The mergers and acquisitions process can be a stressful experience for all participants, especially company employees. It often negatively impacts employees’ perception of decision-making, alignment, and motivation.

This can lead to issues such as cultural clashes or loss of talent, which is often a key reason for merger failure. However, these risks can be mitigated if you collect employees’ feedback quickly and take relevant steps as a result.

In this article, we discuss the post-acquisition survey as a method of evaluating employee engagement and satisfaction with the integration process. 

The importance of employee feedback collection during post-acquisition

Knowing how employees feel about an acquisition is essential. It significantly influences workplace metrics such as talent retention, cultural integration, overall employee morale, and productivity.  

Talent retention

More than a third (34%) of acquired employees will leave a company during the first year after an acquisition. A poor retention rate shows that employees often might feel frustrated post-acquisition and uncertain of their future in the new organization. Thus, they switch to a new company. 

However, retaining employees, especially top talent, is crucial for maintaining operational continuity. It preserves institutional knowledge and minimizes recruitment and training costs. 

Cultural integration

Poor cultural fit is often the reason for M&A failure. When two companies merge, their different organizational cultures might be difficult to integrate, leading to conflicts and cultural clashes. This is one of the main factors behind the Daimler-Benz and Chrysler merger failure in 1998.

It highlights the importance of cultural alignment, which can be maintained with a transparent communication strategy applied at all stages of the integration process.

Morale and productivity

In an environment of change and constant new challenges, employees might not feel secure in their positions, lose motivation, and be less productive. 

This typically happens if a merger is poorly executed and new responsibilities or career opportunities are not communicated clearly. This results in employees not knowing whether their part in the company’s mission is valuable or even noticed. What’s more, it makes them doubt whether they have a future there.

Post-merger questions to ask your employees

One of the best ways to find out how your employees feel about the acquisition is to conduct an employee feedback survey, which can also be called an employee pulse survey. 

A post-acquisition employee survey is short and focused, designed to quickly identify employee sentiment, engagement, and concerns following an acquisition. Unlike comprehensive surveys, a pulse survey aims to capture immediate feedback on key aspects of the acquisition process and its impact on employees.

They can be framed as post-acquisition integration survey questions, including yes/no questions, agree/disagree statements, or open-ended questions.

However, one option we would recommend is basing your survey on the five-point Likert scale, with responses presented as:

This gives a better understanding of employee satisfaction yet doesn’t complicate the survey process.

Below are some examples of five-point Likert scale statements in different categories that you could add to your post-acquisition pulse survey. 

1. Cultural alignment 

The responses to the following statements aim to find out how employees feel about the new organizational culture and highlight areas that require management’s attention. Remember that each statement offers one of five choices, ranging from strongly agree to strongly disagree:

• I feel that the cultures of the acquiring company and the acquired company have integrated well.
• I understand the new company’s culture, mission, and values.
• I am aligned with the new company’s vision and goals.
• I feel great about the communication style in the new organization.
• I have experienced certain cultural clashes or challenges since the acquisition.
• There is mutual respect between employees from both companies.

2. Communication and transparency

The purpose of these statements is to understand whether the company’s senior management communicates the acquisition clearly to employees. 

Some statements to include might be:

• The leadership’s communication has been transparent throughout the acquisition process.
• I am informed about the changes happening due to the acquisition.
• I am informed about what’s expected of me in the near future.
• My questions and concerns about the acquisition are addressed on time.
• Company communication channels have been effective and active since the acquisition.

3. Job security

This category explores how secure employees feel in their roles and whether they’re aware of potential changes in responsibilities or opportunities in the future.  

You can add statements like:

• I feel confident in my current role after the acquisition.
• My responsibilities and workload have changed significantly since acquisition.
• I have received clear information about organizational changes affecting your position.
• I am concerned about potential layoffs or restructuring as a result of the acquisition.

4. Career development

This aims to get a sense of how employees feel about their future development in the new company. 

Include statements such as:

• The acquisition has opened new career development opportunities for me.
• I am satisfied with the learning and development options available post-acquisition.
• I see more opportunities for internal mobility after the acquisition.
• I am confident in the new company’s commitment to employee growth.

5. Engagement and job satisfaction

Since employee morale has a significant influence on the overall company performance, it’s essential to identify their level of engagement and job satisfaction throughout acquisition.

Some examples of survey statements include:

• I am highly engaged in my current work and company processes.
• Since the acquisition, I feel more motivated to perform my job.
• I feel that my work is meaningful and contributes to making the transition successful.
• I am satisfied with my current job after the acquisition.
• I am satisfied with the balance between my work responsibilities and personal life since the acquisition.

6. Team dynamics and collaboration

These questions aim to find out how employees feel in new teams (if applicable) and whether the cooperation inside the teams is efficient.

Some examples of statements to include in your survey are:

• I feel comfortable when collaborating with colleagues from the other company.
• I feel that my team is working together effectively after the acquisition.
• Changes in team structures or leadership have negatively affected my work.
• I feel supported by my manager since the acquisition.

7. Change management

Since change management during mergers and acquisitions can be stressful for employees, leadership needs to give it special attention. At the same time, it’s important to ensure that the process is effective and that the newly formed company is moving towards its objectives at the expected speed.

These are some examples of statements to add to your survey to find out what employees think about the post-change management process: 

• I feel positive about the speed of change since the acquisition.
• I feel that the organization is managing the transition well.
• I have faced certain challenges during the transition process.
• I think that additional support is needed to make this transition smoother.

8. Future outlook

Knowing how employees feel about the company’s future performance is as important as finding out what they think about their career future inside the company. It helps understand whether employees are satisfied with the company’s plans, objectives, and actual performance and see themselves as part of it in a year or two.

These are the statements to add to your post-merger feedback survey:

• I am optimistic about the future of the company post-acquisition.
• I believe the acquisition will lead to long-term growth and success for the organization.
• I feel confident about the company’s ability to navigate future challenges.
• I have certain concerns about the future of the company.

Post-acquisition survey roll-out and what happens after employees provide feedback

The post-acquisition pulse survey is typically the responsibility of the acquiring company’s human resources team, in cooperation with senior management. 

HR specialists are responsible for preparing the questionnaires, conducting the survey, and analyzing the survey results. Based on the findings, senior management can then develop action plans and implement new approaches. 

These are the main stages of the survey roll-out process:

Key takeaways

• Use a post-acquisition pulse survey as a method of evaluating employee engagement and satisfaction with the integration process.
  
• Post-acquisition employee survey questions typically involve exploring employees’ opinions about the new company’s culture, communication, and collaboration and investigating how they feel about their job security, career development, change management, and the company’s overall future outlook.
  
• Post-acquisition employee surveys help to mitigate risks of cultural clashes, key talent turnover, and loss of morale and productivity.

Recent Deloitte survey results indicate that a strong mergers and acquisitions strategy is the top reason for M&A deal success. This proves that an M&A deal is a complex financial transaction that requires meticulous planning. If not planned properly, it can be doomed to failure.

This article focuses on the importance of writing a comprehensive business acquisition plan as a key part of successful acquisition strategy. Read on to explore the main elements of an acquisition business plan and learn how to write one.

What is a business acquisition plan?

A business acquisition plan is a strategic document that outlines the steps, goals, and resources required to acquire a target company. 

A business plan for merger and acquisition is an integral part of successful acquisition planning. It serves as a roadmap for the buy-side M&A process, describing all the stages of the acquisition from target identification to post-merger integration and exit strategy. 

Having a well-structured plan for acquisition is essential for the acquirer since it helps with the following:

Key components of an acquisition plan example 

Let’s now look at the typical components in a business acquisition plan. 

1. Executive summary

This section provides an overview of the acquisition plan, summarizing the key elements of the deal: the target company, rationale, financial outlook, and expected strategic benefits. It’s a concise snapshot to help stakeholders grasp the overall purpose and objectives of the acquisition. 

