M10

Master Thesis
M&A in the Social-Networks sector
Submission date: 26-08-2014

Author: Jan Vriend
Student Nr: 2519311
MSc program: Strategy & Organization
Supervisor: Brian V. Tjemkes
Application date: 30-01-2014
Preface
This study is a Master Thesis for the MSc program Business Administration - Strategy &
Organization (S&O).
This Master Thesis is original intellectual product of the author, J.J. Vriend and is solely
responsible for the content including any errors. Therefor S&O cannot be held liable for the
content of this thesis.
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Table of contents
Preface...................................................................................................................................................... i
Table of contents ......................................................................................................................................ii
1. Introduction ..................................................................................................................................... 1
1.1 Background .................................................................................................................................... 1
1.2 Prior literature ............................................................................................................................... 2
1.3 Research objective, design, results ............................................................................................... 3
1.4 Contribution .................................................................................................................................. 3
1.5 Structure ........................................................................................................................................ 4
2. Theoretical background................................................................................................................... 4
2.1 Literature review ........................................................................................................................... 4
2.1.1 Failure rates ............................................................................................................................ 5
2.1.2 Impact of failure ..................................................................................................................... 5
2.1.3 Factors .................................................................................................................................... 6
2.2 Gap ................................................................................................................................................ 8
2.3 Definition of key concepts ............................................................................................................. 8
2.3.1 Social-network sector ............................................................................................................. 8
2.3.2 Post-M&A performance ......................................................................................................... 9
2.3.3 M&A success factors .............................................................................................................. 9
2.4 Hypothesis ..................................................................................................................................... 9
2.5 Conceptual model ....................................................................................................................... 10
2.5.1 Dependent variable, post-M&A performance ..................................................................... 10
2.5.2 Independent variable, M&A success factors ........................................................................ 11
2.5.3 Moderating variable, social-network vs traditional sector. ................................................. 11
3. Method .......................................................................................................................................... 12
3.1 Data collection ............................................................................................................................. 12
3.2 Operational definitions................................................................................................................ 13
3.3 Data analysis ................................................................................................................................ 14
4. Results ........................................................................................................................................... 15
4.1 Descriptive analysis ..................................................................................................................... 15
4.1.1 Bebo...................................................................................................................................... 15
4.1.2 De.icio.us .............................................................................................................................. 16
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4.1.3 Friends Reunited................................................................................................................... 17
4.1.4 Hyves .................................................................................................................................... 19
4.1.5 Instagram .............................................................................................................................. 20
4.1.6 Myspace ............................................................................................................................... 21
4.1.7 My Yearbook ........................................................................................................................ 22
4.1.8 Skype .................................................................................................................................... 24
4.1.9 Tumblr .................................................................................................................................. 25
4.2 Data analysis ................................................................................................................................ 26
4.2.1 Post M&A value loss ............................................................................................................. 26
4.2.2 Success factors influencing M&A performance ................................................................... 27
4.3 Interpretation .............................................................................................................................. 31
4.3.1 Consistency with hypotheses ........................................................................................ 31
4.3.2 Cross case comparison ......................................................................................................... 32
5 Discussion and conclusion ............................................................................................................. 35
5.1 Summary of key findings ............................................................................................................. 35
5.2 Discussion .................................................................................................................................... 36
5.3 Implications / contributions ........................................................................................................ 38
5.4 Limitations ................................................................................................................................... 39
5.5 Conclusions .................................................................................................................................. 40
6 References ..................................................................................................................................... 41
6.1 Academic literature ..................................................................................................................... 41
6.2 Reports and articles ..................................................................................................................... 42
Attachments ............................................................................................................................................ A
1. M&A success factors Gomes et al (2013) .................................................................................... A
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1. Introduction
The introduction chapter will illustrate the background of the study, prior literature regarding
the subject, the research objective, the contribution and finally the structure of this report is
presented.
1.1 Background
In recent years social-networks have gained enormously in popularity. Social-networks can be
used to connect with other people, share information and present yourself to other people by
creating your own personalized page. The most prominent example of a social-network is
Facebook. Facebook lets users create a personal page to present themselves and come in
contact with other users. There are many similar products available for both personal
computer and mobile devices. The main feature all social-network applications have is that it
lets users come in contact and interact with other users through the social-network.
Ellison (2007) defines social networks as web-based serves with the following three traits:
- (1) Construct a public or semi-public profile within a bounded system.

