A disaster in corporate history.This was Royal Bank of Scotland's disastrous takeover of Dutch Bank, ABN Amro in 2007 and not only was it a massive disaster for Royal Bank of Scotland, it almost brought the UK economy to its knees. Bottom line, it had ALL the hallmarks of a recipe for guaranteed disaster:An egocentric bully in the CEO's chair with a penchant for high risk acquisitive growthA lack of strong M&A process and governanceA compliant board that simply waved through the CEO's desires without proper review and challenge. Timing that aligned nicely with the Global Financial Crisis (GFC)AND the biggest banking takeover in corporate historyIn summary, these dot points make for an explosive outcome but the lesson here is that these traits are universal for any M&A transaction irrespective of industry, size or geography and it is a Chairperson and the Board's responsibility to ensure proper process, strong governance and a balance of Board power to ensure such transactions receive proper and thorough consideration. 
Robert and Toby continue to unpack some of the most disastrous M&A deals in corporate history. This week it's EBay's costly and disastrous acquisition of Skype. Her's the dot-points.Ebay thought it could leverage Skype to provide a voice and video channel for its customers and sellers to communicate. What they didn't do was talk to their customers, because they would have learned that EBay customers want anonymity and were perfectly happy with messaging and email communication - and they still are today!For whatever reason, EBay paid $2.3Bn for what was a $7M start-up in 2005 and then had to write down $1.4Bn over the course of its ownership of SkypeA serious error by their legal team made sure that the deal went through without the underlying software that was the foundation of Skype - that was still in the hands of the developers post deal!And to top it off, there were the usual cultural clashes that occur when you try and marry a large conservative corporate with an agile, innovative start-up. And that resulted in Skype's leadership team during over 4 times during EBay's ownershipSo there you go. Several ingredients to create a recipe for disaster.The final outcome is that EBay sold Skype off to Microsoft in 2015 for approx $600M and under Microsoft, maybe Skype can re-live its core expertise and carve out a slice of the VOIP market?But just consider this. Zoom did not come into existence until 2011, so Imagine what Skype might look like today if EBay had not made this disastrous acquisition. Food for thought?
We continue to unpack some of history's M&A disasters and this week Toby delves into what he calls YAHOO's Murder of Flickr.This story kicks off in 2003 during the early years of the internet when Flickr was a fledgling start-up desperately needing a larger partner to accelerate the innovation and seize what could have been a massive transformational opportunity. On paper Yahoo looked like the ideal partner but in reality the partnership was ambushed by Corporate Development who were intent on treating the deal like any other M&A integration. As a result, the need for synergies and efficiencies took priority and you might even conclude that any desire for innovation was suffocated.The result was a massive loss of opportunity that should have seen Flickr as a dominant player on the emerging social media stage, but instead saw if denigrated into the backwaters of the internet. 
The recent announcement that Japan Post have finally unloaded  Toll's Global Express to Apollo Equity Partners will bring a sigh of relief in Japan Post's boardroom and a wry smile to the face of Apollo's Leadership. Better still, the appointment of Christine Holgate as Global Express' CEO is a smack in the teeth for Australia Post. Watch this space (if you will excuse the pun)Robert and Toby are by no means experts on the initial acquisition of Toll Group by Japan Post  and the debacle that followed, but in today's episode we do try and pick the deal apart and break it down to the key factors that influenced one of the biggest acquisition mistakes in recent history.Do you agree with us? Can you add any more flavour to the mix?Let us know, or wait until next week when we will unpick another M&A disaster
We've set out on a quest to narrow down M&A to a set of key principles that can be expressed in one line statements. It's a work in progress, but Toby sets out an example to get the conversation startedWe follow this up with a conversation about that feeling of either certain confidence or get wrenching uneasiness that you might get as you review your progress in an M&A deal. Some call it Emotional Intelligence, but what is it exactly? And as usual we finish up with three further quotes from the Late Les Hayman. This weeks offering is about how you treat your people.Tell people when they've gone that extra mile. Don't wait until the quarterly awards or a management meeting.Always protect your people from interference from all directionsGrow and develop your people because it will make each year easier than the one before. 
