Top Due Diligence Disasters

Via: Firmex

Category: Legal, M&A

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8 Responses to “Due Diligence Disasters”

  1. scottinnj says:

    Seems a fair list, but it is missing one big kahuna – the acquisition of Countrywide by Bank of America.

  2. willid3 says:

    the problem with the Daimler Chrysler deal was that Daimler had no idea (and still doesn’t) how to deal with market segment that Chrysler is in. they took a company that actually was performing very well, was profitable, and turned it into a financial disaster because they really didnt understand that the US non luxury car market isn’t the same as the market they have in the US. and then there was the way the Germans dictated policies based on their views, never really understanding that really only worked for Mercedes. while there could have been some synergies in some parts, especially since Mercedes in its home market, isnt exclusively a luxury brand. but Mercedes ran from any idea of part purchasing cooperation. so you ended up with no synergy at all. the only really good choice made in that time, was basing the 300 and Charger (and Challenger) on an older E class platform. beyond that it was Daimler that created the disaster

  3. streeteye says:

    In 2012 BMW sold 301,526 Mini Coopers, which they picked up in the Rover acquisition. like 16% of their sales, back of envelope maybe worth $5b mkt cap.

  4. streeteye says:

    Also sold Land Rover to Ford for $3b, now part of Tata.

  5. Crocodile Chuck says:

    Another howler: Wells Fargo’s acquisition of First Interstate Bankcorp in ’95. Complete FUBAR, leading to itself being acquired in ’98 by Norwest Financial.

  6. Crocodile Chuck says:

    HP’s own acquisition of EDS in 2008 for $13.9B-written down by $10B in 2012:

    http://www.theinquirer.net/inquirer/feature/2200679/hps-eds-writeoff-hides-deeper-problems

  7. Alex says:

    It may be too soon to quantify the damage, but I think one of the worst was the Bank of America purchase of Countrywide. When I saw these guys buy that snake-pit over a weekend for what seemed like a small amount, I knew that would be a decision they would regret. They will be paying for that mess for years to come. And what did they get? A mortgage origination business just before the only paper being originated is sold to Fannie and Freddie. Double failure!

    And of course it has just dragged the BofA brand through the mud. So I would argue they even took a loss on their own brand because of that shit-show.

  8. Julia Chestnut says:

    I learned first hand that there is an interesting disconnect between legal due diligence and corporate due diligence done among management. Lawyers hate risk: they are paid to see around corners, anticipate what might go wrong, and hedge against it to the extent possible. Managers see risk as a necessary part of doing business, and even a positive.

    But more importantly, I saw that the decision to buy assets is sometimes about gut, or about the fear of what a powerful competitor would do with the same assets, rather than how the assets realistically fit into the operation in question. I have seen due diligence at the corporate level sliced and diced with different discount rates until the acquirer was absolutely sure about the nature of the risks it was taking, and I have seen some really amazing leaps of faith where the only due diligence, essentially, was whether the seller actually owned what the purchaser was buying.

    Both fit entirely into the corporate management style of the companies in question. It’s one thing to see red flags, it’s another to really hash out what you think those are attributable to and whether they hamper the assets going forward. The worst kind of due diligence is the pure hubris of being certain that you are much smarter than the last guy who owned it.