- (2) articulate a list of other users with whom they share a connection
- (3) View and traverse their list of connections and those made by others within the
system.
The nature and nomenclature of these connections may vary from site to site. This definition
of a social-network will be adopted in this study.
Compared to traditional companies are social-networks different in the type of product they
offer and the method of creating cash flows and generating earnings. Traditional companies
create cash flows by selling their product or service. Social-networks however are often free
to use, in order to attract large groups of users. The most common source of income (apart
from investments from venture capitalists) for social-networks is advertisements, which are
shown to the users of the social-network (Strickland, 2009). The benefit of this method is that
due to the data input by the user, advertisements can be shown based on qualities and interests
of individual users. This makes advertisement a lot more effective. In this business model
users themselves do not generate cash flow, but can be regarded as an means in the process of
creating the cash flow. This is distinctly different from traditional companies in which the
user of the product pays for using and/or buying the product and in this way the cash flow is
created
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Social-networks have recently grown in size and an increasing number of people are active on
these networks on a daily basis. As a result of this the companies behind these social-
networks have gone through a rapid expansion in size and value. These companies are
becoming an attractive target for acquisition, or become big enough themselves to buy smaller
firms.
There are numerous examples in which asocial-network experiences a major decline of value
after being acquired. There are even examples of a complete loss of value. For example Bebo,
this was a social-network similar to Facebook that was very popular in the UK and Ireland. In
2008 it was sold for $850 million. However the acquisition was followed by a huge loss of
value. Michael and Xochi (the original creators Bebo) were able to buy Bebo back in 2013 for
only $1 million. There are more similar examples in which case there was almost complete
value loss, such as the takeover of Hyves by the Telegraaf Media Group and the purchase of
Myspace by Specific Media Group.
This leads to the questions: Is there a higher impact of failure of M&A within the social-
network sector? And, is there a difference in factors influencing M&A in the social-network
sector compared to companies on other traditional sectors? The popularity to acquire social-
network companies remains very high despite these examples of value los.
1.2 Prior literature

There have been numerous studies on mergers and acquisition (M&A). Although many of
these studies focus on different aspects of success and failure of mergers, most of them agree
that the failure rate of mergers is fairly high. Kaplan & Weisbach (1992) argue that 34-50% is
unsuccessful Marks & Mirvis (2001) are even arguing that experience shows that up to 80%
of acquisitions fail. However most literature estimates the failure of M&A in the range of 40-
50%. This leads to believe that a significant failure rate in M&A is very common.
Other studies also state that there are no necessary benefits to M&A, and that M&A
endeavors are undertaken by wrong motive. M&A is a fashionable tactic for stockholders as
growth strategy or defensive move, but neglect the risk involved (Kitching, 1967). Or CEO
hubris influences companies to pay a (too) high premium in M&A (Mathew, Hayward and
Hambrick, 1997). This illustrates that gaining benefits from M&A is not a certainty and can
just as likely lead to value loss.
Social-networks are a relatively new type of company. Within this sector some of the largest
M&A endeavors in recent years have taken place but also some of the largest value losses.
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Although, as shown in the prior literature that M&A in general has a high failure rate, the loss
of value remains very large in the social-network sector. There are no studies yet that focus on
social-networks and the success of M&A within this sector. This is where this study aims to
make a contribution.
This study will focus on factors that influence post-M&A performance and analyze the
different impact these have within the social-network sector compared to other more
“traditional” sectors. Analyzing which factors have a prominent influence on the post-M&A
performance within the social-network sector.
1.3 Research objective, design, results

