Mergers are compared to marriages. As a union of companies, they require patience and understanding, but they also involve a large amount of paperwork. Mergers, like marriages, can flourish with the right synergies, but if there are differences between the entities, the arrangement can often collapse. The recent breakdown of the Snapdeal – Flipkart transaction, can provide a useful context to understand the reasons for the success/failure of M&A transactions.

The success of a deal depends on the companies, the individuals, the business climate, as well as the different regulators involved in the transaction. A few common reasons for deals breaking down are – valuation differences, different expectations between the parties involved, regulatory roadblocks or a lack of consensus regarding the exit horizons.

While these are reasons general to any corporate transaction, there are some requirements specific to M&A deals that must be met in order for the deal to survive.

Toothbrush Test:

Is this something you will use once or twice a day, and does it make your life better?

Larry Page coined this term to explain that it is crucial to assess whether there is ‘value being added through any merger transaction. Does the proposed arrangement have a potential to offer something to the consumers that will draw them to using the ‘product/service’ everyday at least once or twice, and does it make them feel better about themselves? Fulfillment of the toothbrush test ensures better productivity of the acquired entity and ensures success of the corporate arrangement in the long run.


Articulating the ‘wants’ and ‘needs’ among stakeholders is always key. In larger transactions, considering the multiplicity of stakeholders involved, if the interests of the ‘few’ (read minority shareholders) are not considered, it can hinder the ability of the parties to successfully close the deal and may even lead to disputes between stakeholders. Thus, clear communication between stakeholders is crucial to a transaction’s success. Improper communication can leave stakeholders, especially investors, dissatisfied. It can undermine the trust required for the merged or acquired entity to function smoothly.


To look into the past ‘affairs’ of the suitor is not always exciting but is important. This exercise provides a reality check for both the parties. Findings related to litigations, investigations, unpaid labour dues, financial jugglery, etc. can detrimentally impact trust between the parties, which, in turn, leads to the collapse of the deal. Failure to conduct diligence or the effects of an improper diligence, can be felt years after the acquisition is complete, in the form of tax disputes or other potential statutory liabilities.

Cultural Integration:

Many global M&A transactions fail due to lack of integration between the two transacting entities. Every company possesses unique characteristics of doing business and it is important to consider how the two entities will function together as a ‘cohesive unit’.

The much hyped amalgamation of the German and American automobile companies (Daimler-Benz and Chrysler) exemplified that minor issues (which seem quite insignificant initially) may prove to be extremely problematic in the long run.

The Germans were accustomed to a decentralized method of functioning whereas the Americans preferred the opposite. The American managers were flamboyant while the German managers were quiet and reserved. The Americans preferred to present the most optimistic outcome of any business situation, whereas the Germans approached the matter in a more realistic way, highlighting the various potential negative scenarios.

These cultural differences concerning interaction between peers, managers, manner of reporting, dress codes, labour relations, employer-employee interactions, etc. are all important considerations to be reflected on, to avoid hostilities and differences between parties.

Promoter Involvement Post Acquisition:

Consideration must be given as to how founders/key stakeholders of the entity proposed to be merged or acquired, will be involved in the future of the ‘merged entity’. Depending on the circumstances of each case, managing the aspirations of such founders/key stakeholders is paramount.

Google acquired a company called Nest Labs (which specialized in home centric products like thermostats, smoke detectors, etc) in 2014. The CEO of Nest Labs, Tony Fadell, agreed to the acquisition, where he was offered a position in the newly acquired entity – a position that enabled him to continue development of Nest’s products. Consequently by 2014, Nest had launched its products in five countries with the influence and resources of Google. Nest continued to operate independently thereafter and decided to acquire a camera company called Dropcam to expand the scope of its home security business. However, the co-founder of Dropcam, Greg Duffy, decided to leave post the merger as he did not see himself adapting to the culture of the (alleged) ‘micro-management’ that Nest followed.

The nature and extent of involvement of the Promoter post the acquisition and the ability of the Promoter to blend into the culture of the new corporate entity are important points to consider while entering into an M&A transaction.

Financial reports and profitability statements alone cannot guarantee the success or failure of such ventures. Softer aspects are important for the co-existence of the merged entities in the long term and contribute in building value for its consumers. It is ironic but true that even in M&A deals, “MONEY IS NOT EVERYTHING!”

* The author was assisted by Chethana Venkataraghavan, Associate