What happens when a merger fails?

When companies are in talks for a merger, you can expect to see quite a few shakeups and struggles as they navigate the intricacies. It’s even more so in the case of a failed merger. In 1985, the agency network BBDO came on board as a non-equity partner in RK Swamy Advertising Associates. By 1990, the agency turned into an equity partner and eventually became a majority investor, which RK Swamy bought back in 2009. The two entities spent 37 years as partners as RK Swamy BBDO before splitting in 2022. The company statement attributed the demerger to “strategic reasons”.

Similarly, in 2015, media buying and planning firm, GroupM was in talks to acquire digital agency Foxymoron for Rs 180 crore. The supposed partnership was aimed at establishing stronger footprints for GroupM in the country. However, the merger failed to pan out. 

In the media and entertainment industry, the most recent example of this is the failed Zee-Sony merger. In the initial merger agreement, Punit Goenka, MD and CEO at Zee Entertainment Enterprises was set to assume the role of MD and CEO in the merged venture. In August 2023, days after the National Company Law Tribunal (NCLT) approved the Zee-Sony merger, Securities and Exchange Board of India (SEBI) issued an order preventing Goenka and his father Subhash Chandra from assuming significant management roles in Zee companies or the newly-merged entity. 

Eventually, Sony didn’t want Goenka helming the new company and wanted its executive NP Singh to take the role. The disagreements for the position and several more issues later, the companies didn’t go ahead with the merger. 

The prolonged merger-related activities is said to have impacted operations and business, as per Zee Entertainment’s Chairman R Gopalan in an interview. The company faced Rs 432 crore in costs due to its failed merger, during the financial years 2023-24 and 2022-23. 

Synergies need to click in mergers

While no company wants a merger to fail, disagreements and disputes can cause upheavals. A successful merger needs chemistry between the two parties, according to Ashish Bhasin, Founder, The Bhasin Consulting Group. Bhasin says that everyone focuses on the price, the share value and more when a merger or an acquisition is happening.

However, he notes, “Most acquisitions or mergers fail due to chemistry issues, people issues, or synergies not clicking, not because of the price. Price is usually negotiated upfront. All successful acquisitions and mergers will have great chemistry between the two parties, with their goals clearly defined.”

The second important thing is that there should be value added to both parties. Bhasin continues that both sides should benefit if it's going to be a sustainable, long-term, workable scenario. 

Sanjay Mehta, former Co-founder and Director at Mirum India, A VML Company points out that a company could be prospecting with more than one business for a potential merger. On the face of it, things might look interesting. However, failed merger attempts involve more problems.

“When the detailed evaluation happens, and one discovers that what the other party has to offer, is not quite what you would have desired or what you expected, then you may walk out of the merger. Alternately, you might find the data to be not meeting the original assumptions, once you start getting into the details, and at that point, you might not be happy then, with the valuation offered.”

While there have been failed mergers, the advertising industry has seen several mergers and acquisitions taking place over the years. In October 2023, WPP merged its agencies, Wunderman Thompson and VMLY&R, to form VML. The companies were already in the throes of mergers. Back in 2018, J. Walter Thompson (JWT) merged with digital agency Wunderman and created Wunderman Thompson. While the goal was to make JWT India more digitally savvy, the merger led to internal issues with key talent and clients moving on. Moreover, WPP merged VML and creative firm Y&R, originally Young & Rubicam, to create VMLY&R in the same year. 

More examples of successful mergers in the A&M world include Mullen and Lowe Worldwide forming MullenLowe Group, Omnicom Group acquiring Mudra and merging it with DDB Worldwide to form DDB Mudra Group, Essence merging with MediaCom and more. 

Morale takes a hit in failed mergers

There haven’t always been successful mergers in the industry. In 2013, Publicis and Omnicom announced that they aimed to merge their capabilities to form Publicis Omnicom Group. However, on May 9, 2014, the deal was called off. Ashish Bhasin notes it caused a lot of unsettlement among the constituents of both holding companies and their respective agencies and created anxiety among people and became a distraction.

When a merger fails, it could lead to public scrutiny and impact a company's reputation and consumer perception. However, public scrutiny and perception come second to other issues. 