This research aims to gain a better insight in post-M&A performance within the social-
network sector and the factors influencing this performance, and compare this with traditional
sectors.
Many studies have focused on identifying factors that influence post-M&A performance. The
identified in these studies success factors will be used to examine whether they are applicable
within the social-network sector. Multiple cases will be studied and analyzed. Various cases
of M&A within the social-network sector will be studied and results will be compared with
the existing literature, in this way will be determined if these success factors identified by
existing literature are applicable within the social-network sector.
In addition the cases are compared with each other in a cross-case analysis. In this way
similarities can be found which are generally applicable for M&A within the social-network
sector. Using this research design understanding of the dynamics regarding M&A in the
social-network sectors is gained.
The results of this study are aimed at identifying the influence different factors have on post-
M&A performance in the social-network sector, compared to traditional sectors. This study
tries to gain insights the high losses of value that occur post-M&A within the social-network
sector.
1.4 Contribution
The objective of this report is the analysis of M&A performance in the social-network sector,
and the identification of factors that have an influence on this performance. There is already
much literature on M&A, however very limited literature that specifically focusses on the
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social-network sector, since this sector is relatively new. The sector is growing rapidly and
many large acquisitions take place involving social-networks.
In many instances M&A including social-networks is accompanied by large value loss in the
period after the acquisition. This study makes a contribution by focusing M&A within the
social-network sector, filling the gap in current literature. Analyzing whether M&A in this
sector involves higher risks and if different factors are involved producing the outcome of
M&A.
M&A in the social-network sector is a very actual topic. The benefits of this paper are that
companies can be aware of these M&A success factors and avoid pitfalls when engaging in
M&A within the social-network sector. This awareness will reduce the risk and can lead to a
higher success rate for M&A that involves social-networks.
1.5 Structure
This report will follow the following structure. Chapter one presents the introduction for this
study. Followed by the literature review in chapter 2. The research methods are explained in
chapter 3. In chapter 4 the results of the in-depth case analysis will be presented and analyzed
which forms the foundation in this study. Finally in chapter 5 the discussion and conclusion
will be presented including a summary of the key findings, limitations and implications for
future research topics.
2. Theoretical background
In this chapter the theoretical background of this study is discussed. The literature review will
be presented in which literature is consulted to analyzing the prior research done on the topic
of M&A. This will be used to find current failure rates and impact of failed M&A and to
identify factors that influence M&A performance. Based on the literature study the gap in
literature that this paper contributes to will be made evident. In addition the theoretical
foundation will contain the definitions of key concepts and variables used in this study.
Finally the conceptual model will be presented.
2.1 Literature review

In the current literature review three different elements of M&A will be analyzed. These
elements can then be analyzed for the social-network sector in comparison to traditional
sectors. First is studied both the M&A failure rates and the impact of these failures, this in
order to find if there is a difference in the outcome of M&A in both the social-network and
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traditional sectors. In addition the factors that influence the post-M&A performance are
studied in order to explain possible differences between the sectors.
2.1.1 Failure rates

Most of the literature agrees that the failure rate of M&A is high. Marks & Mirvis (2001)
analyze over 70 companies in their study to analyze managerial actions that distinguish
successful from disappointing combinations in M&A. They argue that three out of four (75%)
mergers and acquisitions fail their objectives.
Selden & Colvin (2003) have been studying companies for two years to understand
acquisitions and the loss of wealth, often followed by acquisitions. They state an M&A failure
rate between 70% and 80%, based on “hard” experience. Meaning that these acquisitions do
not generate wealth for the owner. However positive returns are achieved by the shareholders
of the target of the acquisition (Jensen and Ruback, 1983; Agrawal and Jaffe, 2000). Argwal
and Jaffe also argue that this is mainly due to large premiums that are involved with
acquisitions. This study focusses on the performance of the company after the acquisition,
making gained wealth by shareholders of the acquired company less relevant.
Other studies present a much lower failure rate than the 70%-80% presented in both of the
mentioned studies. Cartwright and McCarthy (2005) argue that 53% of the M&A results in
destruction of value. According to managers self-reports the failure of M&A rate is 46-50%
(Kitching, 1974) Richard Schoenberg (2006) uses four different kinds of metrics (cumulative
abnormal returns, managers’ assessments, divestment data and expert informants’
assessments) to compute a failure rate for M&A in his study “Measuring the Performance of
Corporate Acquisitions: An Empirical Comparison of Alternative Metrics”. Schoenberg
assessed the failure rates of M&A as indicated by each of the metrics independently. These all
ranged between 44-56%. In addition Rostand (1994) reports similar failure rates. Overall
there is general and better funded support for a perceived failure rate in M&A of around 50%.
Therefor this study accepts this number as a representative of general failure rates in M&A.
2.1.2 Impact of failure