An executive summary is typically crafted after all other components of the acquisition plan are ready.

2. Strategic rationale

The foundation of your acquisition plan. It explains how the acquisition aligns with long-term business goals. Common acquisition strategies include expanding into new markets, acquiring new technology, talent, or intellectual property, improving competitive positioning, or achieving economies of scale.

The strategic rationale must be compelling to justify the resources, time, and risks associated with the deal.

3. Target identification

Here, you outline the criteria for selecting potential targets. 

This includes identifying companies that fit the strategic objectives of your business in terms of industry, size, market position, and culture. Its main purpose is to ensure the acquisition targets the right company, market trends are considered, and that there is a good strategic fit.

4. Target evaluation and financial analysis

This section is all about numbers. Here, you provide results of the initial assessment of the target’s financial position, including its income statement, revenue, profitability, financial statements, cash flow, and overall financial health. You also share the results of a valuation analysis to determine a fair price for the acquisition.

5. Due diligence

This section details what types of due diligence are to be performed: financial, operational, legal, and human resources. It also lists the main areas to focus on during the due diligence process and what outcomes are expected. 

It’s also reasonable to include an outline of results that wouldn’t be satisfactory when proceeding with the acquisition.

6. Deal structure

Outlines how the acquisition will be financed and the type of deal proposed (stock purchase, asset purchase, or merger). It also includes details on payment terms (cash, stock, or a combination), the use of debt, and any contingent payments or earn-outs. 

The deal structure also covers issues like governance post-acquisition and the treatment of existing management.

7. Integration plan

The percentage of deal value spent on integration is increasing over the years, that’s why it’s essential to consider post-merger integration execution at the very beginning of the planning process.

It should be a detailed roadmap of how the acquired business will be integrated into your existing operations post-closing. This covers organizational structure, systems integration, cultural alignment, communication strategies, and key milestones for success.

8. Risk assessment

This section describes potential mergers and acquisitions risks, such as financial, operational, regulatory, or cultural integration risks, and provides strategies to mitigate them. Risk assessment helps an acquirer to prepare for uncertainties and challenges during and after the acquisition.

9. M&A team introduction

Introducing the key members of the acquisition team, you should outline their roles, responsibilities, and expertise in driving the acquisition forward. 

The team typically includes financial analysts, legal advisors, integration specialists, and senior executives who oversee the transaction. 

10. Exit strategy (if applicable)

Though not always part of acquisition plans, this section is important if there’s an intention to eventually divest the acquired business. 

It details potential exit options such as selling the company, merging with another entity, or taking it public, providing flexibility for future decisions.

Questions to ask when developing your business acquisition plan

Below are some examples of questions to ask yourself when writing an acquisition plan to make sure all critical aspects are covered. 

Acquisition plan components	Examples of questions
Executive summary	What are the key objectives of this acquisition? How does this acquisition align with the company’s overall growth strategy? What are the expected benefits (financial and strategic) of this deal?
Strategic rationale	Why is this acquisition strategically important for the company? How will this acquisition enhance market share, customer base, or geographical presence? What synergies (cost, revenue, or operational) can be realized post-acquisition?
Target identification	What criteria will be used to identify potential targets (industry, size, location)? How does the target company fit our business model and strategy? What competitive advantages does the target bring?
Target valuation and financial analysis	What is the financial health of the target company (revenue, profit margins, cash flow)? What are the valuation multiples being considered (EBITDA, revenue)? What are the key financial risks associated with this acquisition?
Due diligence	What areas require thorough due diligence (legal, financial, operational, cultural)? Are there any outstanding legal issues, liabilities, or debts of the target? What are the key operational challenges the target is facing?
Deal structure	What is the preferred deal structure (asset purchase, stock purchase, merger)? How will the acquisition be financed (cash, stock, debt)? What are the tax implications of the proposed deal structure?
Integration plan	What is the strategy for integrating the target company post-acquisition (operations, HR, IT)? What is the timeline for key integration milestones? How will success be measured during the integration phase?
Risk assessment	What are the key risks associated with this acquisition (market, financial, operational)? How can these risks be mitigated? What is the plan if the integration does not go as expected?
M&A team introduction	Who are the key members of the acquisition team, and what roles do they play? What are the key performance indicators to track the team’s success through each phase of the process? How will communication and collaboration be maintained across different departments?
Exit strategy	What is the potential exit strategy for this acquisition (sale, IPO)? Under what conditions would we consider divesting the target? How will the exit strategy align with the company’s broader financial and strategic goals?

Finalizing and reviewing the acquisition plan

The finalization of your business acquisition plan is typically about reviewing the key components and making the adjustments needed. 

Here are the main considerations:

Key takeaways

• A business acquisition plan is a strategy document that describes the main steps, goals, and resources required to acquire a target company. 

• Having a well-structured acquisition plan ensures objectives clarity, risk management, resource allocation, timeline management, and synergy identification.
  
• Key components of an acquisition plan typically include an executive summary, strategic rationale, target identification, financial analysis, due diligence, deal structure, integration plan, risk assessment, M&A team description, and exit strategy.

How long does it take to close an acquisition? The time to complete a business acquisition varies considerably, ranging from several months under best-case scenarios to several years in worst-case ones.

Because each acquisition depends on a multitude of factors, it’s hard to predict the exact timeframe. However, when you know which factors contribute to delays, it’s much easier to make estimations and build an acquisition strategy accordingly.

This article explores the factors that impact the timeframes of business acquisitions, lists common sources of delays, and discusses the best practices to keep deals on track.

Understanding the six phases of a business acquisition

Analyzing the factors that impact the duration of each of the following phases helps to estimate the overall acquisition timeline:

1. Acquisition strategy
2. Target screening
3. Research and due diligence
4. Integration planning
5. Deal closure
6. Integration execution

Acquisition strategy

A comprehensive acquisition strategy is the first phase of the acquisition timeline. This phase can take between one and three months, depending on a few factors, including:

Clarity of corporate goals

The acquisition strategy should be adjusted to complement the company’s long-term goals. If the corporate development strategy is well-defined, it’s easier to pick the right path for mergers or acquisitions. In contrast, a vague corporate strategy can hinder M&A decision-making.

Readiness of market research

If a company conducts ongoing market assessment and is confident about the key players in that market, it will spend less time developing criteria for acquisition targets. On the other hand, the necessity of updating an old market study or creating fresh SWOT analysis tailored to new markets may slow down the process.

Target screening

Target screening is the selection of target companies that fit the search criteria established in the previous phase. Generally, this phase lasts about three months, according to Boston Consulting Group. However, it can be longer or shorter depending on factors, including the nature and frequency of acquisitions.

The nature of targets

Identifying targets that are small is easier than reviewing larger acquisitions. A target with a considerable market share is typically harder to screen because it has a big customer base and complex financials. Whether targets are public or private also affects the screening duration. Thus, a private target company may take longer to review as it has less publicly available information.

Frequency of acquisitions

Frequent buyers continuously study acquisition opportunities and therefore screen targets faster than infrequent acquirers. A good example of a frequent buyer is L’Oréal which acquired 4 brands in 2018 and five brands in 2014.

We are always busy studying good potential acquisitions…

Jean-Paul Agon
L’Oréal CEO

Research and due diligence

In the due diligence stage, an acquiring company investigates the strategic value of the target business more deeply. This phase typically starts once the companies involved sign a non-disclosure agreement and letter of intent. The due diligence process may last from one to three months, depending on the following factors:

Sell-side due diligence

The readiness of the target firm impacts the speed of investigations for the potential acquirer. If the target business conducts sell-side due diligence, it may prepare relevant reports for prospective buyers beforehand, speeding the process for the two companies.

