The 9 Biggest Mergers and Acquisitions Failures of All Time

What constitutes a failure in M&A?

Simply put, value destruction.

At DealRoom, we’ve hosted hundreds of successful deals. From our perspective, if the ultimate goal of M&A is value creation, the opposite has to be the destruction of it.

There’s more than one way to destroy value, as the list which follows will testify. On this list alone, the best part of US$200 billion was blown on acquisitions which failed.

Just think of where some of these companies could have better invested that money.

In this article:

Common Causes of M&A Failure
The 9 Biggest M&A Failures
Lessons Learned: Key Takeaways from These M&A Failures
Frequently Asked Questions
Conclusion

What is an M&A Failure?

Mergers and acquisitions are strategic moves companies make to enhance their market position, grow their operations, or achieve synergies. However, not all M&A deals achieve their intended goals - many end in failure.

M&A failures occur when the anticipated benefits of a merger or acquisition don’t materialize. This might look like:

Financial loss: The acquiring company fails to see an increase in revenue or profit, or it incurs substantial costs as a result of the transaction.
Operational disruption: Integration challenges lead to inefficiency, staff turnover, or a decline in product/service quality.
‍Strategic misalignment: The merger or acquisition doesn’t align with the company’s long-term strategic objectives, leading to wasted resources and missed opportunities.

Common Causes of M&A Failure

Understanding why M&A deals fail can help companies avoid similar pitfalls in the future. Here are some of the most common reasons M&A transactions fail:

No clear strategy: Before entering into a merger or acquisition, a company must have a clear strategy outlining the rationale for the deal. If the motivation is clear or based on superficial reasons - like market trends or pressure - failure is more likely.
Poor due diligence: Inadequate due diligence - evaluating the target company’s financial health and operational capacity - can lead to unforeseeable liabilities, overvaluation, or cultural misalignment post-merger.
Cultural clashes: Cultural differences between organizations often lead to significant challenges post-merger. When the acquiring company’s culture clashes with the acquired company’s culture, it leads to employee dissatisfaction, reduced morale, and high turnover rates.
Integration challenges: Poorly planned or executed integration can lead to operational disruptions, talent loss, and reduced performance levels, hindering the deal’s success.

Overvaluation: Overestimating the potential benefits of an acquisition (and paying too much) can create financial strain and limit the new entity’s ability to invest in strategic growth opportunities.

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Failed M&A Examples

America Online and Time Warner (2001): US$65 billion
Daimler-Benz and Chrysler (1998): US$36 billion
Google and Motorola (2012): US$12.5 billion
Microsoft and Nokia (2013): US$7 billion
KMart and Sears (2005): US$11 billion
eBay and Skype (2005): US$2.6 billion
Bank of America and Countrywide (2008): US$2 billion
Mattel and the Learning Company (1998): US$3.8 billion
Just Eat Takaway and Grubhub (2021): US$7.3 billion

After you’ve finished browsing this list of epic M&A failures, be sure to check out our other blog post about successful acquisition examples here.

The 9 Biggest M&A Failures

1. America Online and Time Warner (2001): US$65 billion

To those familiar with lists like these, the presence of AOL and Time Warner at the top of this list will come as little surprise.

Speaking about M&A failures and not mentioning this transaction would be like interviewing Neil Armstrong and not mentioning the moon.

The managers behind this deal were rushing to get into new media without truly understanding the dynamics of the new media landscape.

Without an understanding of the landscape, the danger existed that the participants would overpay. And so they did.

A year after the deal, the company reported a write-down of US$99 billion - the largest annual net loss ever reported.

2. Daimler-Benz and Chrysler (1998): US$36 billion

The Daimler-Benz and Chrysler merger is regularly used in MBA courses as the textbook example of how culture clashes will inevitably lead to the failure of a deal.

It has been said in some quarters that the two cultures were too different to ever be brought together. For example:

Decision-making at Daimler-Benz was methodical, while at Chrysler it was creative and unstructured.
Salaries at Daimler-Benz were conservative, much less so at Chrysler.
Chrysler had a flat hierarchy, while Daimler-Benz had a top-down structure.

The upshot?

