The recent Facebook/WhatsApp merger debacle brought back memories of the dozens of corporate mergers that I've covered over the years. While I didn't follow this particular merger closely, it apparently had most of these huge red flags:
1. Incompatible corporate cultures.
As a general rule, small firms and startups value meritocracy (and attempt with varying degrees to implement it) while large and established firms value hierarchy (although they usually give meritocracy plenty of lip-service.)
Facebook was founded in 2003 and has become the stodgy dowager of social media firms. Whatsapp was founded in 2009 and still relatively lean-and-mean when Facebook acquired it in 2014. It is the corporate merger equivalent of Warren Buffett wedding Ariana Grande. The union was unlikely to click from the start.
2. Conflicting business models.
While most smart people can multitask, most corporations can't simultaneously walk and chew gum. Companies almost always fall flat when they try to compete in different industries, like Sony in insurance, or in different segments of the same industry, like Microsoft in smartphones.
Facebook's business model is based upon exploiting user data. WhatsApp's business model was based upon keeping user data secret. Those models aren't just incompatible; they're diametrical opposites.
3. A newsworthy purchase price.
It's a bad sign when you end up paying so much for a corporate acquisition that it seems excessive even to the even the mainstream "we'll swallow just about anything" business press. A record-breaking acquisition price ($22 billion in the case of Facebook and WhatsApp) creates massive pressure for the acquiring firm to make money on the deal, simply to justify the exorbitance. At the same time, overpaying for the acquisition creates a countervailing pressure to throw good money after bad. The conflict usually proves unresolvable.
4. Top management zombies.
Conventional wisdom says that when you acquire a firm, you want the top management of that firm to hang around to help make the merger successful. That sounds good in theory, but in practice, it's deadly. CEOs become CEOs because they enjoy being top dog. When they're no longer top dog, they're like zombies, still trying to exercise authority and, failing that, figuring out who they can recruit away to start a new company.
In the case of Facebook and WhatsApp, the leaders of the latter were wildly unhappy being functionaries in the former. Facebook would have been better served had they cut them out immediately after the merger.
5. Dueling CEOs.
The only situation worse than zombie top management is when two merging companies decide to have "co-CEOs." The immediate result of any such indecisive arrangement is an endless political war between the two CEOs to see who's really going to run the company. Everyone is forced to take sides; out come the knives, the timid hunker down and productive work grinds to a halt because:
6. Half-hearted integration.
Successful mergers always follow either of two distinct paths: 1) complete separation where the acquired firm remains geographically and organizationally distinct, 2) complete integration where the acquired firm is consumed and digested by the acquiring firm.
Anything in between creates ongoing conflict until either complete integration is achieved or the acquired firm is returned to autonomy by selling it off. Facebook and WhatApp tried the amphibious approach, with the usual bad result.
7. Insensitive on-boarding.
Finally, nothing causes a merger to go sour quickly than dissing the employees in the acquired firm just as they're coming on board. I don't know to what extent that was the case with Facebook and WhatsApp, but the fact that the WhatsApp folk were complaining about the configuration of the bathroom stalls suggests there was some pretty deep resentment floating around long after the companies merged.
For perspective, the worst merger on-boarding of all time was when the networking hard company Cabletron acquired Standard Microsystems in the late 90s. The day the acquisition was announced, Cabletron hired a bus to take some of engineers up to New Hampshire to meet their peers at headquarters. Once the bus had left, those who remained were told to pack up and leave, because they didn't have a job. The engineers thus slighted called the engineers on the bus, who resigned en-mass when they arrived at Cabletron headquarters.
Good times... good times...