Tech M&A Flops: A Look at the Deals That Failed 

In the fast-paced business world, mergers and acquisitions (M&A) are a common strategy for growth. Companies constantly seek ways to expand their operations, and M&A offers a powerful avenue to achieve this. These deals provide numerous advantages, allowing businesses to instantly tap into new markets, distribution channels, and a broader customer base. However, while M&A offers significant potential benefits, it also carries a substantial risk of failure. Studies show a surprisingly high failure rate, with estimates ranging from 70 to 90 percent. One of the main reasons for this is the difficulty in integrating the merging companies, their cultures, and operations. 

The tech industry, in particular, faces unique challenges in M&A due to its rapid innovation and distinct company cultures. This makes successful integration more challenging and often elusive. In this article, we will delve into some notable tech M&A deals that flopped, examining the reasons behind their failures and extracting valuable lessons from these high-profile missteps. 

When Synergies Fail: eBay and Skype 

eBay’s US$2.6 billion purchase of Skype in 2005, when the communication company’s revenue was just US$7 million, was a head-scratching move for many. eBay’s CEO, Meg Whitman, believed that integrating Skype’s voice call capabilities would build trust and simplify transactions on the auction platform. However, eBay users found Skype’s technology unnecessary for auctions, leading to a loss of confidence in the acquisition’s rationale. 

The expected synergy between the two companies failed to develop, and within two years, eBay had to reduce Skype’s valuation by US$900 million significantly. While the deal initially seemed like a failure, it wasn’t a complete loss. In 2011, eBay, which still owned a 30 percent stake in Skype, profited handsomely when Microsoft purchased the company for US$8.5 billion. This sale resulted in eBay’s net gain of US$1.4 billion, turning a seemingly disastrous acquisition into a profitable venture. 

HP’s Autonomy disaster 

In 2011, Hewlett Packard (HP) made a bold move by acquiring European data analytics firm Autonomy for a staggering US$11.7 billion. HP’s vision was to transform itself from a hardware-focused company into a major player in enterprise software services, with Autonomy at the heart of this transformation. However, the acquisition quickly became a disaster.  

HP was forced to write down nearly US$9 billion, claiming that Autonomy had inflated its financial performance through deceptive accounting practices. This led to a flurry of lawsuits. HP sued Autonomy’s CEO, Mike Lynch, and its former CFO, seeking US$5 billion in damages. Lynch responded with a US$160 million countersuit, claiming that HP had damaged his reputation and that their own mismanagement of Autonomy was the real reason the acquisition failed. Also, in 2015, a UK investigation into the deal found insufficient evidence of fraud to pursue charges. Ultimately, HP’s software division, including the ill-fated Autonomy, was sold to Micro Focus in 2016 for US$8.8 billion, marking a significant loss on their initial investment. 

Microsoft-Nokia: A Mobile Flop  

Despite appearing promising, the Microsoft-Nokia partnership ultimately turned out to be a failure. In 2014, Microsoft acquired Nokia’s phone division for over US$7 billion, intending to enhance its mobile presence and compete with giants like Apple and Google. The deal encompassed a substantial portion of Nokia’s assets, including its Finnish headquarters, Asian manufacturing facilities, and 24,000-strong workforce. 

However, the partnership failed to live up to its initial promise due to integration challenges, difficulties in the smartphone market, and a hefty financial write-down. Nokia’s phone business had already struggled before Microsoft’s involvement, and the acquisition failed to reverse that trend. Their initial collaboration, the Lumia phone line, was deemed a commercial failure, prompting major restructuring and the layoff of 12,500 former Nokia employees. 

 Acknowledging the difficulties, Microsoft wrote off US$7.6 billion related to the Nokia acquisition in 2015, signalling that the deal wasn’t working out. In 2016, Microsoft sold its feature phone business to FIH Mobile, a Foxconn subsidiary, and HMD Global. This acquisition highlights the challenges of merging two large companies, especially in the fast-paced and highly competitive smartphone market. 

Google’s Motorola Misstep 

The idea that significant tech companies always make smart decisions is untrue. Google’s 2012 purchase of Motorola Mobility for US$12.5 billion is a perfect example. Google wanted Motorola’s patents to protect its Android operating system and strengthen its position in the smartphone market. However, the outcome was far from successful. Motorola’s phones struggled to gain traction, resulting in significant financial losses for Google.  

In the end, Google sold Motorola to Lenovo for only US$2.91 billion in 2014. While they did manage to keep most of the patents, the sale was a significant financial loss. Google sold Motorola not because they disliked hardware but because Motorola no longer fit their strategy. Google wanted to be a leader in the tech world, and Motorola’s decline didn’t help with that. They aimed to avoid becoming a large, unfocused company like GE, so they sold Motorola. 

Distilled 

These unsuccessful tech mergers serve as important lessons. Much like a marriage, a corporate merger can either lead to a synergy that exceeds the individual contributions or result in total failure. The key to success lies in strategic alignment, effective integration, and the flexibility to adapt to evolving market conditions. Although these failures emphasise the inherent risks, they shouldn’t overshadow the potential for well-planned and executed mergers to achieve transformative success.