Within a decade, Daimler had sold 80% of Chrysler to Cerberus Capital Management for US$7 billion - a US$20 billion poke in the eye to anyone who says culture doesn’t matter.

Read also:

Integrating Unique Cultures in M&A

3. Google and Motorola (2012): US$12.5 billion

Many people thought the transaction between Google and Motorola in 2012 was a smart strategic move at the time. Google’s Android operating system was already the second biggest player in the market, and acquiring Motorola would give it the opportunity to develop high-quality mobile handsets.

But this second part of the equation - making high-quality handsets - has been the undoing of dozens of companies in the telephony industry.

The same fate awaited Motorola. Google thought so poorly of its new handsets that it contracted others, including Samsung and LG, to develop its Nexus handsets. In 2014, Google divested Motorola for just US$2.9 billion.

4. Microsoft and Nokia (2013): US$7 billion

From Google and Motorola in 2012, to Microsoft and Nokia a year later in 2013. With smartphones beginning their rise to ubiquity, followed shortly by tablets, it was vogue for the biggest players in technology to announce that they would soon be producing their own handset devices.

And it seemed like they all viewed acquiring an existing handset maker as the shortcut to achieving this. In Microsoft’s case, this was Nokia.

Although once the world’s biggest handset manufacturer, Nokia had failed to keep up with developments. By the time it closed down in 2015, Microsoft had written off US$7.6 billion and laid off over 15,000 Nokia employees.

5. KMart and Sears (2005): US$11 billion

Economies of scale are one of the main drivers of M&A transactions, but they’re not an end in themselves. You can take two fading companies, like KMart and Sears Roebuck, merge them, and you’ll have an even bigger problem than the one you started with.

The combined Sears Holdings was the third biggest retailer in the United States at the time of the deal, but e-commerce was just about to take off.

It also coincided with a series of cuts at Sears Holdings at a time when it probably needed investment in stores, inventory, and an online strategy more than ever. The company filed for bankruptcy in 2018 after 125 years in existence.

6. eBay and Skype (2005): US$2.6 billion

It’s interesting how many of the worst M&A failures of all time happened around the same period. This is likely due to the changeover to digital and many dealmakers failing to understand its dynamics.

Another such example is eBay’s acquisition of Skype. The theory was that this would allow communication between buyers and sellers on eBay, smoothing transaction flow and generating more revenue - beautiful synergies.

What eBay didn’t bargain for was that people don’t really want to talk to strangers about transactions if they can just email them. eBay soon saw there was no real need for the acquisition and ended up selling two-thirds of Skype for US$1.9 billion just four years later.

7. Bank of America and Countrywide (2008): US$2 billion

It seems bizarre now, but when Bank of America acquired Countrywide at the beginning of 2008 for a price of “just” US$2 billion, many thought it was a shrewd investment.

Even though every economic indicator in the United States was pointing downward, the deal, in theory, stood to combine the country’s biggest retail bank with its biggest mortgage provider.

This does have a ring to it. However, what constituted ‘mortgage’ in the first decade of the 21st century in the United States was yet to become apparent.

Bank of America had basically acquired bad debt for US$2 billion. It ultimately ended up paying US$50 billion for the acquisition, making one wonder where the financial due diligence was when it was needed most.

8. Mattel and the Learning Company (1998): US$3.8 billion

How could anybody not get behind a deal that was billed as ‘Barbie meets Carmen Sandiego’?

That was one of the premises leading to Mattel’s acquisition of The Learning Company in 1998.

Sensing a move away from traditional toys towards video game consoles, Mattel felt that The Learning Company would give it a software platform to build on.

Even the CEO of The Learning Company said of the deal at the time, “The lines of distinction between consumer software and toys begin to grey or blur when you get out past two years.”

It was revealed that he also envisioned a completely interactive children’s plush toy, but he wouldn’t commit to a timeline for its market release.

Just two years later, Mattel sold The Learning Company for about a tenth of what it bought it for, with no strategy, no products, and no synergies to show for the acquisition.

9. Just Eat Takeaway and Grubhub (2021): US$7.3 billion

In 2020, Just Eat Takeaway - a major player in Europe - wanted to expand its footprint in the US market, and acquiring the well-known Grubhub for $7.3 billion seemed like a logical, strategic move at the time.