Bhasin states, “While public perception is one of the issues, the bigger issue is internal, with people being discontented and distracted from their main business. The biggest impact is actually on the morale of the company and its business.”

In this scenario, Mirum’s Sanjay Mehta comments, “This is why there is usually the need to maintain confidentiality as far as possible, till the point when the deal is struck.”

However, while everyone is officially supposed to maintain confidentiality, the matters can leak out. Mehta points out that once a potential merger doesn’t go through, speculations can make the rounds, including things like the numbers being fudged, loopholes found in the books or during due diligence etc. 

“This could hurt both parties, but if one of the two is worse off, in reputation terms, it hurts that company a lot more.”

Can advertising help change the perception?

While consumer perception and internal issues can cause harm to the companies involved in mergers, can marketing and advertising help mitigate negative perceptions? 

Samit Sinha, Founder and Managing Partner, Alchemist Brand Consulting notes, “They can, but only if the negative perceptions are prevalent amongst viewers due to a decline in product/service standards. In the ultimate analysis, that is the only constituency that truly matters.”

He doesn’t believe that the viewing public, compared to the investors, cares as much about or even follows the goings-on of corporate affairs. As long as there are no substantial issues or disruptions in the quality or continuity of the product or service, the public remains largely indifferent.

Tamanna Gupta, Founder, Umanshi Marketing and Branding notes that mergers call for PR deployment and not advertising.

"PR can play a crucial role in managing negative perceptions post-failure. Post-merger failure, a robust PR strategy is essential for the organisations to share their side of the story, reassure stakeholders about the company's stability and future prospects. Highlighting the company's core strengths, ongoing projects and future plans can help restore confidence.”

However, Gupta says that this approach needs to be genuine and transparent to avoid further scepticism.

Sanjay Mehta adds that highlighting the business achievements of your company or a general advertising blitz could drive attention to the problems of the failed merger away while conveying a more positive reputation for your company and brand. It depends on each case though.

Aditya Jaishankar, Brand Consultant, comments that strategic advertising and marketing can help mitigate negative perceptions by emphasising positive brand values, being open about the merger's results, and sharing future plans to win back consumer trust.

“What is critical is that the entities involved should get into the damage control mode to ensure that their brand perception continues to enjoy stature. In fact go the extra mile to create brand love when your brand reputation may have been affected due to a merger crisis.”

While advertising can help when it comes to communicating a company’s point of view, the bigger role has to be played by how you have handled the whole situation, says Ashish Bhasin. 

“However, advertising and marketing alone can't significantly mitigate what happens because mergers involve financial aspects, sentiments, emotions, shareholders, distributors, consumers, etc.”

Strategies to stabilise operations 

When a merger fails, companies face significant internal challenges that require strategic adjustments to stabilise operations. Samit Sinha offers insights into effective strategies to manage this turbulent period.

1. Identify the reasons for the breakdown.

2. Prioritise financial discipline.

3. Focus on enhancing product/service quality on the most relevant parameters to gain/regain market share.

The analysis and strategies can help in formulating a targeted response, stabilising financial operations and maintaining high standards in products and services.

Aditya Jaishankar mentions that companies need to reassess leadership roles, realign departments, and streamline processes. 

“Prioritisation should focus on maintaining core finance & operations, minimising disruptions, and addressing cultural integration to stabilise the organisation. Again don't forget the end consumer and his or her relationship with you as a brand.”

Tamanna Gupta states that a failed merger can offer an opportunity to clean up dis-energies. In such a situation, she suggests divesting unwanted businesses and restructuring internally to focus on core competencies. 

“This period also presents an opportunity to streamline processes and divest non-core assets, enhancing overall operational efficiency. It is advised to hire independent experts to reinvent and redefine the business strategy.”

The failure of a merger, be it GroupM and FoxyMoron, Publicis and Omnicom or the recent Zee-Sony merger, highlights the complex challenges companies face, from internal morale issues to financial impacts. Effective strategies to stabilise operations, transparent communication, and a focus on core competencies can help mitigate negative perceptions. Experts believe that a failed merger shows companies need to learn more. Market share ambitions may lead to short-term gains, but they aren't enough for a successful merger.