For this study also the impact failure will be taken into account in order to assess whether
there can be made a distinction between regular and social-network companies. As shown
many studies are concerned with the failure rate of M&A, however a clear definition of what
is regarded as a failure has to be defined in this analysis. Previous studies are consulted to
gain a clear view on what is regarded as failure in M&A literature.
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Marks & Mirvis (2001) describe failure of M&A as not being able to achieve the financial
objectives of the merger or acquisition. This is measured using share value, return on
investment, and post combination profitability. This view of failure as not being able to meet
originally set objectives is shared by Schoenberg (2006). However this leaves room for
interpretation since M&A with high set objectives will be more likely to fail, creating a
distorted view of failure.
Lubatkin (1983) argues that although industrial organizational theory suggest improved
performance from M&A that actual empirical studies show that returns are not greater for
M&A than it would be in other investments-production activities. M&A is regarded as
unsuccessful when it fails to create increased performance, compared to alternative
investments.
Both of these methods value a company after M&A and compare the merged company with a
benchmark such as the set goals and (expected) increased performance. Another method is
comparing the performance of the merged company with a similar portfolio of stand-alone
companies, as done by Berger & Ofek (1995). The result of diversified (merged) companies is
compared with standalone companies and found that in the US there is on average a 13-15%
value loss from diversification. Lins and Servaes (1999) execute a similar research and find
the same numbers for the UK and Japan. Graham, Lemmon, & Wolf (2002) do however argue
that these benchmark companies should be carefully chosen.
These methods analyze the success/failure of M&A based on post-merger results and
benchmarks. Using these methods M&A activities can be labeled as a failure even if the
acquired asset does make a contribution to the company, but is not able to meet the expected
performance, or is not able to operate as effectively as stand-alone companies. Using these
methods, a failure does not say anything about a loss of value of the acquired asset. However
in the social-network sector, generally a failure is often accompanied by high loss of value. In
this regard the impact of a failure is the value loss of the asset. Therefore the difference in
M&A performance between social-networks and traditional sectors can be found in the value
loss of failed acquisitions.
2.1.3 Factors
Marks and Mirvis (2001) acknowledge these dismal M&A results and argue that many factors
can be responsible for these meager results, among which are: paying the wrong price, buying
the wrong company, or making the deal at the wrong time. In addition Cartwright and
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Schoenberg (2006) state that not only the “goodness of the strategic fit” is responsible for
M&A performance but that the whole integration process needs to be taken into account. Both
studies argue that there are numerous factors influencing M&A performance dispersed over
the whole integration process in addition to the strategic fit.
More recently Gomes, Angwin, Weber and Tarba (2013) have thoroughly studied success
factors of M&A performance in their study “Critical Success Factors through the Mergers and
Acquisitions Process: Revealing Pre- and Post-M&A Connections for Improved
Performance” In this study they thoroughly analyze previous literature on success factors and
find a total of thirteen M&A success factors, seven pre-M&A factors and an additional six
post-M&A success factors, as shown in image 2.1.
Image 2.1 M&A success factors by Gomes et al. (2013).
These factors are based on the extensive literature study by Gomes et al. (2013), a complete
overview of the factors and supporting literature can be found in attachment 1. These thirteen
factors represent the factors influencing post-M&A performance in the traditional sectors and
will be used in this study to benchmark against cases studies of M&A within the social-
network sector.
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2.2 Gap
Recently many of the largest and controversial M&A have taken place in the social-network
sector. None of the existing literature however has examined M&A within this sector. This
paper will try to fill this gap by focusing on this social-network sector and analyzing whether
there are fundamental differences in M&A performance between the social-network sector
and other traditional sectors. These differences can be found in both post-M&A performance
and the influence the identified success factors have on the outcome of M&A within the
social-network sector, compared to traditional sectors.
Due to the recent high value takeovers, failures and value loss in the social-network sector, it
can be very beneficial to examine M&A in this sector, gaining new insights and offering
handlebars to avoid pitfalls. The success factors that affect M&A in the social-network sector
are examined in order to be able to highlight the success factors of importance. This helps
future M&A endeavors in the social-network sector to be aware of these factors and be more
successful.
2.3 Definition of key concepts