Unforeseen obstacles

Due diligence may reveal legal issues, compliance risks, and hidden liabilities. If those issues severely undermine the transaction value established during the comparable company evaluation, an acquirer may initiate negotiations to adjust the price accordingly. It may further delay the acquisition, particularly if the selling shareholders (or even investment bankers) insist on the initial offer.

Integration planning

A buyer initiates the integration planning phase once it completes due diligence and announces the acquisition. How long do acquisitions take after the announcement? Typically, it can take a few months between announcement and closure.

When it comes to the integration planning phase, it can take between one and three months, depending on the availability of an M&A playbook and the industry in which one company is acquiring the other. However, the extent and nature of integration are what impact the speed of the process the most.

Partial vs full integration

The integration planning phase can be shorter when buyers acquire specific assets from target businesses. However, when it comes to full integration common in stock acquisitions, planning may take longer due to the sheer volume of detail involved.

Vertical vs horizontal integration

Whether the integration is vertical (within the acquirer’s supply chain) or horizontal (direct absorption) impacts the scope and detail of the acquisition integration planning phase. An acquirer will typically spend more time planning operational synergies and increased revenues when pursuing horizontal deals. Vertical integration, on the other hand, may need less extensive planning.

Deal closure

During the closing phase, an acquirer must officially sign the purchase agreement and meet the closing conditions, such as financing, regulatory, and shareholder approvals. How long does it take for an acquisition to close? Finalizing the deal terms may take as little as one month. However, factors like securities regulations or shareholder approval issues may put the definitive agreement on hold for several months or even years.

Integration execution

Acquirers begin executing the integration plan on the first operational day after the transaction closure. Integration can be easier if an acquirer and the acquired company remain individual entities after the transaction.

However, when an acquiring company pursues a merger, the integration phase may be extended. That is because the new entity must integrate customers, employees, contracts, and agreements. How long does a merger take? It takes an average of one and a half years but can stretch over two years, according to PwC.

The nature of business functions plays a key role in the speed of integration. Business functions like finance, marketing & sales (M&S), and human resources (HR) take an average of three to six months to integrate.

On the other hand, more complex functions like research and development (R&D) or procurement can take up to one year. Lastly, information technology (IT) takes the most time to integrate.

A summary of acquisition phases

An average business acquisition takes about five or six months to close, excluding the post-acquisition integration and assuming no significant delays occur. With substantial delays, it may take 12-18 months to complete. Let’s see how these time frames work with individual phases of the acquisition timeline.

Acquisition phase	Average time to complete with minimal to no delays	Average time to complete with delays
Acquisition strategy	One month	Three months
Target screening	One to three months	Over three months
Due diligence	One to three months	Over three months
Integration planning	One month	Three months
Closure	One month	Three months to several years
Integration execution	One and a half years	Over two years

Factors that can delay a business acquisition

Delays are common in business acquisitions. According to McKinsey, 30% of large acquisitions over the last two years have experienced delays. The most common delay factors are regulatory scrutiny, issues related to shareholders, the complexity of corporate cultures, and geopolitical tension.

Regulatory scrutiny

Regulatory scrutiny delayed over $361 billion in globally announced deals between 2022 and 2023, according to Bain & Company. It has been revealed that regulators can delay an acquisition completion time by an average of three to six months.

However, deals that raise high anti-competitive concerns may require remedies. In such scenarios, the process to obtain regulatory approval can take an unpredictable course and delay the acquisition by an average of 12 months.

Shareholder issues

Securing the approval from acquiring and selling shareholders can be time-consuming and complex because shareholders are often concerned about the loss of value during the acquisition. They can be reluctant to change for a good reason. In fact, a study on 2,500 deals over the last two decades has revealed that over 60% of mergers and acquisitions destroy shareholder value.

Another factor is that shareholders of the selling company may wait for the best offer when communicating with multiple bidders. These factors require acquiring companies to hold time-consuming shareholder meetings, make financial disclosures, approve more competitive bids, and consider sale offers.

Cultural complexities

Cultural alignment is rewarding as it gives a 50% higher chance of achieving synergy targets. However, emphasis on cultural integration requires careful planning. Moreover, cultural due diligence may take more time due to the complexity and time-consuming nature of respective research methods.

Geopolitical tension

External factors that worsen market conditions, like geopolitical uncertainty, may also delay business acquisitions. The intricacy of international relations and economic sanctions forces companies to act cautiously and invest more time in the due diligence phase.

Geopolitical tension also aggravates shareholder concerns and makes them question acquisitions even more. The implications are more evident in the Asian market, particularly China, where the 2024 deal volumes have declined by 19%.

Uncertainty is a big word, and [it] has been affecting confidence…

Stanley Lah
Strategy and transactions national leader at Deloitte China

Three tips for keeping an acquisition on track

Accepting the possibility of delays helps to build trust between the leadership, due diligence teams, and integration professionals. However, that is only the first step towards keeping the business acquisition process on track.

A more effective approach for acquirers would be to implement proactive measures to reduce the chance of delays and mitigate potential implications..

Access delay scenarios

Effective acquisition planning, aimed at maximizing value, should cover the most likely delay scenarios. This includes researching whether a particular target falls under the best-case scenario where no delays are expected, a mild scenario where manageable delays might occur, and a worst-case scenario where significant disruptions are unavoidable.

Conducting this transaction analysis helps an acquiring company select targets with a deeper understanding of delay risks. In turn, this knowledge helps the acquirer avoid deals associated with inevitable disruptions, such as lengthy antitrust litigations in highly concentrated markets.

Develop a contingency plan

Acquirers should allocate as much effort to developing the contingency plans under delay scenarios as they do to due diligence and integration planning. That includes identifying potential delays, such as regulatory reviews, shareholder issues, and unforeseen due diligence issues, and developing clear action plans for each delay type.

Acquiring companies with contingency plans can respond to delays in a more organized manner and therefore minimize disruption.

Resource allocation is also important when working on a contingency plan. The best approach would be to use resources gradually as the deal progresses. Engaging all teams at once could lead to unnecessary effort when withdrawing them if delays occur.

Learn from programmatic acquirers

Programmatic acquirers close several low-risk, small-scale M&A deals rather than place all their bets on big, risky acquisitions once every few years. Not only does this type of buyer deliver greater shareholder returns but it also closes acquisitions with minimal delays.

This is because programmatic acquirers:

Have a clear value-creation M&A strategy

An acquisition strategy that creates value in specific business areas brings superior clarity to the M&A process. It also helps tremendously in developing business cases that make it easier to obtain board approval.

Develop target outreach strategies

Programmatic acquirers reach high-priority targets early. It helps to minimize due diligence-related delays, such as when there is limited public information on the target’s historical and projected assets. These companies have a clear understanding of the tools, processes, and people they need to source maximum information during target screening and due diligence.

Have a dedicated M&A team

Programmatic dealmakers have dedicated M&A teams that oversee, coordinate, and execute acquisitions. The dedicated team makes M&A pipeline management much more effective and addresses possible delays early.

Final words

• An average business acquisition timeline can range from several months to several years. Many factors, from the deal’s complexity to geopolitical events, can influence the timeline.
• Regulatory scrutiny, shareholder concerns, cultural complexities, and geopolitical tension are the most common factors that delay business acquisitions.
• Mapping delay scenarios, developing contingency plans, and adopting the approaches of frequent acquirers can help to keep the acquisition on track and mitigate the implications of delays.

Take-private transactions in the US have been on the rise since the first half of 2024. Ropes & Gray, the US law firm, predicts 40 total take-private deals by the end of the year. When it comes to these transactions, valuations and strategic rationale are the most commonly discussed topics. However, what often goes unnoticed is the fate of public shareholders.

So what happens to shareholders when a company goes private? To answer this question, we prepared a dedicated article explaining the most common outcomes of take-private transactions for stockholders. In this article, you will also learn about the tax implications of offers provided to shareholders in take-private deals.

Understanding privatization: What is it, and how does it happen?

