Deals from Hell: M&A Lessons That Rise Above the Ashes

Abstract:     
"Deals from Hell" surveys failure in mergers and acquisitions, drawing on an extensive review of research, original study of 2,804 transactions, and detailed case studies of ten prominent failures. The conclusions challenge conventional wisdom about M&A and enrich our ability to anticipate failure and promote success. Insights from the book include these:

- M&A does pay for bidders, on average and over time. But the variance of returns is sizable: you cannot be terribly confident of hitting the average return simply by acquiring naively. Investors and managers should suppress overconfidence and prepare to be disappointed.

- The market for acquisitions is highly segmented; returns to investors vary significantly across the segments. For this reason, broad assertions about M&A success and failure are less meaningful. All M&A is local: pay attention to the peculiarities of the deal including its motives, design, context, and implementation.

- The detailed comparison of failure cases finds six elements in common. While these elements are individually widespread in the business environment, it is their convergence in the context of a merger that greatly elevates the likelihood of failure. Since merger failure results from a "perfect storm" of factors, failure prevention must attack the systemic combination of factors.

The detailed case studies consist of the following:
- Merger of the Pennsylvania and New York Central Railroads, 1968.
- Leveraged buyout of Revco Drug Stores, 1986.
- Acquisition of Columbia Pictures by Sony Corporation, 1989.
- Acquisition of NCR Corporation by AT&T Corporation, 1991.
- Renault's proposed merger with Volvo, 1993.
- Acquisition of Snapple by Quaker Oats, 1994.
- Mattel's acquisition of The Learning Company, 1999.
- Merger of AOL and Time Warner, 2001.
- Dynegy's proposed merger with Enron, 2001.
- Acquisition program of Tyco International 2002.
Each case study of failure is accompanied by one or more comparison cases that vary in some instructive way.

The downloadable document contains the foreword, table of contents, and introductory chapter.

Accepted Paper Series