Bayer, the multinational pharmaceutical and life sciences company worth billions, acquired Monsanto to grow its crop science division in the summer of 2018. Unfortunately for Bayer, the acquisition has not unfolded as planned. Fortunately for entrepreneurs throughout the world, the issues that arose with this deal provide a valuable learning opportunity.
What went wrong? We can identify three potential reasons the acquisition has failed to deliver as promised. One is that the company is navigating lawsuits requiring it to defend two of Monsanto's biggest products, Roundup and Ranger Pro, against allegations they cause cancer. The company has experienced sevearl high profile losses in court. More thorough due diligence prior to the deal could have better alerted the principals to the risks of this pending litigation.
In addition to the issues of potential liability, due diligence should have raised concerns regarding worldwide trends. The product Monsanto is primarily known for does well in the United States but is less accepted in Europe. The market in the United States has declined since the acquisition, a change that may have been forecasted if the European markets were more closely examined before closing.
Finally, the industry was experiencing a wave of parallel mergers at the same time Bayer was moving forward with its acquisition of Monsanto. History has shown that these waves often trigger a need to rush the process, potentially leading to mistakes.
How can you avoid the same mistakes? Two important take-away lessons include:
- Peer pressure. Do not rush a deal to miss out on a wave of similar acquisitions. Push for prompt and efficient process, but ensure due diligence is thorough before finalizing your agreement.
- False sense of security. Critics assert the multibillion dollar company relied too heavily on the successful completion of similar acquisitions. The comfort of familiarity may have led to less rigor during the due diligence process.
Ultimately, both tips lead to the same lesson: do not underestimate the importance of the due diligence process.