Privatization means that a publicly traded company can become privately owned by its management team through corporate buybacks, or by another company, usually a private equity firm or an investment bank. Its shareholders agree to the offer made by the acquirer, allowing the latter to purchase shares of the company.

Publicly traded companies may initiate stock buybacks to reduce the volume of circulating outstanding stock as part of the privatization process. This is usually done to streamline the ownership structure and simplify the buyout process.

Stock market delisting is what happens to public shares when a company goes private. Its stock can’t be traded on a public stock exchange anymore, and investors can’t access it through online brokers. This transaction is the opposite of an initial public offering (IPO). But if an IPO gives greater visibility and investing exposure, what drives public companies to revert to private ownership again? 

To lessen the regulatory burden

A public-to-private company is no longer subject to time-consuming regulatory obligations imposed by the Securities and Exchange Commission (SEC) and the Sarbanes Oxley Act (SOX). It can redirect more valuable resources to activities that benefit its business operations.

To overhaul the business model

A privately-held company can make more confident decisions without the scrutiny that typically affect public companies. Private equity investors give delisted companies the flexibility to initiate corporate restructuring without the pressure of public shareholders, media, or intricate corporate governance regulations.

To escape market volatility

A public company may decide to delist its stock from a major stock exchange during a recession or a period of high market volatility and low valuation. The strongest public entities tend to endure recession, while less resilient ones escape unfavorable circumstances by going private.

What happens to your stock if a company goes private?

Shareholders of a publicly-owned company typically sell their shares to an acquirer when it is taken private. How acquirers compensate the selling shareholders depends on several scenarios. 

Cash buyout

A private equity buyout is the most common scenario when a company goes private. An acquiring entity makes a cash tender offer to buy a public company’s shares at a premium price.

The offered price exceeds the market value to incentivize the existing shareholders to sell ownership interest in the target company. Shareholders are more inclined to approve such transactions when the terms are beneficial.

Stock swap

A stock swap means that the public company’s stock is converted to private shares at a specified ratio when the company goes private. The exchange ratio depends on multiple factors and may not always be 1:1. It can be higher or lower like during reverse stock splits when one company reduces the number of shares of another company after buying it.

It can be adjusted based on the premium offered to the shareholders and the financial considerations of the acquiring company. Stock swaps are not that common because private acquirers prefer to have fewer shareholders.

It means each shareholder of Company A will receive 1.25 private shares for each public share held. For instance, a shareholder with 100 public shares held (worth $10,000) will receive 125 private shares (worth $12,500).

Cash and stock offer

Shareholders may be offered shares in the newly-private corporation alongside usual cash compensation. Acquiring companies may use this approach to offset the immediate privatization effects on their financials, although such scenarios are more common in public-to-public transactions.

As a result, a shareholder with 100 public shares receives $5,000 in cash and 75 private shares (worth $7,500). The total value of this shareholder’s compensation is $12,500 and reflects the $25 per-share premium paid by the acquirer.

Forced equity buyout: What happens to minority shareholders?

A forced private buyout occurs when a transaction obtains shareholder approval (from the majority of voting shareholders) without the consent of smaller shareholders. The minority shareholder rights in the privatization of companies are limited to fair compensation; they can’t block a public-to-private transaction.

So, can a minority shareholder be forced to sell shares? Under specific circumstances, such as drag-along provisions in corporate bylaws, remaining shareholders can be forced to sell shares when a specific event occurs, such as privatization or the sale of the company. The good news is that they can be compensated at the same level as majority shareholders.

When a company goes private, what happens to the stock owned by employees?

Publicly-traded stock owned by employees (vested stock) is treated similarly to the stock of regular shareholders when the public company goes private. 

The vested stock is removed from the public exchange, and shareholder-employees are generally subject to cash offers, stock swaps, or mixed offers. That is also true for a management buyout when a company is generally interested in retaining stockholder employees. 

Unfortunately, as a common consequence, when a company buys another company, what happens to the employees is job loss. In this scenario, the departing shareholder-employees are forced to sell their vested shares, often under unfavorable terms, and are not eligible to purchase remaining shares.

What happens to unvested shares when a company goes private?

Unvested stock refers to company shares that have been awarded to employees but are not fully owned by them. The stock vesting process typically requires several conditions to be met (like certain milestones such as years of employment). Therefore, employees eligible for stock options may be in the vesting process for some time.

If a public company goes private during that period, unvested stock may be converted to a cash offer. However, a private acquirer may cut expenses related to unvested stock to maximize the return on its investment portfolio. That is why some companies terminate unvested stock completely, without compensating regular stockholder-employees.

What happens to stock if a company goes private: Overview of tax implications

Take-private transitions can be taxable for shareholders depending on the structure of the transactions involved. 

Cash offer

Shareholder compensation in the form of cash is subject to immediate capital gains taxes. The value of the stock purchase is the tax basis (cost basis) for calculating the capital gains tax. The capital gain constitutes the difference between the tax basis and the cash offer.

Stock swap

Shareholders may not be subject to immediate capital gains taxation during the exchange of shares in a take-private transaction. In such an event, shareholders are taxed when they realize capital gain by selling their private shares. The tax basis of new shares will be the same as the tax basis of old shares.

The tax basis for calculating the capital gain tax doesn’t change during the transaction — it is still $10,000, even though the per-share basis is $133 ($10,000 ÷ 75 = $133).

Cash and stock offer

The tax implications of the cash and stock portions in mixed offers are different. A shareholder will pay capital gains taxes on the cash portion. However, the capital gains taxes on the stock portion will be deferred until the shareholder sells private shares.

Example:

An investor purchased 100 public shares in Company A at $100 per share. The shareholder’s total investment is $10,000, and it’s also the cost basis for the capital gains tax. Company A has been acquired by Company B for $125 per share.

Company B pays shareholders of Company A $50 and 0.75 in private shares per public share. The shareholder receives $5,000 in cash and 75 private shares worth $7,500, so the total compensation equals $12,500, which reflects the premium paid by the acquirer.

The cash portion is subject to immediate capital gains tax. To determine the gain, the shareholder must calculate the allocated cost basis of the cash portion. This is done by dividing the cash portion ($5,000) by the total compensation ($12,500) and multiplying this amount by the original tax basis ($10,000).

The shareholder can use the following equation: ($5,000 ÷ $12,500) × $10,000 = $4,000. This amount ($4,000) is the allocated cost basis of the cash portion. Consequently, the capital gain on the cash portion is $5,000 − $4,000 = $1,000.

As for the stock portion, its allocated cost basis is $6,000. If the shareholder sells the stock portion immediately after the transaction, the capital gain from the stock portion will be $1,500. The combined capital gain for the cash and stock will be $2,500 at the movement of the transaction, which equals the $2,500 premium paid by the acquirer. However, if the shareholder decides to hold private shares, they can delay the capital gains tax on the stock portion until they sell it.

Please note that the above examples illustrate the general idea of capital gains tax calculations and the approximations of what happens to shareholders’ stock in take-private transactions. The impact of a merger and acquisition on shareholders is deeper than that.

The above examples don’t consider numerous nuances, such as the holding period of shares, the transaction’s tax status, capital loss carryovers, and other unique circumstances. A personal finance or accounting consultation is highly advisable for precise calculations.

How do take-private transactions impact the stock liquidity of public companies?

Broadly speaking, the liquidity of a stock is decreased once the stock issuer ceases trading on public markets. Let’s explore a few reasons why this happens.

The private market is limited

A public-to-private company loses access to the global public market, which is around ten times as large as the private market — ~$130 trillion of public trading value (2023) versus ~$11 trillion of private markets (2022). That means private investors, particularly individuals, have fewer opportunities to sell their shares in the private market.

There are equity transfer restrictions

Private companies often write down equity transfer restrictions, limiting the shareholders’ ability to exit. Lock-up periods, during which shareholders cannot sell their private shares, are also common.

