Reasons For Failure Of Mergers & Acquisitions Deal

Mergers and Acquisitions are vital tools of business strategy to facilitate organizational and economic growth of a business. The terms are often used inter-changeably, however both offer different legal implications. Mergers mean the unification of two players into a single entity, while acquisitions are situations where one player buys out the other to combine the bought entity with itself[1]. Mergers can take place in the form of a purchase in which one business buys another, or they can be a management buyout, in which the business is bought by the management from the owner.

With reference to the legal process of initiating an M&A strategy, the businesses are required to undergo a long drawn and tedious process of sanctioning the initiation of the M&A process by the High Court. At different stages various provisions of the Companies Act, 2013 have to be complied with. Further, the involvement of the central government through the appointment of an Official Liquidator (OL) or the Regional Director of the Ministry of Company Affairs also has to be dealt with. All of the compliances should be carried out to the satisfaction of the Court, resulting in unavoidable delays that may sometimes render the M&A irrelevant or detrimental to the business by the time it is concluded.

However, the serpentine legal process is not the only factor that contributes to an unfavorable M&A. This article aims to analyze the various reasons that add to the failure of M&A deals and enable businesses to mitigate the related risks in the future.

Analysis and Reasons for Failed M&A Deals

Mergers and acquisitions gained significant popularity after 2015. Nearly 3,600 deals worth more than $310 billion were associated with mergers and acquisitions. [2] They are lengthy and complex processes, so a lot can go wrong when negotiating a deal. As per a recent article by Harvard business review, nearly 70% to 90% of the mergers and acquisition deals were deemed to be a failure.[3]

Regulatory issues

Adhering to the legal mandates of the relevant jurisdiction is necessary. There is a chance that the shareholders of an organization may cause legal difficulties by dissenting from the approval of the mergers or by disagreeing with the business’s decision to merge. This would significantly slow down the functioning of the company, forcing it to pay appraisals to the shareholders as a remedy.

Example: HDFC and Max Life Merger Deal:

HDFC Life and Max Life had announced their merger plans in August 2016 through a three-step merger process, under which Max Life would first merge with its parent company Max Financial Services, and subsequently the life insurance business would be demerged from Max Financial and would be merged into HDFC Life. This merger transaction would have led to the automatic listing of HDFC Life through a reverse merger process and would enable HDFC Life to hold a majority stake in the combined entity. The Insurance Regulatory and Development Authority of India (IRDA) denied permission for the proposed merger of Max Life Insurance Co. Ltd and HDFC Standard Life Insurance Co. Ltd (HDFC Life), and observed that the structure of the deal violates Section 35 of the Insurance Act, 1938, which barred the merger of an insurance company with a non-insurance firm.[4]

Mistakes in Negotiation and Overrated Synergies

In various mergers and acquisitions, there are cases of overpayment for the purpose of breach of agreement. Acquiring a company based on money without knowing the working format, procedure, structure of the company and going through the due diligence process will lead to a failed merger.

Mergers and acquisitions are considered significant tools for increasing revenue, reducing net working capital, and improving venture power. Overvalued synergies go hand in hand with transfer overpayment. Overvaluation of exchange synergies is often the initial stage of overpayment. While the prospect of numerous costs remaining largely equivalent between the two combined organizations is attractive, it is also decidedly harder to achieve in practice than most directors admit. Also, energy cooperative income is no less confusing. M&A practitioners would therefore be encouraged to look at the expected cooperation from the exchange through a deeply traditionalist contact point.

Lack of Due Diligence

The importance of due diligence can never be emphasized enough. One of the main problems that arise during the process is that the acquirer depends on the target company to provide information that is not always suitable for their management. This creates obvious problems with agency.

Example: Daimler-Benz and Chrysler Group

In 1998, German automaker Daimler Benz merged with Chrysler Group for $36 billion. This was seen as a win-win situation for both companies as it was essentially a merger between equals. However, after a few years, Chrysler’s value dropped to just $7.4 billion. The merger proved unsuccessful. Many reasons contributed to this, but all experts agree that Daimler Benz never did  proper due diligence before merging with Chrysler. In other words, it overestimated the value of the target company, which led to the failed merger.

Hence, even though an M&A deal may seem lucrative on paper, it is essential for the respective businesses to carry out thorough due diligence and research on predicted profitability trends and projected growth patterns of the proposed merger or acquisition.

