3 M&A deals that fell short of their potential (part 3)

in Advisory, 29.01.2016

In this third instalment of our series on lessons learned from high-profile M&A deals that missed their mark, we turn to the 1998 deal between Daimler and Chrysler. The aim of the merger was to create a global auto-maker that benefited from both Daimler’s and Chrysler’s networks, skills, and knowledge. The deal throws the importance of strategic integration planning into the spotlight—read on for further analysis. (Or, check out Part 1 and Part 2 if you missed them!)

Part three: Daimler and Chrysler (1998)

In 1998, German automaker Daimler-Benz merged with American company Chrysler, in an attempt to create an automobile company that would be able to compete with General Motors or Toyota. Chrysler was paid $38 billion and was, at the time, a profitable firm. However, despite being termed a “merger of equals” by Daimler’s CEO, the deal did not deliver the synergies hoped for by the management. In 2007, nine years after the merger, Daimler sold Chrysler to a private equity firm for $7 billion: a gutting loss. So what happened?

Integration frustration

Many, if not most, of Daimler-Chrysler’s post-deal issues appeared to be the result of incomplete strategic integration planning. Before the deal, opportunities were identified to increase sales, create new markets, reduce costs, and increase profitability by realising more economies of scale. After the “merger” (as it is often called, despite really being an acquisition), however, the company was without synergies realised through platform-sharing, because Daimler and Chrysler did not share distribution or retail networks.

In the meantime, differences in company cultures and subsistence of both management styles prevented the group from developing a uniform strategy. As CEOs and top managers of the two companies tended to take different courses of action, there appeared to be a lack of leadership.

Furthermore, the integration plan, which could probably have prevented or foreseen solutions for many of these problems, had not been implemented well upstream from the deal. Delay in restructuring and setting up the new management increased the anxiety of market players and employees alike.

Post-merger planning

A good strategy has a couple of components. First, alignment and consistency: things like mismatching distribution platforms or differences in resources are not necessarily deal-killers, but they can be if they’re not foreseen and planned for. Equally important is a communication plan: merging with another company upsets the equilibrium previously existing within each individual firm, as cultures, systems, and norms collide.

In truth, the easy part of a deal is negotiating the terms and signing the papers—even though this is what the top management generally fears most fiercely. The difficult part is putting the deal together and making it work, i.e. integration. To ensure the best possible outcome, a sound post-merger integration strategy should be put in place before the deal takes place.

What we recommend is to establish reporting and governance processes by determining a communication plan, thereby ensuring that information is shared with employees. What’s important is to achieve consistency across all post-deal activities and to develop an overall strategy. The success of the integration programme relies partly on the elimination of a “go with the flow” attitude on the restructuring process, which often results in uncertainties for both employees and shareholders. We at KPMG can help by compiling data from every relevant angle into a 100-day improvement programme, designed to get a merger or acquisition off in the right direction. A joint team will be mobilised to formally ensure that milestones and checkpoints are hit and that what’s foreseeable is foreseen.

Please visit our webpage or contact us for more information, and have a look at Part 1 (Microsoft/Nokia) and Part 2 (Caterpillar/ERA) of our blog series about M&A deals.

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