Those restrictions may include a general prohibition on sales for some period after the investment is made, as well as various rights of the non-transferring investors in connection with any transfer made by an investor after that date, such as rights of first offer (ROFO) or first refusal (ROFR) and tag-along or co-sale rights…

Gregory V. Gooding
Partner at Debevoise & Plimpton, LLP

Private shares are difficult to evaluate

The value of private companies is hard to predict due to the private nature of business data and the lack of representation in public markets. According to PitchBook, 60% of professional valuations of private companies are less than 85% accurate. With private share prices essentially being a mystery, it’s hard to find buyers willing to accept the risk.

Final words

• Public companies typically go private to escape market volatility, ease regulatory scrutiny, and have greater strategic flexibility.
• Stockholders of public companies that go private typically sell their shares at a premium and exit the business entirely. In rare scenarios, the shareholders receive equity in private companies.
• Shareholders of public companies that go private face different tax implications depending on the offers made by private buyers. Cash offers typically result in immediate capital gains taxes, while mixed offers open opportunities to defer taxes.
• When a public company goes private, the liquidity of its stock decreases substantially due to the smaller size of the private market, equity transfer restrictions, and valuation difficulties.

Buyers and sellers both benefit from understanding the peculiarities of an asset purchase and a stock purchase. These two acquisition methods determine how ownership, assets, and liabilities are transferred from the target business entity to the acquirer.

This article explores the key differences between a stock acquisition and an asset acquisition and dives into the rationale behind each, from both buyer and seller perspectives.

Overview of asset acquisitions

An asset acquisition is when a purchaser acquires tangible and intangible assets of a target company, such as equipment, machinery, real estate, customer contracts, or intellectual property. Accounts payable and accounts receivable are also valuable in such deals, helping acquirers negotiate terms with suppliers and improve cash flows. Unlike stock-for-stock mergers or stock acquisitions, asset acquisitions are paid in cash rather than stock.

During asset deals, the parties involved negotiate an asset purchase agreement which outlines the purchased assets, liabilities to be assumed, warranties, representations, and closing conditions.

After the transaction, the seller typically retains the assets and liabilities not purchased by the buyer. Asset deals most commonly occur under the following circumstances:

• When buyers aim for specific business units, technologies, contracts, etc. while avoiding unrelated or underperforming parts of the sellers’ businesses.
• When sellers dispose of assets to reorganize operations
• When a seller is a limited liability company, due to protection of personal assets from the company’s liabilities.

Overview of stock acquisitions

A stock acquisition is when a buyer purchases stock from shareholders of the target company to gain an ownership interest in said company. This would involve purchasing a controlling interest (over 51% of shares).

After the transaction, the buyer becomes the owner of the target company and inherits all its assets and liabilities. Stock transactions and mergers are often paid with stock or a mix of stock and cash. An alternative to using cash to acquire stock is the stock-for-stock merger. What is a stock-for-stock merger? It’s when the target company’s stock is exchanged for stock of the purchasing company. Various types of stock transitions most commonly occur in the following scenarios:

• When buyers want to acquire targets as quickly as possible
• When buyers want to quickly expand market reach and diversify revenue streams as part of the business strategy.
• When buyers are private equity firms aiming to develop portfolio companies

Asset acquisition vs stock acquisition: Key differences

Let’s map the key differences and nuances of asset vs stock acquisition.

Area	Asset acquisition	Stock acquisition
Ownership transfer	The buyer purchases individual assets.	The buyer takes ownership of the entire target business, including unwanted assets.
Seller’s status	The selling company remains an independent business and retains legal ownership.	The selling company is taken over by the buyer.
Liability considerations	The buyer assumes selected liabilities based on its risk appetite.	The buyer assumes all known, unknown or uncertain liabilities.
Execution complexity	An asset deal is complex and time-consuming due to appraisals, contract renewals, third-party consents, and operational disruptions.	A stock deal is less complex due to an all-in-one ownership transfer and operational continuity.

Asset and stock deals can be very nuanced. Buyer and seller perspectives can be different, causing conflict. Let’s explore the contrasting buyer and seller visions of an asset purchase vs stock purchase, illustrated with a few real-world examples.

Buyer’s perspective

Risk management

The choice between asset vs stock purchase acquisition significantly impacts the buyer’s risk exposure. Buyers prefer asset purchases when dealing with high-risk targets, particularly if those companies are distressed. In contrast, targets that carry minimal financial implications may find their acquirers more willing to structure stock deals.

Integration

Buyers may choose stock acquisitions when pursuing an integration of operations, revenue streams, and employees. On the other hand, only integrating individual business units or certain assets into the acquirer’s operation is much more complex due to legal, operational, and infrastructural challenges.

Talent retention

Stock acquisitions ensure the smooth integration of employment agreements because workers don’t need to be rehired. That translates into greater talent retention when compared to acquisitions of separate business units. For that reason, stock acquisitions are also preferable for sector-focused buyers hunting for unique talent.

Seller’s perspective

Transaction value

Stock acquisitions are the best way for sellers to maximize valuations because buyers typically pay a premium to incentivize selling shareholders and outbid competitors.

Asset sales generally make sellers attempt to maximize the price, particularly to cover higher taxes. However, individual assets are typically worth less when separated from the brand, its audience, and the existing business’s positive reputation.

Post-sale liabilities

Sellers generally want to limit their liabilities and shift as many obligations to buyers as possible. In that regard, stock acquisitions are the best option. Full ownership transfer paves the way for a cleaner exit, allowing the old owners to potentially cut all the ties with the sold business. Asset acquisitions, on the other hand, make the status of original owners’ more complex as they now own fewer assets and therefore have less financial power to cover existing liabilities. 

IBM and Weather Company

IBM’s acquisition of the Weather Company’s assets exemplifies the buyer’s selective approach to a stock vs asset purchase decision. By structuring this transaction as an asset purchase, IBM hand-picked attractive assets and excluded non-desirable liabilities. The tech giant acquired weather.com, The Weather Channel, and Weather Underground mobile apps, for $2 billion in 2016.

IBM’s rationale was to acquire the Weather Company’s weather data technology to improve its Watson data analytics engine. Additionally, it aimed to capitalize on viewers choosing digital weather apps rather than TV forecasts. For instance, the Weather Channel mobile app gave IBM access to 66% of U.S. consumers.

Had IBM opted for a stock acquisition, it would have also acquired the Weather Company’s declining TV business (As evident from Comcast’s investment in the company, which devalued from $335 million at the end of 2014 to $81 million in 2015). Moreover, TV was out of IBM’s computing and software scope.

Disney and Pixar

Disney acquired Pixar for $7.4 billion in 2006 in an all-stock deal. Disney sought Pixar’s innovative culture and the breakthrough 3D animation technology. The potential was clear. Toy Story, the first full-length fully 3D-animated movie, grossed $394 million worldwide with a $30 million budget.

Disney acquired Pixar to retain its business continuity and reap huge profits. In turn, Pixar benefited from Disney’s movie distribution capabilities.

It was a win-win vertical merger that translated into around $11.5 billion generated at the global box office post-deal. Furthermore, this stock deal secured strong returns for Steve Jobs, Pixar’s major shareholder.

Jobs, who owns about 50 percent of Pixar (Research), would want a strong premium to its current $5.9 billion market capitalization to consider a sale.

CNN Money

Had Disney chosen an asset deal, it would have disrupted a highly successful animation studio with unique technology and priceless talent. Moreover, the asset acquisition would have been very complex, considering contracts, intellectual property rights, and technology appraisals.

Asset transaction: Pros and cons for buyers and sellers

Asset and stock acquisitions carry varying advantages for buyers and sellers. What’s more important, what is good for a buyer is often bad for a seller and vice versa. Let’s explore those benefits and drawbacks to understand why buyers and sellers often have conflicting goals.

