Whether you’re looking to sell your insurance company or join forces with an existing one, planning a successful M&A deal is one of the most challenging times of a business owner’s career. It begs the question: What are some examples of big M&A deals that went well?
While the world has seen its share of mega M&A failures (AOL Time Warner comes to mind), there are plenty of success stories to study. In this article, we’ll look into three highly successful big M&A deals: Disney-Pixar, Google-Android, and Sirius-XM — as well as what factors made these deals so successful.
What’s the Recipe for M&A Success? 3 Big M&A Deals That Succeeded
Disney and Pixar (2006)
Most children and adults can’t imagine a world without classic movies like WALL-E, Finding Dory, and Toy Story 3. These are just a few examples of the successes that came out of Disney’s acquisition of Pixar in the early 2000s. While Disney had worked with Pixar on many films before its famous acquisition, the deal cemented Disney’s commitment to a new direction in animation.
Perhaps it was because of the successful experience with Pixar that Disney went on to acquire Marvel in 2009 and Lucasfilm in 2012. The company’s careful due diligence and selection of acquisition partners have clearly paid off. The Disney family of companies is as strong as ever.
What Went Right?
When Disney acquired Pixar, the two companies already had been working together for over ten years, starting with the original Toy Story (1995). So, when the two studios finally came under single ownership, both teams had a good understanding of each other’s strengths, weaknesses, and values.
In addition, Disney understood the importance of keeping the Pixar culture intact and distinct. After all, the last thing Disney wanted to do was to take away the very essence of what made Pixar so successful. Rather than bringing in the Pixar team as a department under direct Disney supervision, Disney resisted the temptation to micromanage. Instead, Pixar was kept as a physically separate studio running its own day-to-day operations.
Finally, both Pixar and Disney had unique — but complementary — skills to offer each other. Disney was primarily attracted to Pixar’s superior animation technology and saw that the future of animation was shifting from 2D to 3D. For its part, Disney brought its world-class marketing machine to the table to fully take advantage of the commercial opportunities that come with releasing a great film.
Google and Android (2005)
Believe it or not, there was actually a time when the mobile operating system Android wasn’t synonymous with search engine and technology giant Google. In fact, when Android was founded in 2003, it originally wanted to develop an operating system for digital cameras. Soon after, it shifted its focus to developing a mobile operating system to compete with Symbian and Microsoft’s Windows Mobile OS — keep in mind that the first iPhone wouldn’t exist for another few years.
Google eventually noticed Android and acquired it in 2005 for just $50 million — a tiny sum compared to the revenue to come over the next decade and a half. According to the International Data Corporation, nearly 85% of the world’s smartphones use Android today, and that number is projected to increase over the next several years.
What Went Right?
The Google Android acquisition is a textbook example of serendipity: a combination of both luck and preparation.
On the one hand, Android was at the right place at exactly the right time. Although the iPhone hadn’t yet transformed the world of mobile communications, there was a clear technology shift on the horizon. Both consumers and handset manufacturers were pushing the limits of what a phone could do. Knowing that Apple and Microsoft were already developing software to power their own devices, Google knew that it had to enter the mobile OS market early to succeed in the long term. The tech giant could either develop an in-house team from scratch or acquire a company that already had a head start in developing a new operating system.
At the same time, Android’s software was truly innovative. By developing an operating system running on Linux, the Android team created a product that was naturally scalable.
Google quickly realized the potential for Android to power any mobile device and eventually any tablet, wearable, or even video game console. This was a stark contrast to Apple and Microsoft, both of which limited their mobile software to only certain handsets.
In short, Google made a strategic decision to take a different path than Microsoft and Apple in the smartphone race. In order to ensure its success, Google looked for and picked the perfect partner in Android.
Sirius and XM Radio (2007)
While the Disney Pixar and Google Android deals are classic examples of successful acquisitions, Sirius XM shows us what’s possible with a successful merger — when two companies combine to form a completely new entity.
When satellite radio started in the late 1990s, the Federal Communications Commission (FCC) granted two exclusive licenses — one each to Sirius Satellite Radio and XM Satellite Radio. Just ten years later, the two companies publicly announced a merger, but there was a problem. The FCC originally granted the broadcast licenses under the condition that neither company would acquire the other. Although the proposed deal was technically a merger rather than an acquisition, it took over a year for the FCC to investigate and eventually approve the move.
What Went Right?
At first glance, it would look like the Sirius XM Radio merger created a legal monopoly. Why would the FCC essentially approve granting exclusive broadcast rights to a single company?
The truth is that both satellite radio companies were struggling to stay afloat, and there was a good reason to merge: it was the only practical way for either company to survive. The FCC understood this and considered a big-picture view of the media and digital content landscape.
By the time Sirius and XM announced the merger in 2007, both companies were facing stiff competition from other programming sources such as HD radio and podcasts. With so much pressure to compete with free and low-priced media options, the US Justice Department determined that prices for satellite radio weren’t likely to rise after the merger.
If the merger hadn’t taken place, chances are that neither Sirius nor XM would have attracted enough subscribers on their own to succeed in the long run. By eliminating mutual competition, Sirius XM Radio was able to focus on tackling the bigger threat posed by podcasts and local radio networks.
How Can Your M&A Be Successful?
Looking at some of the most successful M&A deals, three major factors can help ensure success:
- Finding a partner who brings as much to the table as you do
- Picking a company that fits perfectly with your business’s strategy and long-term goals
- Joining forces to become stronger as a merged team than either company could be alone
In every successful M&A, both companies also share compatible corporate cultures and goals. At Confie, we put people and culture first when working with insurance companies that are interested in joining the Confie team. Get in touch with us today to learn more, or give us a call at 714-252-2500.