The main focus of this study is whether there is a distinct difference between the level of
success for M&A in the social-network sector compared to M&A in other sectors. In addition
will the factors that are responsible for a possible difference analyzed.
The key concepts of this study are:
- Social-Network sector
- Post-M&A performance
- M&A success factors
2.3.1 Social-network sector

Companies in the social-network sector are primarily focused on offering social-networks to
users, the primary value of the network is determined by the number of users. Key element in
these applications is the possibility of users to interact with each other, share information by
for example a personalized page and find information about others. The main difference
between the social-network sector and traditional sectors is the way in which cash flow is
generated. In the social-network sector the product is free to use, but the users are a part of the
process of generating cash flow. Social networks offer directed advertisement to users, selling
this advertisement space is primarily where social-networks generate their income. In contrast
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with the cash flow in traditional companies, where the cash flow comes from the users itself
when users pays for a product or service.
2.3.2 Post-M&A performance

Post-M&A performance can be defined as value gain or loss that results from the M&A
process. The level of failure in M&A can be distinguished in both the failure rate in
percentage or in the amount of value loss due to M&A. Many studies consider M&A a failure
if the pre-set goals are not met. However this does not necessarily mean a total value loss of
the asset. This interpretation can lead to high rate of failure (many failures) but only a limited
loss of value, because the acquired asset can still make a contribution (although lower than
expected). Therefore a distinction is made between the failure rate in percentage, and the
impact a failure has in terms of value loss. Within the social-network sector, high (almost
total) value loss after M&A failure seems to be more common than for traditional sectors. In
this aspect significant difference between social-network and traditional sectors can be found.
2.3.3 M&A success factors

Different factors that have an influence on post-M&A performance can be distinguished.
Thirteen factors have been highlighted by Gomes et al. (2013) and represent the success
factors for M&A in traditional sectors. These factors are used in this study as benchmark for
comparison with the case studies of M&A within the social-network sector. An overview of
all the factors is presented in image 2.1.
The social-network sector is a relatively new sector, in which a lot of M&A activities take
place. These are however not always successful and in many of these cases resulting in high
value loss. By studying these factors influencing M&A performance, new insights can be
developed regarding the influence of these factors on the success of M&A within the social-
network sector.
2.4 Hypothesis
In the introduction two questions are posed in regards to M&A within the social network
sector: is there a higher impact of failure of M&A within the social-network sector? And, is
there a difference in factors influencing M&A in the social-network sector compared to
companies on other traditional sectors?
In current literature there is very limited literature specified on M&A within the social-
network sector. The questions stated in the introduction chapter are translated to the following
two hypotheses of this study, aimed at filling this gap in literature:
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- The impact of M&A failure is higher in the social network sector than it is for
traditional sectors.
- Factors influencing post-M&A performance have a different influence in the social-
network sector than in traditional sectors.
2.5 Conceptual model

This study tries to find the influence which factors have on the success of M&A activities and
if there is a difference in the level of effect that these factors have in the social-network
sector, compared to traditional sectors. The conceptual model describes the setup for this
study and the different variables. The dependent variable is the post-M&A performance, the
independent variables are the success factors influencing this performance, and the
moderating variables is the social-network vs traditional sectors. Image 2.2. shows a
schematic overview of the conceptual model.
Social-network vs Traditional sector
Succes factor
Succes factor
Post-M&A performance
Succes factor
Succes factor
Image 2.2, schematic overview of the conceptual model
2.5.1 Dependent variable, post-M&A performance