Pros for buyers

Greater negotiation power

When disposing of assets, sellers are usually motivated to improve financials and free up resources for core operations. In a buyer’s market, that gives acquirers greater negotiation power. Buyers can also execute the “right of offset”  – they can recover losses when sellers breach warranties or representations outlined in the purchase agreements.

A ‘right of offset’ allows the buyer to unilaterally offset from future payments due the seller the amount of any damages suffered by the buyer in the event something is wrong with the acquired business in contravention of any warranty and representation made by the seller.

Robert M. Mendell
Attorney at Law

Fewer HR hurdles

A buyer has full control of what happens to employees after the acquisition, especially the workers of the target company. For instance, an acquiring company can avoid financial outlay in the event of layoffs. The responsibility for paying unemployment benefits remains on the seller.

Fewer antitrust concerns

An asset purchase transaction doesn’t impact ownership interest in a target company, nor does it result in a takeover or significant change in market control. Because asset deals don’t threaten market competition as much as stock deals do, they are less likely to be blocked by regulators. Such deals are also easier to execute from a securities law perspective.

Drawbacks for buyers

Administrative hurdles

Buyers must create subsidiaries after asset purchases outside their existing operations. The necessity to obtain business licenses and permits, rewrite contracts, and reorganize inventory can delay profit generation from acquired business units or individual assets.

Higher asset prices

Buyers may pay higher premiums embedded in asset prices because sellers want to cover high taxation costs. That is more common with a C corporation that pays double taxes.

Benefits for sellers

Strategic adaptability

An asset sale helps a company adapt to market changes. For instance, IBM sold Watson Health to streamline operations and channel its efforts into artificial intelligence.

A clear next step as IBM becomes even more focused on our platform-based hybrid cloud and AI strategy.

Tom Rosamilia
Senior Vice President and Senior Advisor at IBM

Less dependence on shareholder approvals

Shareholder approval is not required in asset sales unless such sales constitute “all or substantially all” assets under DGCL Section 271. However, US state law doesn’t specifically define the notion of “all or substantially all” assets. Rather, it considers qualitative and quantitative measurements.

That opens the possibility for the seller to bypass shareholder approval even when major assets are sold, as demonstrated by legal cases. For instance, the Altieri v. Alexy case illustrates that, under specific circumstances, a company can divest assets totaling over 50% of its revenue without shareholder consent.

…the court held that it did not support a conclusion that Mandiant had sold substantially all of its assets. Even though the sale was for $1.2 billion, the FireEye business comprised only approximately 38% of Mandiant’s total assets.

Thomas E. Johnson
Managing Associate at Sidley Austin LLP

Drawbacks for sellers

An asset deal is generally less favorable for a seller due to immediate tax consequences, the complexity of asset transfers, liability retention, and operational disruptions. Asset sellers typically have less negotiation power and must carry the responsibilities of warranties and representations that favor buyers in the first place.

Stock purchase: Pros and cons for buyers and sellers

Stock acquisitions may offer more benefits than drawbacks to both the buyer and seller, which explains their popularity in the M&A landscape. Let’s explore the key aspects for both parties.

Benefits for buyers

Fast business growth

M&A analysis confirms that acquisitions work much better than organic growth. According to Bain & Company, acquirers enjoy 130% higher shareholder returns than companies not engaged in acquisitions. However, when comparing a stock vs asset acquisition, buyers should consider that stock purchases have a higher chance of delivering strategic benefits and strong shareholder returns. That is because, when fully acquiring other companies, buyers can quickly amass customers, broaden market reach, capture technologies, and reduce competition.

Preservation of business identity

Stock buyers often preserve the business identity of target companies, which offers greater strategic freedom and unlocks more long-term opportunities.

Facebook’s acquisition of WhatsApp can illustrate how preserving its identity helped Zuckerberg dominate social media — WhatsApp reached 2.4 billion users in 2023.

Drawbacks for buyers

Regulatory scrutiny

Regulators cancel about  each year to prevent mergers from forming monopolies and threatening market competition. Amazon’s termination of a $1.7 billion acquisition of iRobot was among numerous regulatory interventions of 2024. Stock deals must also comply with federal securities laws and require more detailed disclosures.

Hostile shareholders

A stock transaction is of no concern for the target’s majority shareholders but may turn its minority shareholders hostile if they have a different perception of the stock purchase agreement. While minority shareholders have little power to block the sale, they may attempt to complicate the transaction by filing lawsuits.

Benefits for sellers

Buyer competition

A startup can secure a higher business valuation in the seller’s market. Facebook’s acquisition of Instagram is one of the best examples. Despite having only 13 employees and generating zero revenue, Instagram negotiated a $1 billion cash and stock sale, particularly due to a $500-million bid made earlier by Twitter, Facebook’s competitor.

The Instagram acquisition was all about combating rivals Twitter and Google+ and boosting its strategy on mobile, the sources said

Salvador Rodriguez
Tech Reporter for CNBC.com

Drawbacks for sellers

The risk of assuming unknown liabilities from stock sellers makes buyers more cautious. That often translates into higher holdback amounts. A holdback is a buyer’s emergency fund consisting of 5%–20% of the stock deal price left in escrow for several months and even a few years after closing. Acquirers may also negotiate price adjustments upon revealing additional risks, such as when normalized net working capital doesn’t match the agreed value. These factors may erode some value from stock sellers.

Stock vs asset acquisition: Tax considerations

Let’s discuss tax advantages and tax implications for buyers and sellers in asset and stock acquisitions.

Asset acquisitions

Buyer’s tax

Asset acquisitions are generally more beneficial to buyers from a tax perspective. Buyers can adjust the cost basis of acquired assets to the fair market value rather than what is reflected in the sellers’ books.

This stepped-up tax basis allows buyers to make higher depreciation deductions and reduce income taxes. The buyer’s benefit from significant tax deductions can be up to 25% of the difference between the purchase price and the target’s tax basis.

Seller’s tax

Sellers are subject to different tax treatment based on the nature of sold assets. Tangible assets, like hardware, machinery, or equipment, are taxed at the ordinary income rate. In contrast, intangible assets, like goodwill, are taxed at a lower capital gains rate.

However, asset deals are still less preferable for sellers, particularly C-corporations, because state laws impose sales taxes leading to double taxation. First, the company is taxed on the corporate level (ordinary income and corporate capital gains). Second, the target company’s shareholders are taxed at a capital gains rate when receiving transaction proceeds in the form of dividend payments.

Stock acquisitions

Buyer’s tax

Stock acquisitions are less favorable for buyers from a tax perspective. Buyers cannot benefit from stepped-up tax basis in stock deals during the transfer of ownership. Still, acquirers can counteract that by inheriting sellers’ tax attributes, such as net operating losses (NOL), but only to the extent outlined under IRS Section 382.

Seller’s tax

Stock acquisitions are preferable for sellers for tax purposes. They are tax-neutral at the corporate level. That is because the target company doesn’t technically profit or lose anything from the successful transaction because it occurs at the shareholder level.

Consequently, corporate-level taxes are not charged from the stock sale. Instead, the shareholders of the selling entity are taxed at a lower capital gains rate. This peculiarity also helps the seller to ensure an easier exit when they transfer taxes and associated liabilities to the new owner.

Tax-free reorganization

When structured as a reverse triangular merger, a stock acquisition falls under the criteria of a tax-free reorganization under IRC Sections 368(a)(1)(D). It allows shareholders of the target company to defer tax liabilities until they, for instance, sell shares received in the transaction.

Final words

• Buyers prefer asset acquisitions for the ability to acquire assets selectively, limit liabilities, like long-term debt obligations, and gain tax benefits.
• Sellers prefer stock acquisitions for higher valuations in the seller’s market, tax efficiency, and the ability to transfer liabilities. Stock acquisitions can also qualify as tax-free reorganizations, offering tax-deferral benefits to the owners and investors of selling companies.
• Stock acquisitions offer business continuity and are easier to execute than asset deals which typically require contract adjustments and time-consuming asset appraisals.
• Stock transactions are the most common form of M&A deals and help both buyers and sellers to survive competition and accelerate business growth.