Deficiency in Strategic Plan

A good “why” is an essential part of all successful M&A transactions. This means that without a good motive for the transaction, it is doomed from the start.

The academic M&A literature is replete with studies of managers engaged in “empire building” through M&A and research on how hubris is a common trend in M&A.

Difficulty with Integration and Swap Ratio Differences

Integration difficulties that are mostly faced by companies when a new company has to follow or accept a new set of challenges and regulations to position itself in the market. It is very difficult for society to adapt to new conditions. Various plans are created in the form of strategies to help the company adapt to the new environment. This integration sometimes becomes the reason for the failure of the merger due to insufficient effort and imprecise planning.

Example: IDFC Group and Shriram Group deal:

IDFC Group and Shriram Group called off their talks of a merger after failing to agree on a swap ratio. A swap ratio is the ratio at which the acquiring company offers its shares in exchange for the target company’s shares during a merger or acquisition.

The two parties had, on July 8, 2019, entered into a 90-day agreement to evaluate a strategic combination of their relevant financial services. Shriram Employee Trust, Piramal Group and Sanlam Group were set to become the largest shareholders in IDFC and drive the business, but the deal would have hurt the government, which owned a 16.38 per cent stake in IDFC. So due to the difficulty in integration and swap ratio differences this deal was called off. This was the reason for the failure of this deal.[5]

Lack of Involvement of Top Management:

Management involvement is a catch-all answer that also includes many of the abovementioned reasons within its ambit. 

No phase of the M&A process can successfully sustain itself without proper involvement of the management, from the search for a suitable target company to the integration of both companies into a newly created entity.

When managers consider other tasks in their company more important than successful M&A implementation, they should not be surprised when their business is ultimately considered a failure.

Lack of Adequate Communication

Proper communication is one of the most important features of any agreement or contract. If the purpose of closing the deal is unclear, the intent of the buyers and sellers is also unclear, then communication is poor. If there is a lack of synergy and the buyer and seller are unable to articulate the desired results, this is a sign of poor communication. Not only that, but poor communication can also include a lack of communication between key managers and employees. Whenever a company enters into a merger or acquisition, there should be an honest and clear disclosure of the motive and intent. All doubts should be clarified at the initial stage. All levels of society should be given the opportunity to have their say. Messages should be interpreted in a general sense and according to common sense.

Culture Mismatch

Culture mismatch is another significant factor that causes merger failures. If companies have different cultural aspects, then there is a chance of low employee productivity, which leads to lower profits. Culture includes the willingness of employees to collaborate, share, support and team together with a single motive. Company culture is shaped by company founders, but it was also influenced by company managers and employees.

Example: Facebook and WhatsApp

Facebook bought messaging platform “WhatsApp” in 2014 for $22 billion. However, companies quickly realized that the corporate cultures were clashing. There are some memorable articles about table size and toilet stall arguments, but there have been discrepancies in values. WhatsApp famously valued the privacy of its customers and employees (no wonder they had a problem with short toilet boxes), while Facebook had more of an “open door” policy when it came to privacy. Since WhatsApp had committed to using a no ads and no encryption policy for the app its customers, it was clearly not a match that would have succeeded and the founders of WhatsApp eventually left Facebook.

Therefore, while considering an M&A it is not only important to ascertain the collective vision and objectives of the businesses, but also to make sure that the culture, policies and values of the businesses stay in alignment going forward.

Human Resource Issues

Human resource issues also pose a threat to the merger. There is insecurity as people tend to leave their jobs due to sudden changes in the course of work or because of cultural or identity issues. There are many human resource related issues even in the pre-combination stage such as the acquisition of key talent etc. as those could be the major concern for the companies for acquisitions. Another critical HR issue is the selection of a leader who will actually manage the new business combination for smooth business operations. These issues may lead to a lack of direction and the postponement of major business decisions. Companies should put their best people in charge of implementing M&A deals, and seek union and community involvement to avoid the risk of deal failure.

Geographic Restrictions

Geographical barriers cannot be overlooked. These play an important role when it comes to cross-border mergers. In general, when a cross-border merger occurs, a two-layer articulation is needed due to the merger of two different companies into different countries with a different set of rules and regulations prevailing in the respective countries.

Other External Factors

External factors may include market position, competition, financing situation, and credit in the company’s lending. If all these things are against the company, there is a chance for the merger to fail.