This study tries to analyze the M&A performance for the social-network sector, therefor the
dependent variable will be a measure of post-M&A performance. As discussed this can be
defined as the M&A success/failure rate in percentage or the impact of M&A such as value
gain or loss. Since the failure rate for traditional companies is around 50% and there are
multiple examples of failure and success of M&A within the social-network sector ass well,
there seems little evidence of a significant difference in failure rates between both the social-
network and traditional sectors.
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In traditional M&A literature not achieving the set goals is recognized as failure. In this case
the value loss (or even gain) can be limited while the acquisition is still regarded as a failure.
In the social network sector however are many cases known with almost a total value loss of
the acquired asset. This differs significantly compared to traditional companies, in which the
average value loss of failed M&A can be much lower. In addition, the value increase of an
asset is difficult to assess for social-networks, since in many cases a definitive monetizing
strategy for the social-network still has to be found and implemented. For these reasons will
this study focus on the post-M&A value loss in failed M&A activities in order to find the
distinction between both sectors.
2.5.2 Independent variable, M&A success factors

The independent variables in this research are the factors influencing post-M&A performance.
This study adopts the view of Gomes et al. (2013) in which factors are influencing the post-
M&A performance. Gomes et al. (2013) have conducted extended literature research and have
identified thirteen factors in both the pre- and post- merger phase. These factors are found in
existing literature applicable for traditional companies. Using this lens, this study will analyze
these thirteen factors for their applicability within the social-network sector. Using this
method it is determined if there is a difference in the influence these factors have in the social-
network sector, compared to traditional sectors. In addition, a cross-case analysis will be
conducted in which new factors can be highlighted that have a significant influence on post-
M&A performance within the social-network sector, while not being identified as having an
influence within the traditional sectors.
2.5.3 Moderating variable, social-network vs traditional sector.

The found factors are independent variables, and have an influence over the dependent
variable, the post-M&A performance. The moderating variable illustrates the different
influence these factors have in either the social-network or traditional sectors.
The factors identified by prior literature are based on traditional companies. However these
might influence M&A performance within the social-network sector differently. The
difference in influence these factors have in each sector is the moderating effect. It is
suggested that the influence of these factors is different, based on in which sector the M&A
takes place. This way factors that behave differently based on the moderating variable can be
identified. These factors can then be used to explain a possible difference in post-M&A
performance for both the social-network and traditional sectors.
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3. Method
This chapter will explain the methods used in this study conducting the research. The data
collection method, operational definitions and data analysis will be discussed within the next
paragraphs.
The main method of research is case studies. Rowley (2002) argues that a case study is most
suitable to answer “how” and “why” questions. This study is trying to answer these “how”
and “why” questions regarding M&A performance for the social-network sector.
Case studies are mainly suitable for new fields of research or areas for which existing
literature seems to be inadequate (Eisenhardt, 1989). The social-network sector is relatively
new and there is limited research focused on this sector, especially in combination with M&A
performance. This lack of existing literature on this subject supports the choice for using a
case study method. A case study will fill this gap in literature and can offer a starting point for
further research in this specific sector.
Yin (1994) states that there are 3 main elements that determine the appropriate research
strategy, these are:
- 1) the type of research question

- 2) the extent of control an investigator has over actual behavioral events
- 3) The degree of focus on contemporary as opposed to historical events.
This study focusses around the “how” and “why” type of question, and has no control over the
behavioral events. The events this study focusses on (M&A in the social-network sector) are
very contemporary in nature. Based on these premises is a case study most relevant for this
situation, based on the overview presented by Yin (1994).
3.1 Data collection

There are multiple methods for data collection for a case study. Yin (1994) distinguishes 6
different sources for data collection: documentation, archival records, interviews, direct
observation, participant observation and physical artifacts.
This study will be using mainly documentation in order to examine the cases and makes
limited use of archival records of information, if this information is available. These sources
will be used to gain a stable and unbiased insight in these cases. In addition to these sources
will existing interviews with involved experts be used if these are present. However it has to
be noted that these interviews are not specifically conducted for this study and therefore
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subject to possible bias by the interviewer, and therefor interpreted with caution. In this study
research it was not possible to personally interview these experts since this research does not
has the means and access to the involved experts.
Using these methods an overview of multiple cases of M&A within the social-network sector
is created and used in a case analysis as foundation for the results for this study. The cases are
various mergers and acquisitions within the social-network sector in different countries across
the world.
In order to select the cases that are being analyzed in this study a number of requirements
have been set. First the social-networks needs to meet the description of what a social-
network is as stated in the introduction section and have been part of a merger or acquisition.
Furthermore each of the cases represents a prominent M&A case within the social-network
sector. Therefore these social-networks must have (had) at least a million users to be
considered a prominent case. This has the added benefit that for prominent cases more and
better objective documentation will be available to build the case study on. Since this sector is
relatively new and many cases of M&A within this sector occurred within the recent past, the
M&A activities within this cases all have occurred in 2005 or later.
The selected cases are based on these requirements. The cases will be studied extensively on
the post-M&A performance, and on the factors that have influenced the outcome of M&A in a
significant way.
3.2 Operational definitions

