Investment Banking M&A Case Study

Successful Mergers and Acquisitions| Key Drivers, Examples, Case Studies – 7th September 2016 will be celebrated as a big day in the history of global technology industry as the merger between Dell-EMC came to fruition. As Dell-EMC merged into one, the global technology industry cheered. After years of steady courtship, the deal finally saw the light of the day. However, the fate of this merger is yet to be seen. But have you ever thought, why some mergers are successful, while some have gone sour? The reason is simple. Those mergers which have happened for the right reasons have stayed on, while those which came together for wrong reasons or were executed badly have gone kaput.

In this article, we look at the following –

What is Secret Recipe for Successful Merger and Acquisitions?

Like most things in life there is no secret recipe for successful mergers. A well-etched strategy, astute management team and an eye for details is what encapsulates the essence of successful merger. While strategy is important for most mergers, cultural compatibility is the soul of the merged entities.

There are so many mergers and acquisitions that happen every year. As per IIMA institute, more than 45,000 transactions have taken place in the M&A landscape in 2015. The valuation of these stand at $4.5 trillion or more.

Source: Institute for Mergers, Acquisitions & Alliances (IMAA)

The acquisition of Time Warner Cable Inc by Charter Communications Inc in May 2015, valued at $77.8 billion, proved to be the largest U.S. based M&A deal of the year 201, followed by Dell-EMC merger of $65.5 billion.


Most of these mergers gather immense media attention, while some just happen in a hush-hush way. But that’s not what is important. What actually matter is how many of these stand the test of time and how many remain a memory at best. Before finding out more on this let us first try to comprehend as to why mergers happen in the first place. Why do two independent entities come together to forge a new relation when they can make way on their own? Sounds akin to marriage isn’t it? Well, yes. Mergers, just like marriages, have a lot at stake. It is a make or break situation at the end of the day! One miscalculation can cascade into trillions of losses, and well who wants that?

Why Merger and Acquisitions?

Primarily value creation or value enhancement is the goal of any merger. These are business combinations and the reasons are based on pecuniary elements. Let’s take a quick look at some of the reasons behind mergers.

#1 – Capacity augmentation:

One of the most common causes of merger is capacity augmentation through combined forces. Usually companies target such a move to leverage expensive manufacturing operations. However, capacity might not just pertain to manufacturing operations; it may emanate from procuring a unique technology platform instead of building it all over again. Capacity augmentation usually is the driving force in mergers in biopharmaceutical and automobile companies.

#2 – Achieving competitive edge

Let’s face it. Competition is cut-throat these days. Without adequate strategies in its pool, companies will not survive this wave of innovations. Many companies take the merger route to expand their footprints in a new market where the partnering company already has a strong presence. In other situations, attractive brand portfolio lures companies into mergers.

#3 – Surviving tough times

Tweaking the adage, let’s say” Tough times don’t last, tough companies do”.  Global economy is going through a phase of uncertainty and combined strength is always better in tough times. When survival becomes a challenge, combining is the best option. In the crisis period, 2008-2011, many banks took this path to cushion themselves from balance sheet risks.

#4 – Diversification

Sensible companies just do not believe in keeping all eggs in one basket. Diversification is the key. By combining their products and services, they may gain a competitive edge over others. Diversification is simply adding products in the portfolio which is not part of current operations. A classic example of this is the acquisition of EDS by HP in 2008 to add services-oriented features in their technology offerings.

#5 – Cost cutting

Economies of scale is the soul of most businesses. When two companies are in the same line of business or produce similar goods and services, it makes perfect sense for them to combine locations or reduce operating costs by integrating and streamlining support functions. This becomes a large opportunity to lower costs. The math is simple here. When the total cost of production is lowered with increasing volume, total profits are maximized.

Out of the many mergers that grace the headlines every day, let us pick two examples and study their cases. Let us delve and find out whether they were successful or met with a harsh fate.

Adidas-Reebok Case Study

Adidas-Salomon AG  2005 announced its plan to acquire Reebok North America in 2005 at an estimated value $ 3.78 billion. Adidas offered to pay over 34% premium over last closing price for Reebok. This was a mouth-watering deal for Reebok, as it was also facing a tough competition from Nike, Adidas and Puma.