                                                                          Source: PWC Report[6]

The Way Forward

It is expected that mergers and acquisitions will exceed $105 billion, breaking the record for the largest transactions. [7]  High-rated deals like Reliance Industries’ (RIL) potential $10 billion (Rs 76,000 crore) acquisition of European drug chain Walgreens Boots; the Adani and JSW groups, bidding for Ambuja Cements, and the HDFC twin merger are the leading big mergers and acquisitions (M&A) deals. Consolidation of all the market players has been a major driving force behind the M&A transactions. Tech Mahindra and Infosys focused on exiting entities, while Byju’s acquired Aakash Education, White Hat Junior and Topper Technologies.

According to the 2022 M&A report, despite the ongoing challenge posed by the Covid-19 pandemic and geopolitical tensions in South Asia, the market is showing strong signs of recovery. M&A volumes hit an all-time high in 2021 with more than 80 deals worth more than $75 million. The increase in investment can be partly attributed to Indian government policies such as the productivity-linked incentive program introduced under the Ease of Doing Business initiative. [8]

Thanks to the great interest of foreign buyers, the Indian market for mergers and acquisitions also did well (the US accounted for 35 percent of invested dollars). India’s economy is set for strong growth in 2022 – The IMF has forecast GDP growth of 8.2 percent in 2022, making it the fastest growing major economy and double the expected growth rate of China.

With a total of 174 deals in Q1 2022 (up 28% year-on-year), the stage is set for India’s M&A market to witness strong technology-driven performance. This would make the M&A management process more efficient and powerful. For example, sellers are seeing in real-time how artificial intelligence and machine learning are automating many of the time-consuming parts of M&A—from preparation and marketing to due diligence on both the sell-side and the buy-side. [9]

According to Data site, a leading provider of SaaS technologies to the M&A industry worldwide, deal activity from January to May 2022 shows that companies continue to invest in technology acquisitions as they undertake digital transformations accelerated by Covid-19. Trading on the Datasite platform shows that new global TMT projects rose 18 percent worldwide in the first quarter.

The median time to open and close a new deal or asset sale or merger at Data site increased five percent year-over-year this year, while deal preparation time is also increasing, up 31 percent over the same period. This means that many vendors are “ready” but have not yet launched their projects. [10]

                                                                            Source: VCC Edge[11]

If handled properly, mergers and acquisitions can be a powerful means of propelling a business to greater profitability. Businesses should be cognizant of the abovementioned factors discussed before taking the M&A leap, to ensure sustainable and stable growth projections for their future.

It can be fairly concluded that mergers and acquisitions are powerful means to propel a business to greater profitability, if dealt with properly. Businesses should be cognizant of the abovementioned factors discussed before taking the M&A leap, to ensure a sustainable and stable growth projections for their future.


Indian Diaspora Being Chosen to Lead Global Companies is No Accident

Mr. Laxman Narasimhan, former CEO of Reckitt Benckiser, was recently appointed CEO of Starbucks Inc. A few days later, advertising and PR giant Ogilvy (part of WPP, the global marketing and communications group) announced the appointment of Ms. Devika Bulchandani as its global CEO. These two are only the latest additions to an already impressive list of Indian-origin CEOs of global business organizations. This list includes blue chip names like Microsoft, Alphabet/Google, Adobe, Deloitte, IBM, Twitter, Bata, FedEx, Arista Networks, Vertex Pharma, Chanel and many more. Leading global VC firms including Masayoshi San’s Softbank have a number of Indians at the helm.

Ms. Indira Nooyi became Pepsico’s CEO in 2006 (and remained in that powerful position till 2018). However, it’s fair to say that the currently visible trend of Indian-origin leaders being appointed CEOs of global enterprises with headquarters outside India began about a decade ago, with the appointment of Mr. Ajay Banga as CEO of Mastercard. Since then, a number of other leaders who were born/raised and studied in India (at least their undergraduate degrees) have been chosen to lead global organizations across industries. All of them qualified with advanced degrees abroad and have spent a significant chunk of time working in overseas markets; most of them are no longer Indian citizens. Nonetheless, it is a matter of pride that no other non-G7 country has contributed as many executives to C-suites across the globe. Admittedly, the technology sector has the highest number of such leaders as CEOs, but companies from other sectors too are following suit.