The adoption of cell phones, wireless connectivity, smartphones, and 5G technology has transformed the telecommunications industry over the last 20 years. These transformations didn’t occur on their own but were fueled by the biggest telecom mergers of that period.

The historical context and impact of the major telecom deals are significant and indicative of what the industry has become today. So in this article, we explore the 12 biggest telecom acquisitions and their impact on the regulatory environment, competition, and innovations of the telecom industry.

Brief overview of M&A in telecommunications

High interest rates, political uncertainty, and low valuations have slowed global M&A activity in the last several years. However, deals are anticipated to bounce back due to a growing strategic demand.

If there is one certainty in all this uncertainty, it is that M&A activity will bounce back…

Brian Levy
Global Deals Industries Leader, Partner, PwC United States

We have already seen a surge in M&A activity, particularly in the telecommunications industry, where deal values have increased 162% in the first half of 2024. The uptick in telecom M&A reflects broader trends, where telcos seek transformations and innovations to meet market demands. So let’s dive deeper into these trends.

Source: Bain & Company

Demand for transformation

As much as $22 billion out of $43 billion announced TMT deals in the first quarter of 2024 are infrastructure, mobile, and fixed divestments. That is a huge spike compared to the third quarter of 2023 (telecom M&A declined 39% during Q1-Q3 of 2023, according to Bain & Company’s early 2024 M&A report).

Telecom companies have not only optimized their portfolios to unlock capital and channel efforts into core operations and technologies but have also begun improving cyber defenses. The adoption of the FCC 7-day notification rule has made telecom companies spend more resources on cybersecurity as part of their transformation strategies.

Pursuit of innovation

Telcos continuously pursue innovations, developing new capabilities and technologies to stay ahead of the competition. A notable example is the joint venture of NTT Docomo, NTT, NEC, and Fujitsu to make ultra-fast 6G transmission technology.

Recent telecom mergers reflect the willingness of businesses to adopt artificial intelligence as well. For example, HPE expects to acquire Juniper Networks for $14 billion, which develops AI-native networking equipment. It was one of the largest tech acquisitions announced in 2024. Innovative joint ventures are also on the rise. Juniper Networks recently partnered with Quantum Bridge Technologies to make the world’s first quantum-safe networking solutions.

Historical context of telecom M&A

Let’s briefly observe the events that shaped the telecom market in the past years.

Deregulation and liberalization (1980s–1990s)

The breakup of AT&T’s monopoly in 1984 created several independent companies and boosted competition. The 1996 Telecommunications Act also fostered developments in U.S. telecom services. This trend relieved many restrictions on broadcasting, radio, and TV sectors, and M&A deals and tech investments exploded.

The dot-com bubble (2000)

M&A liberalization and mass adoption of the internet created a bubble of overvalued tech companies from which investors anticipated a high return on investment.

Lacking sustainable value-creation models, these companies crashed amidst higher interest rates, and the telecommunications market crashed afterward. The Nasdaq index lost nearly 80% during that period, and telecom companies focused on divestments and restructuring to stabilize finances.

Convergence (2000s)

Networking advancements and post-bubble market recovery helped strategic buyers and private equity firms gain scale and create more consolidation in the market. Telecom giants pursued horizontal and vertical mergers to scale operations, complement services, and create bundled products. The formation of Verizon Communications was among the most notable historical mergers.

Digital transformation (2010s)

Fiber network and data center advancements, widening internet coverage, the rise of cell phones, and increasing content consumption channeled dealmaking activity into product integrations. Verizon’s acquisition of Verizon Wireless reflected the demand for wireless networks. Similarly, AT&T’s acquisition of Time Warner exemplified the intent to capitalize on content consumption.

5G and technology-driven M&A (2020s)

The early 2020s responded to growing demands for mobile devices with cheap, high-speed 5G connections. Key telecom players, like NTT and T-Mobile, invested heavily in 5G infrastructure and networks to meet such demands. Advanced connectivity also opened new opportunities across numerous sectors, including automotive.

In 2023, T-Mobile announced a 5G-based vehicle-to-everything (V2X) project to support road safety. This project highlights the increasing role of 5G technology in the automotive industry and delivers new opportunities for automotive mergers and acquisitions.

12 biggest telecom mergers and acquisitions

Our list of mergers and acquisitions in the telecom industry enumerates 12 deals:

1. Vodafone + Mannesmann

• Year: 2000
• Deal value: ~ $183 billion

Vodafone AirTouch PLC, the British telecom giant, acquired German telecom behemoth, Mannesmann AG, for approximately $183 billion (~$328 billion adjusted for inflation) in February 2000. It was one of the biggest acquisitions of all time. 

The combined telecom operator served over 43 million customers across Europe and the United States. This takeover secured Vodafone’s dominant position in the European wireless communications market.

However, was it that good for Vodafone? Multi-billion deals like this make companies vulnerable to market disruptions. Vodafone’s stock lost nearly 80% in 2000-2002 (the dot-com bubble burst), and the telecom behemoth recorded over $23 billion in losses connected to the Mannesmann deal.

This acquisition also impacted Europe’s antitrust developments. In 2004, the EU adopted the EC Merger Regulation, responding to the potential anti-competitive harms of gigantic mergers.

2. AOL + Time Warner

• Year: 2000
• Deal value: ~ $182 billion

The $182-billion merger of America Online Inc. and Time Warner was one of the biggest deals in history and also one of the worst. AOL Time Warner had $350 billion in combined market cap, 130 million subscribers, and 1.4 billion monthly TV viewers. The rationale was to create an ultimate media entertainment company with TV, movie, music, publishing, and cable network services.

However, the merger was doomed by cultural clashes, management disagreements, and debt amidst dot-com disruptions and the rise of the Internet. By 2002, AOL Time Warner lost $98 billion, and eventually, Time Warner decided to sell AOL to Verizon.

The former media executive behind the merger, who was referred to as the “Time Warner Chief in a Merger Debacle” by The New York Times said:

AOL was the Google of its time. It was how you got to the Internet, but it was using some old media business ideas that were undone by the Internet itself, and that’s why Google came along.

Gerald M. Levin

3. Verizon + Verizon Wireless

• Year: 2014
• Deal value: ~ $130 billion

Verizon Communications acquired Vodafone’s 45% stake in Verizon Wireless for $130 billion in February 2014. The combined entity had nearly $100 million subscribers and was among the largest wireless service providers in the US.

The buyout from Vodafone helped Verizon Communications secure its market position and reduce competition. Verizon aimed to generate higher cash flows from mobile networks, catering to the growing demand for cell phones.

This acquisition was strategically and financially successful for Verizon. The company reported an 8.2% growth in wireless revenue and a 5.4% growth in total operating revenue. Verizon also reported an increase of 6 million wireless retail connections, totaling 106 million in December 2014.

4. AT&T + BellSouth

• Year: 2006
• Deal value: $86 billion

AT&T acquired BellSouth Corp. for $86 billion following regulatory approval from the Federal Communications Commission (FCC) in December 2006. The combined entity had over 136 million customers, including home telephone owners, internet subscribers, and wireless phone customers.

While approved, the deal faced antitrust criticism, aggravated by AT&T’s announced plans to cut 10,000 employees by 2009 (over 26,000 job cuts in 2007-2009). In the successful attempt to get regulatory approval, AT&T agreed to freeze prices for competitors who use its networks for two years post-deal. The FCC did, however, respond to market consolidation later with new net neutrality regulations.

We got substantial concessions that are going to mitigate a lot of the harms that would otherwise have resulted from this merger.