The footwear market in North America was mainly dominated by Nike with a 36% share. Increased market share and cost cutting through synergies were clear-cut strategies for both Adidas and Reebok. Adidas with its quality products and Reebok with its stylized quotient, planned to capture the scene.

Combined core competencies formed a revamped portfolio which had:

Nike had 36% market share in August 2005. Post the acquisition of Reebok, the market share of Adidas-Reebok in the US catapulted to 21% from 8.9%.

Source: icmrindia, NAFSMA

Revenue from footwear segment of Nike, Adidas and Puma from 2010 to 2015 (in billion U.S. dollars)

Source: Statista

Sales revenue increases by 52% in 2006, representing the highest organic growth of the Adidas group within last eight years. It was the first time in the group’s history that it crossed the benchmark of EUR 10 billion.

What led to the successful merger of Adidas Reebok?

#1 – Cultural blend

The culture of Adidas and Reebok effortlessly merged and gave a new identity to the organization. Distinguishing factors were many. Adidas is originally a German company and Reebok an American entity; Adidas was all about sports, while Reebok redefined lifestyle. However, proper communication, clear strategies and effective implementation did the job.

#2 – A perfect blend of Individuality and Union

Maintaining both brands (keeping established market share). Adidas-Reebok is one such merger where both the companies managed to create a portfolio of new offerings while keeping their individuality intact.  There exists a threat of cannibalization where one brand eats into the others’ consumer spread. However, Adidas Chairman and CEO Herbert Hainer clearly stated “it is important that each of these brands must retain their own identity.”  While Reebok capitalised on its strong presence with the youth, Adidas focussed on its international presence and high-end technology.

#3 – Economies of scale:

Adidas benefitted from enhanced distribution in North America, where Reebok already has a strong foothold. Increased operations naturally translated into reduced cost across each front of the value chain such as manufacturing, supply, distribution and marketing.

They are many mergers that however meet with an adverse future. The fail to do a pre and post-merger analysis and both companies end in shambles. One such case in the recent past has been Microsoft-Nokia merger.

Microsoft-Nokia Merger Case Study

When Microsoft was getting stifled by Apple and Android devices, it decided to merger with Nokia as a last ditch attempt in 2013. Joining hands with an already existing device manufacturer seemed to be more convenient than creating the business organically.

However, the deal proved to be a sour one. Microsoft has shifted much of its $7.5 billion acquisition into other divisions of the company, announced mass layoff for Nokia employees, cut down its output of smartphones per year, and eventually wrote off the entire acquisition price in a $7.6 billion impairment charge.

Meanwhile, Nokia’s market share declined from a peak of 41% to its current level of 3% despite Microsoft support.

What actually led to the failure of Microsoft Nokia Merger?

source: Business Insider

Desperation doesn’t lead anywhere

Rather than growing through a shared vision or common passion, both Nokia and Microsoft were shoved into a corner and considered the other as their Knight in shining armour.

Failure to understand market trends and dynamics:

Even after two years of Windows Phone-powered Nokia handsets, Microsoft’s operating system captured a mere 3.5% of the smartphone market. This was a strong indication that developers are unwilling to invest resources into creating applications for Windows-based phone. The mobile phone industry is not just about hardware and software.  Applications, e-commerce, advertising, social media applications, location-based services, and many other things matter today. The software on the phone wasn’t compatible or appealing enough for the entire ecosystem.

So it’s pretty evident that mergers are fraught with complications. Without thorough due diligence and careful executions, these big-ticket mergers are sure to be doomed. It’s a phase of transition and any transition in business is not easy. There are disquieting questions in every stakeholders mind. Layoffs, customer integration, leadership change, product portfolio revamp, is a lot to deal with.

It is commonly believed that the failure rate among mergers and acquisitions is a whopping 83%. A merger is considered to be successful, if it increases the combined firm’s value. But an important aspect to consider is that to sustain the positive benefits of any merger is ensuring the post-merger integration is successful.  To begin with let us understand what the key ingredients of a successful merger are:

Identifying right reasons for Merger

Like every long term relationship, it’s imperative that mergers also happen for right reasons. When two companies hold a strong position in their respective arenas, a merger targeted to enhance their position in the market or capture a larger share makes perfect sense.