To me, this trend is not a fad. It is also testament to more than just the intellectual capabilities, global experience or proficiency in English that these Indian-origin executives offer. I believe this phenomenon is also an acknowledgement of the innate ability and willingness of Indians (I use the word loosely because many of these business leaders are no longer Indian citizens) to deal with adversity, crises and rapid changes- all of which are dominant characteristics of our emerging world. These are the very same elements that have shaped the first 25 years of their lives, and taught them to adapt. This point was made more than two decades ago by the late Dr. C. K. Prahalad, who pointed out that those growing up in India quickly learn to be “natural managers” because they have to deal with infrastructural inadequacies, insufficient capacities and other constraints. This helps them develop a solution mindset and think outside the box.  

Given India’s inherent cultural diversity, Indians are more used to coping with diversity in multiple spheres; this helps leaders work in multi-cultural organizations and environments. Such a complex, competitive environment imbues individuals with a certain level of humility- something that probably also has a cultural dimension. Add to all this the fact that Indians working abroad have to work extra hard to prove themselves at every step- and you have a near-perfect recipe for leadership success. Of course, I must also acknowledge the critical role played by the US and other western nations in allowing Indian-origin talent to evolve, mature and shine. Although no society has as yet achieved the perfect balance, these countries are more proactive in promoting merit and providing equal opportunities.

But it would be unfair if I paint a universally rosy picture. Not every Indian leader who has become a CEO has been successful. There will naturally be variations based on a host of factors including the company, industry, external events, timing of becoming the CEO etc. For example, Vishal Garg, CEO of did not exactly cover himself in glory when he fired 900 employees on a Zoom call. He is back in the saddle of the company he founded. A couple of months ago, Ms. Sonia Syngal resigned as the CEO of Gap Inc. But there have been claims (supposedly backed by studies) that in corporate America, women leaders typically have shorter tenures and are more likely to be forced out when things start going wrong- irrespective of what causes the unravelling and to what extent the CEO could control those factors. But that’s another topic and I must not digress.

New sectors are emerging, driven by scientific and technological innovation. Combined with India’s burgeoning ecosystem and large talent pool, and changes to our education system and shifts in operational models and organizational development paradigms, we as a nation stand at the cusp of a huge opportunity to accelerate our socio-economic progress. It is time for organizations across sectors to rethink how they engage with talent in order to create enriching work environments that remain productive and mutually beneficial at a time when mindsets and aspirations are shifting more rapidly than ever before. Only then can we ensure that home-grown enterprises too are led by committed, dynamic and visionary leaders who can propel India to the US$5 Trillion league at the earliest.

Given India’s inherent cultural diversity, Indians are more used to coping with diversity in multiple spheres; this helps leaders work in multi-cultural organizations and environments.


The DESH Bill 2022 has the Potential to Change Our “Desh”

After India enacted the Special Economic Zones (SEZ) Act in 2005 and the rules governing SEZs came into effect in 2006, about 378 SEZs were notified. However, as of March 2022, only 268 of these were operational; the government has de-notified those SEZs that were not functional. In her last budget speech, Finance Minister Nirmala Sitharaman announced the government’s intention to revise the legislative architecture relating to SEZs. She cited lack of demand as a reason and also the fact that significant changes to taxation and incentive regimes in the past decade have made the existing notion of SEZs much less attractive. Further, a couple of years ago, the WTO ruled that the tax-related incentives given to SEZs violated global agreements on subsidies.

The Context of the DESH Bill 2022


The biggest reason why India’s SEZ regime needs a relook is because the business environment has changed substantially in recent years. The SEZ regime was originally intended to promote exports so that we could earn valuable foreign exchange. The existing SEZ regime has undoubtedly benefited the Indian IT industry, and this has contributed hugely to building our foreign currency reserves. However, with IT/ITES company business and delivery models changing to include greater on-site delivery capabilities, the sheen has worn off. Also, the manufacturing sector has not been able to leverage SEZs to deliver as much export-based economic benefit as was expected. Change was therefore needed, and this is why the government has been planning a thorough revamp of the existing SEZ system.


This is the Right Time for Change

With a number of disruptive events accelerating global shifts in supply chains, investment-intensive manufacturing capabilities in new sectors are becoming critical for India. It is also important to boost trading and other services beyond IT. It has become even more important to look at new ways of attracting capital to complement our demographic strengths. Also, rather than continue to cluster economic activity in certain urban areas, what India needs is more broad-based activity across various states. Only strategies that enable all this will accelerate job creation and hence socio-economic growth and development in India.