Jonathan Adelstein
Former Commissioner of the FCC

This acquisition was successful for AT&T and its shareholders. The company reported a 20.3% annual return from stock appreciation and dividends, record-breaking operating income, and a 15% increase in service revenue in its 2007 annual report.

5. AT&T + Time Warner

• Year: 2018
• Deal value: $85 billion

AT&T completed the acquisition of Time Warner for $85 billion in 2018 after over a year of hurdles around competition concerns. This mega-merger resulted in AT&T consuming Time Warner’s Warner Bros., HBO, and CNN brands. This merger would expand AT&T’s media portfolio and complement its broadcasting services with nearly 3.5 million corporate customers alongside consumers.

Still, the union between the two companies was unsuccessful, and AT&T sold Time Warner for $43 billion in 2022. Anticipated merger synergies weren’t realized because of debt, leadership differences, and management mismatches. Financial analysts didn’t expect the merger would face so many cultural clashes. However, with time, more experts believed the human element was the dominant factor in this failure.

…the corporate personalities of the merging firms. They did not fit. It was a bad marriage that looked good on paper and in photographs.

Victor Glass
Professor at Rutgers Business School

6. Charter Communications + Time Warner Cable

• Year: 2016
• Deal value: $67 billion

Charter Communications completed a $56.7-billion merger with Time Warner Cable and a $10.4 billion acquisition of Bright House Network in 2016. Charter aimed to broaden its reach and compete against Comcast and AT&T. The resulting entity combined over 25 million customers.

This deal faced scrutiny from the FCC and the Department of Justice. Charter Communications agreed to provide high-speed internet access to 1 million customers of a smaller competitor. It also agreed to include over 140,000 homes and phone companies in New York’s less populated areas in its high-speed coverage area.

In 2018, the company faced several challenges from the New York State Public Commission attempting to dissolve the merger as Charter Communications failed to meet its obligations. Still, Charter was financially successful with this acquisition. Its fiber infrastructure and cable networks generated over 24% more revenue between 2017 and 2021, while its stock doubled in the same period.

7. Bell Atlantic + GTE

• Year: 2000
• Deal value: $52.8 billion

Bell Atlantic announced the acquisition of GTE in 1998, and the $52.8 billion transaction was approved in 2000, resulting in the birth of Verizon Communications. Verizon combined over 250,000 employees, 25 million wireless customers, and over 95 million line connections, becoming one of the largest telecom providers.

Verizon formed at the peak of the early wireless technology era and enjoyed growing demand among cell phone users. It had the resources and market power to dominate and innovate.

Speed, customer service and innovation are the hallmarks of the Verizon team.

Charles R. Lee
Former Verizon chairman

Now it delivers services to 210 countries. Verizon Communications is the largest U.S. telecom provider by revenue and the world’s third telecom company by market cap at the time of writing.

8. Sprint + Nextel

• Year: 2005
• Deal value: $46.5 billion

Sprint Corporation acquired Nextel Communications, Inc. in a merger of equals for $46.5 billion in 2005. Sprint and Nextel aimed to combine customers, revenues, and tech capabilities, including iDEN and CDMA networks.

The combined entity had around $70 billion in joint value and over 40 million subscribers. However, the merger was unsuccessful for a few reasons. 

One was integration challenges. iDEN and CDMA networks were inherently incompatible, and most customers didn’t seem interested in outdated iDEN handsets. Strategic disputes between Sprint, Nextel, affiliates, and partners also dragged Sprint down. In 2008, Sprint wrote down nearly all of the merger’s value, making it one of the worst deals in corporate history.

The company has been in declining condition ever since.

Jonathan Chaplin
Managing partner at New Street Research

9. NTT + NTT Docomo

• Year: 2020
• Deal value: $40 billion

Nippon Telegraph and Telephone Corp (NTT) acquired NTT Docomo for 4.25 trillion yen ($40 billion) in a take-private deal in the midst of 2020.

The rationale for the deal was to follow the Japanese government’s policies to cut wireless internet prices for consumers. As a private entity, NTT Docomo would be compelled to lower the prices as shareholders no longer dictated its decisions.

Post acquisition, Docomo will no longer be answerable to shareholders. If the government instructs it to cut prices, it will oblige

Atul Goyal
Analyst at Jefferies Group

Another analyst said this buyout would make 5G developments easier as NTT sought less regulated revenue streams. This acquisition was successful, although it initially faced some dips in NTT’s stock.

In December 2020, NTT Docomo launched its first 5G mobile service, supporting internet speeds of 4 Gbps and higher. By 2021, Docomo had over 85 million customers in the country and generated an additional 17 billion yen in net income compared to 2020.

10. T-Mobile + Sprint

• Year: 2020
• Deal value: $26 billion

T-Mobile acquired Sprint for $26 billion after nearly two years of regulatory scrutiny. Sprint merged with and into T-Mobile. The surviving entity, T-Mobile, had over 100 million wireless customers at the time of the merger.

It also aimed for Sprint’s “true 5G” technology, released a year before the deal closure. Sprint’s networks would alleviate high infrastructure costs and make it easier for T-Mobile to develop 5G services and compete with AT&T and Verizon. Consequently, it launched the first nationwide standalone 5G network around four months post-merger.

T-Mobile, now a 5G phone provider, has been doing exceptionally well since then. Its net income increased from $3.1 billion in 2020 to $8.3 billion in 2023, and it added nearly 20 million customers in the same period. Its stock also grew 154%+ in the past five years.

11. Vodafone + Liberty Global Europe

• Year: 2019
• Deal value: €18.4 billion

Vodafone acquired Liberty Global’s business in Germany and Central and Eastern Europe (CEE) for €18.4 billion in 2019. Vodafone had 54 million households directly connected to its network and over 120 million homes potentially covered after the merger.

As of June 2019, Vodafone was the largest operator of high-speed networks in Germany and CEE. The merger’s rationale was to compete with Deutsche Telekom, Telefónica, and Orange.

Like many horizontal telecom mergers and acquisitions, Vodafone’s deal potentially threatened competition. The European Commission approved the merger under specific conditions. Vodafone committed to allowing Telefonica Germany to access its networks and freeze prices for air-to-air TV operators, to name a few.

This acquisition wasn’t disastrous. But it didn’t deliver €1.5 billion in expected cross-selling revenue either. Moreover, Vodafone’s stock price has not recovered since 2020.

In March 2024, Vodafone announced a €8 billion sale of Vodafone Italia to Swisscom as part of its restructuring strategy.

The disposal in Italy is one of a number of steps that the chief executive, Margherita Della Valle, has taken to reposition Vodafone as the firm restructures in markets where its returns are below the cost of capital.

The Guardian

12. Comcast + NBCUniversal

• Year: 2013
• Deal value: $16.7 billion

Comcast acquired the remaining 49% of NBCUniversal for $16.7 billion in 2013, two years after it acquired its controlling stake for $13.8 billion. Comcast aimed for border reach and higher returns from cross-selling, reinforcing its status as the biggest media company in the United States.

Comcast financed both acquisitions with mostly cash and assets, and it didn’t take a toll on its financials. Additionally, NBC generated 12% more consolidated revenue in 2012 and 9.7% more operating income in 2014. Comcast’s stock also grew for nearly eight years after its first acquisition of NBCUniversal.

Final words

• The telecom industry impact of 1900s regulatory easing was huge. Mergers and acquisitions in the telecom sector exploded, and key players, like T-Mobile, AT&T, Verizon, and Comcast, emerged.
• Horizontal and vertical mergers historically prevailed in the telecom landscape. Companies aimed to reduce market competition through market expansion, bundled products, and innovations.
• Big deals often exhibit integration and management issues that dampen anticipated synergies. AOL & Time Warner and Sprint & Nextel are telecom merger examples that went seriously wrong.
• The current telecom M&A landscape strives for innovations. Companies have been actively divesting underperforming assets to focus on core operations and invest in new capabilities, such as AI, 6G, and cybersecurity enhancements.