However, this acquisition was at the height of the COVID-19 pandemic, which created a surge in demand for food delivery services. But it wasn’t sustainable: as consumer habits went back to normal, the anticipated growth from the acquisition didn’t materialize.

The warning signs were there. JustEatTakeaway.com was formed from a merger between UK-based Just Eat and Takeaway.com, which was based in the Netherlands, and integration was still ongoing.

Grubhub struggled with profitability before the transaction, and its financial performance worsened post-acquisition. Grubhub also faced pressure from other players in the US, such as DoorDash and Uber Eats, who were better positioned to capture market share.

Grubhub’s CEO, Matt Maloney, stepped down, which caused instability within the company and made it harder to maintain customer and partner relationships. Stock prices were falling, and shareholders made their concerns known. By April 2022, Just Eat Takeaway was looking for a buyer for Grubhub.

Two years later, in 2024, Just Eat Takeaway sold Grubhub to Wonder for just $650 million, a staggering loss of $6.5 billion.

Lessons Learned: Key Takeaways from These M&A Failures

There are several important lessons for companies considering an M&A transaction to learn from these M&A failures.

Ensure that the merger or acquisition aligns with your company’s long-term strategic goals. For instance, the AOL-Time Warner merger in 2001 failed due to a lack of understanding of the new media landscape, leading to overpayment and significant losses.
Conduct comprehensive due diligence to assess the financial health, operational capacity, and potential liabilities of the target company. Bank of America’s acquisition of Countrywide in 2008 exemplifies the dangers of inadequate due diligence, resulting in unforeseen liabilities and financial strain.
Evaluate the cultural fit between organizations. Significant culture clashes led to operational disruptions and eventual divestment in the Daimler-Benz and Chrysler merger in 1998.
Develop a detailed integration plan to address operational disruptions, retain key talent, and manage performance. Integration issues following Microsoft’s acquisition of Nokia in 2013 resulted in financial write-offs and layoffs.
Avoid overvaluation by accurately assessing the target company’s worth. eBay’s acquisition of Skype in 2005 highlights the risks of overestimating potential benefits, leading to a significant loss when the company was sold a few years later. Use multiple valuation methods and compare your findings to estimate the target company’s value.

Frequently Asked Questions

Business person touching a digital deal button

What makes an M&A deal a failure?

An M&A deal is considered a failure when it doesn’t achieve the anticipated strategic, financial, or operational goals, leading to lost value, integration issues, or a decline in company performance post-merger.

How many M&As fail?

Studies show that 70-90% of M&As fail to meet their intended objectives, with varying degrees of failure depending on industry and specific deal conditions.

How can companies avoid M&A failures?

Companies can avoid M&A failures by conducting thorough due diligence, ensuring a good cultural fit, developing an effective integration plan, aligning leadership goals, and setting realistic expectations for synergies.

How can due diligence prevent M&A failures?

Due diligence reveals potential risks, the target company’s financial health, legal issues, and cultural compatibility before the deal, allowing companies to make informed decisions and mitigate avoidable pitfalls.

Can M&A failures ever be turned around?

Yes, M&A failures can sometimes be turned around with proper leadership, strategic adjustments, focused integration, and realignment of goals. However, rescuing an M&A failure requires significant time and effort.

What are the financial impacts of M&A failures?

The financial impacts of an M&A failure include a drop in shareholder value, loss of market share, unanticipated costs from integration challenges, and potential write-offs of overpaid assets or goodwill, leading to long-term financial setbacks. ‍

Conclusion

What do all of these deals have in common?

A narrative. It’s easy to sell the idea of a retail bank buying a mortgage provider, a traditional toy maker merging with a technology platform, or a software maker buying a handset maker to shareholders.

But a narrative isn’t enough. You can overpay for a company that may even be a good fit (AOL/Time Warner), misunderstand the dynamics of a market (Google and Nokia) or simply not perform enough due diligence (Bank of America and Countrywide).

Avoiding M&A failures means paying more attention to details like these and less to the grand narrative behind the deal. The DealRoom M&A Platform can help you do just that, providing a unified solution to manage every stage of the deal lifecycle, from deal pipeline management to due diligence and post-merger integration (PMI).