This is the context in which the government of India plans to introduce the Development of Enterprise and Service Hubs (DESH) Bill in the ongoing monsoon session of Parliament.


Broad Contours of the DESH Bill 2022

The DESH Bill seeks to encourage the creation of two types of hubs: one for services and the second for other enterprises. The former will have requirements for built-up areas and allow a broad range of services-related activities (including R&D), while the latter (which can house manufacturing and/or services), will have land-based area requirements. Both types of hubs can be created by the government (Centre/States), jointly, or by any registered goods and services provider. The idea is to encourage private sector investments to serve the domestic market and not just exports. The expectation is that greenfield or brownfield projects will encourage the creation of infrastructure in non-urban areas.

The Bill proposes to simplify ease of doing business by enabling single window clearances (both central and state). The bill will also make the hubs WTO compliant (tax incentives will be delinked from exports). However, some indirect tax benefits are expected to be provided. It is also likely that businesses operating from these hubs will be allowed to utilize idle capacity to service domestic customers (unlike SEZs that could only export).

What is known about the DESH Bill 2022 so far indicates that the central government is keen to use it as an instrument to activate three key levers of economic growth:

  • Creating infrastructure of the scale needed to become a global manufacturing and services hub – especially as western countries are looking at alternatives to China and other countries (even smaller ASEAN nations and some in Latin America and Africa) are positioning themselves as viable destinations at least in niche sectors. (Some of China’s hubs are more than 250 sq km in area, while Indian SEZs are hardly ever more than 2.5 sq km. Chinese hubs are fully integrated towns with well-developed infrastructure and linkages to ports, airports etc. This explains the huge difference in scale between Chinese hubs and those anywhere else in the world – a gap that India is keen to bridge).
  • Leveraging India’s scientific/technical talent to innovate and leapfrog competition in areas that will become key not just for self-reliance (e.g., pharma, energy, electronics etc.) but also critical to our security (e.g., drones, space technology, composite materials, semiconductor chips etc.)
  • Fostering better cooperation and greater alignment between central and state governments (and inter se) so that outcomes such as employment generation and optimal resource utilization are not sacrificed on the altar of petty political differences or short-term gains.

Let’s hope the DESH Act will achieve all that it seeks to, and not become just another legislation that did not deliver to its potential.

*”Desh” is the Hindi word for “country”. It is interesting that many acronyms coined by the government are easy to remember because they mean something related in Hindi.

Image Credits: Photo by Jesper Giortz-Behrens on Unsplash

The Bill proposes to simplify ease of business by enabling single window clearances (both central and state). The Bill will also make the hubs WTO compliant (tax incentives will be delinked from exports). However, some indirect tax benefits are expected to be provided. It is also likely that businesses operating from these hubs will be allowed to utilize idle capacity to service domestic customers (unlike SEZs that could only export).


Starting a Print Newspaper in India: A Guide

The primary statute that governs and regulates the publication of books, newspapers and magazines is the Press and Registration of Books Act, 1867. In addition, the Newspaper (price and Page) Act, 1956 regulates, governs and endeavors to prevent unfair competition among newspapers so that newspapers generally and in particular, newspapers with smaller resources and those published in Indian languages, may have fuller opportunities of freedom of expression.

The term “newspaper” is defined in the Newspaper (Price and Page) Act, 1956[1] as any published periodical work containing public news or remarks on public news appearing at intervals of not greater than a week. The main function of the Ministry of Information and Broadcasting is to control the office of the Registrar of Newspapers for India (“RNI”) and frame the rules under the Press and Registration of Books Act, 1867. Therefore, anybody who is inclined to start a newspaper, magazine or journals, will have to seek prior approval from RNI. Headquartered in New Delhi, the regional branches of RNI are in Mumbai, Kolkata and Chennai.

The RNI is entrusted with assembling and maintaining a Register of Newspapers; issuing Certificates of Registration to the newspapers (“RNI Registration”); Verifying claims; and various non-statutory functions and rules.


RNI Registration



                                                                    Photo: Who requires RNI Registration [2]


Steps to Obtain an RNI Registration 


Title Verification