Source: originally published by Booz & Company;

However, companies fail to realize this. Many consider mergers as last ditch effort to save their flagging position. We just read what happened in the Microsoft-Nokia case. Both these giants where facing severe threats from Android and Apple, so the merger was more out of desperation. So the result is a failed attempt. But if we see the case of Adidas-Reebok, we can understand that these were two brands who had strong presence in their own field. The combined forces augmented their footing in the market and led to a successful merger.

#1 – Have an eye for risks

Merger is an extremely significant move for each company involved. It’s a tight ropewalk and even a small slip can lead millions down a drain. Timely identification of weaknesses, risks and threats whether internal or external, can save huge M&A costs and efforts. Internal risks can be cultural frictions, layoffs, low productivity or power struggle at the helm, while external risks are low acceptance of products through combined synergies, sudden change in market dynamics, regulatory changes etc. Yes it’s not possible to be so impeccably far-sighted, but precision in dealing with things is a must.

#2 – Cultural compatibility

While absolute cultural congruency is not always possible, it is always advisable to find the closest fit while planning a merger. Both companies must recognise their similarities and more importantly acknowledge their differences. Then can they strive to create a new culture which reflects the corporate beliefs to the core. The creation of a brand new identity with employee support leads to a sense of belongingness and persevered efforts towards a shared goal. So for employees its new culture, new goals and a new future.

#3 – Maintaining key leadership

As much as it is required to identify the correct reasons for merger, it is required to retain the correct people after merger. The success of a merger hinges on seamless transition and effective implementation. Many companies take too long to set the key leadership in place, thus creating confusion and apprehension. Choosing whom to retain and whom to let go is a dicey game. But this is where judgement skill has to play a role. If the pillars of the each company are retained judiciously, the path becomes easier. However, if employees feel out of place since beginning, they may drift apart leaving a big vacuum in the newly merged company.

#4 – Communication is the base

Studies by McKinsey proved that “management of the human side of the merger is the real key to maximizing the value of the deal.” Effective employee communication and culture integration are most difficult to achieve, but have maximum importance in merger success. International Association of Business Communicators (IABC) indicated that most of the merger communication budgets globally have been spent on external communication rather than internal communication. Conveying the decision to merge at the appropriate time helps to reduce a lot of uncertainties both in the pre and post-merger stage. Uncertainties lead to speculation and weaken trust. Grapevine only results in loss of productivity. The more open the communication, the better it is.

Conclusion: Successful integration is critical

Life comes a full circle post-merger implementation. We saw how to identify things at the pre-merger stage, but that is just one side of the coin. Actually it is the post-merger implementation decides the fate. It is how the newly formed relationship is nurtured. There is stress of performance in core-business areas amid changed circumstances. The time pressure is tremendous. Unlocking synergies quickly and support from key personnel is critical at this juncture.

In a nutshell, it can be wrapped up saying mergers must take place for strategic reasons, such as to improving competitive capabilities, expanding footprints, achieving economies of scale, to boost customer base, test new geographies, enhancing brand equity etc, rather than superficial reasons like tax benefits or to save oneself from market risks. Mergers, must be considered as means to fulfill far greater strategic outcomes rather than mere ends in themselves.

Suggested Readings

This has been a guide to Success Mergers and Acquisitions, its key drives, with examples and case studies. You can learn more about Mergers & Acquisitions from the following articles –

Filed Under: Mergers and Acquisition, Equity Research Fundamentals, Investment Banking, Equity Research

Expect a case study involving a company like eBay

Want to work for Goldman Sachs? Wondering what you’ll encounter in your entry-level interview? We have a selection of Goldman Sachs’ graduate interview questions, here, here, and here.

However, if you’ve made it through to the final round and are participating in a Goldman Sachs assessment centre or ‘Superday’, you can expect something altogether more complex. At this stage, you’ll probably encounter a case study based upon a real-life business situation. You’ll typically be expected to discuss this case study in a small team with other applicants, and to make a presentation based upon your findings.

It’s come to our attention that some of these Goldman case studies are buried on the web, after being uploaded by students at the University of Berkeley who participated in the university’s case study competition.

The material is protected, so we can’t display it ourselves, but you can access it if you click the links below.

Goldman Sachs’ eBay Investment Banking Case Study (2011)

Goldman Sachs’ SolarCity Investment Banking Case Study (2013) 

0 thoughts on “Investment Banking M&A Case Study”


Leave a Comment

Your email address will not be published. Required fields are marked *