Mergers and acquisitions (M&A) are one of the fastest ways for a company to expand its presence into a new country or industry. But M&A or carve-out transactions are not easy. Here are five M&A deals that never took off, along with what we can learn from them.
A successful M&A or carve-out relies on several factors: trust between both parties, the financial status of the participants, a successful due diligence process, a favourable regulatory environment, agreement from shareholders, and more. Through years of experience, we've found that it's the little things that can make or break a deal, and also potentially rack up a large bill.
Here are the five M&A deals that didn't materialise and the likely reasons behind why:
1. Pfizer and Allergan
Deal size: US$152bn
Back in 2016, a deal between these pharmaceutical companies would have resulted in the biggest takeover for 15 years. It would have also provided Pfizer with the opportunity to relocate its headquarters overseas, ultimately lowering its tax bill.
However, the Obama administration tweaked the tax rules aimed at preventing 'corporate inversions', as American companies had been attempting to reduce their tax bills by shifting profits abroad. Those changes removed the financial advantages Pfizer hoped to get from buying Allergan, eventually causing the deal to be abandoned.
Cause: Regulatory environment
What we think could have been done better: Tax regulations are being reviewed and updated almost daily, all around the world. From substance requirements to transaction monitoring, we've seen it all. It is critical to have professionals providing timely updates and forecasting ahead. By reviewing the group and holding structure regularly, we work closely with our clients and their advisors to manage the potential risks and scenarios that may arise with impending deals.
2. Kraft Heinz and Unilever
Deal size: US$143bn
In 2017, US food giant Kraft Heinz shocked the business world by announcing a plan to buy Anglo-Dutch stalwart Unilever for US$143bn. Yet, two days after the announcement of the takeover bid, Kraft Heinz withdrew its offer, after Unilever had strongly rejected the bid.
Though much of the media focused on the political dimensions of the deal, a clash of corporate cultures may have been one of the prime reasons the takeover did not happen.
Cause: Due diligence and communication
What we think could have been done better: Mergers may be neat in theory, but the actual integration of two companies can be a tricky thing to successfully implement; it all comes down to the people on the ground. Language barriers, different working cultures and even discrepancies in core working hours and response times, can create much frustration if there is misalignment.
Relocating management from company headquarters to a new country, without any help, can also create possible problems for the business. Clients who approach us early during deal negotiations, to bridge the gap between headquarters and the local in-country requirements that become apparent during the transition period, typically fare much better at integration than those that look for help after the event - or after mass resignations from staff and angry notices from customers.
3. Honeywell and United Technologies
Deal size: US$90bn
When these two industrial conglomerates discussed a potential merger in 2015, the aim was to create a giant that would produce everything from thermostats to jet engines. The deal fell apart as United Technologies' stock price declined and the two firms' executives disagreed over the control of the merged entity.
Since United Technologies refused to accede to Honeywell's demands, Honeywell was forced to walk away.
Cause: Communication and corporate culture
What we think could have been done better: The companies should have looked to introduce a third voice at the start of the discussions, to help step into negotiations where there are multiple parties fighting over different priorities, from different points of view. As trustees, independent directors, neutral bookkeepers and tax agents, we bring clarity and transparency to the table, which keeps businesses growing, which ultimately benefits all parties.
4. Mondelez International and Hershey
Deal size: US$23bn
Mondelez, the owner of Cadbury and Nabisco, intended to buy its confectionery competitor, Hershey, but ceased its pursuit after the latter rejected an offer.
A number of factors were blamed, including Hershey's demands for a higher price and the legal uncertainty that surrounded Hershey's biggest shareholder.
Cause: Due diligence and valuation
What we think could have been done better: The best mergers are those where companies are able to deep dive during their financial and legal due diligence while pulling in local country experts, such as TMF Group, to perform physical due diligence on site.
5. Ant Financial and MoneyGram
Deal size: US$1.2bn
The US government blocked plans for a US$1.2bn takeover of US-based money transfer company MoneyGram International by Ant Financial, a financial arm of Chinese e-commerce giant Alibaba Group, over national security concerns.
Alex Holmes, CEO of MoneyGram, said: "The geopolitical environment has changed considerably since we first announced the proposed transaction with Ant Financial.
"Despite our best efforts to work co-operatively with the US government, it has now become clear that the Committee on Foreign Investment in the United States will not approve this merger."
Cause: Geopolitical environment
What we think could have been done better: Global M&A deals can be a sensitive topic to governments, depending on the timing and the circumstances. Corporations should always speak to administrators to find out how potential geopolitical issues may pose risks. We often find clients coming to us after the deal is done, trying to find alternative solutions due to in-country restrictions arising from embargos, trade wars or protectionist issues.
M&A and carve-out support
Working with a partner that provides administrative support services can help relieve some of the pressures faced by your deal and integration teams. Once the deal closes, you'll need to move quickly.
It's time to give a seat at the table to the only company that can conquer cross-border compliance complexity from our network of 125 offices, across more than 85 jurisdictions. Our 9,100 experts are dedicated to unlocking access to some of the world's most attractive markets - no matter how complex - swiftly, safely and efficiently.
You don't need to handle these challenges on your own. Talk to TMF Group today for help with your M&A or carve-out
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.