Toby's prediction from 6 months ago comes true as he shares the news that Westpac will use divestitures to drive a massive 21% annual savings across the business. We discuss how this will be a repeat pattern as other businesses re-focus on their core strengths and aim to build protection from post COVID experiences and also deliver stronger returns to shareholders.Robert introduces the principles of Murphy's Law and Sixth Sense in M&A using a very recent deal collapse where Murphy's law intervened at the final moment.  And his sixth Sense commentary is around that ability to spot what others can't see. Some of it is learned behaviour from years of experience and some of it is intuitive. You can't build it into a playbook, but it's that skill and intuition that can make the difference between M&A success or having to clean up a pile of smelly stuff that hit the fan.And as always, we finish with three quotes from the Late, Les Hayman. This weeks quotes are all focused on personal development. Enjoy! Make appointments with yourself … at least 1 hour per day.Take your job seriously … but not yourself and never your own importance.Have a mentor or coach no matter how senior you are 
After riding his bike up the side of a mountain, Toby's endorphins kicked in and he has proposed a great idea. You can learn more from listening to this podcast and we would welcome any contributions you might make.M&A Integration is about keeping it simple but as Einstein says  "you've got to make everything as simple as possible, but not simpler" and it's this topic that Robert and Toby explore.Then just as we thought we had simplicity nailed, Robert introduces SPAC's. What? I hear you say. Well according to Wikipedia,  A SPAC (Special Purpose Acquisition Company) is a company created solely to buy another firm and take it public — an alternative to a traditional IPO .  Robert aims at providing a brief overview but as always, we welcome further commentary from our listeners.Lastly we invoke Les Hayman and choose three more 'Pieces of advice for managers'  This week's sagely offings areBe humble. Greatness. Doesn't have to be advertised.Never get angry. The minute that you do, you've lostLead by example. But remember your people watch and see everything you do
An extended episode today as Robert and Toby are joined by special guest, Daniel Levy from Melbourne based Kidder Williams, to talk about the multi-faceted topic of compliance and the implications on the deal outcome if overlooked. Kidder Williams Providing Corporate Advisory and Investment Banking services to private and ASX-listed companies,We start off by letting Toby have a regular rant, and this week he's having a bellyache about culture and how cultural change should be addressed as an engineering challenge that is resolved by pulling a series of levers. I have to say I agree with him, but I'm equally certain we will upset a lot of HR people in the process.Then it's on to compliance - whether it's regulatory compliance, ethical compliance, statutory compliance, or one of the thousands of industry compliance standards, they are all important to a business' ability to operate, and neglecting these areas can have significant consequences in M&A. Robert And Toby offer their thoughts before we offer Daniel Levy's thoughts from his pre-recorded session earlier this month. Whichever way you look at it, compliance is one of those everyday M&A topics that should be almost automatic, but it's sometimes missed. Let us know what you think?And last but not least, we finish with three of the late Les Hayman's 'tips for managers' and this week's offerings of sagely advice are?: If you can’t explain it in just a few sentences to an outsider, it is too complex Many senior people think they are great speakers … most aren’t … practice is key.Don’t beat around the bush … be specific … vagueness is confusingThat's it folks!  We'll be back next week with more M&A Stories.
As you might expect, Robert and Toby unpack several topics in today's conversation.We kick off by asking if inspirational leaders are good for business? Not always it seems, especially if that 'inspiration' is driven by ego or is associated with excessive risk taking. And inspirational leaders can also be of little value if they only influence a small audience.Once we finish this topic, it's time for Toby to have a rant, M&A Integration is the enemy of innovation says Toby and boy, isn't he on target?  The core premise of Toby's rant is that there is still too much focus on cost reduction and efficiency, when real value is derived from innovating products and services and driving net new revenue growth.And last of all, three more quotes from my former boss, Les Hayman:Instil an understanding in your people that competitiveness is external and collaboration is internal Gender, race, religion. And sexual orientation is never business decision criteria for anythingBeing fair is far more important than being tough.And that's it folks - but don't forget we are back next week with more M&A Stories.
 I am joined today by real life. Bonafide London trained actor, Dale Stevens Dale has played the role of an assassin in mission possible and as a detective in blue healers, but today she prefers to use that creativity to grow influence in the people that she coaches she uses her extensive experience in theatre, film, and TV to inform her  unique approach to coaching where she emphasises the importance of 'being present' to create powerful messaging that inspires new behaviours.Dale brings this podcast episode to life with her thoughts and experiences and she leaves our listeners with four key takeaways: inspirational leaders aren't necessarily born. You can learn to be an inspirational leader. inspirational leaders are pervasive. They work across the entire organisation. It's not dependent on your profession.  it's not something that only sales people can do. Accountants can be inspirational leaders as well. Be yourself because you need to be genuine in this, be present, be in the moment.  And if nothing else. Gain professional coaching as part of your leadership development journey.The smartest thing you can do is to leverage your own personality. 
In last week's topic we unpacked the myth of M&A failure rates and this week, Toby expands on the discussion to talk about the deal value disconnect whereby what was envisaged when the deal was crafted, is often very different to what post deal activities uncover. We offer some thoughts as to why this might be the case but we'd welcome your thoughts and experiences.We then move on. Toby's crystal ball has been recharged and we gaze gleefully to offer some insights into the volume and appetite for M&A deals across 2021. And we have to say that based on our own experience, these predications seem fairly accurate. What do you think?And lastly it's time for another three tips from the late Les Hayman's '100 pieces of advice for managers'  This week's tips are very much people focused. Enjoy! Never forget that great people have choices of where they will work.If you hire someone for their strengths, don’t discard them just for their weaknessesHire people who are smarter than you … if you can’t find them you are deluded
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