Several different elements will be measured for each of the individual studied cases. A
general overview of the social-networks and their M&A process will be created based on
elements regarding the acquisition. These are studied for each individual case and are
elements such as monthly users at peak, period, acquiring price, selling price, value loss (if
applicable). This is in addition to the factors identified by the literature study. These factors
will also be analyzed for each of the individual cases in order to gain insights in the influence
each of these factors has on the outcome and success of the M&A process.
The sources used for the data collection are internet sources, scientific literature, press
releases and existing interviews or articles form involved experts. Social-network companies
operate online, and are a relatively new phenomenon. This makes the internet an excellent
source of information with an abundance of data regarding these social-network companies.
However this source is accessed with caution since reliability can be questionable and only
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renowned internet sources are used. This is in addition to more traditional sources such as
scientific literature and press releases. All sources are analyzed to gain a complete
understanding of the company, the M&A process and performance.
A systematic content analysis is based on a combination of all these sources and will be
conducted for all of the individual cases. Creating an overview of the acquisition and its
performance, highlighting the influence different factors have had on the post-M&A
performance within these cases. In addition a cross-case analysis will compare the cases in
order to find generalities that are present within the social-network sector.
3.3 Data analysis

The found data will be analyzed in order to generate and support the findings for this study. In
this analyzing process a cross-case analysis will take place. The factors identified by current
literature will be analyzed for each of the individual cases. These will then be subjected to a
cross-case analysis in order to find similarities in applicability for these factors, within the
social-network sector. In this process cases will be compared in order to find the factors they
have in common that have a similar influence on the case and the results/performance. If this
can be observed for multiple cases, these factors might have a significant influence and lead
to certain outcomes of the M&A process (positive or negative). For example if the factor
“choice and evaluation of the strategic partner” is present in the successful cases, while absent
in unsuccessful cases, this can suggest that this factor indeed has a positive influence on
M&A success within the social-network sector. However other factors might prove to have
more limited influence on M&A success within the social-network sector than they have
within traditional sectors.
This study will also focus on finding common factors within the social-network segment that
are not presented in current literature. These factors will also be subject within the cross-case
analysis in order to find whether these factors have a significant influence on the results of
M&A in the social-network sector. In this way new factors that have a specific influence
within the social-network sector can be identified, while this is not (or limited) present within
the traditional sectors.
In addition can the awareness of the factors that are influencing M&A differently within the
social-network sector help future M&A endeavors to be aware of pitfalls, and focus on using
factors that are actually important for success to their advantage.
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4. Results
This chapter will show the results of the case study and analyze those results. In the first
paragraph a short overview of the cases is shown. These cases are the main source of data for
this research. This section is followed by the data analysis section in which the cases to find
support for the hypotheses are analyzed. Finally the interpretation of the analysis will be
given.
4.1 Descriptive analysis

Nine cases have been selected for this study. These have been the cases that have met the
requirements as stated in the method section (Meeting the set definition of a social-network,
having at least a million monthly users at their peak, and having M&A activity in 2005 or
later). Image 4.1 provides an overview of the cases. In the overview the monthly users, the
period the social network has been acquired (year of acquisition until sale/discontinuation),
the acquiring price and the selling price (if applicable) are also shown.
Image 4.1 overview of selected case, acquiring and selling price in millions.
A summary of each case will be presented in the following sub-paragraphs. The cases
discussed including the events and results regarding the acquisitions in these cases.
Furthermore are the M&A success factors (independent variable) that have had an influence
in each of the cases described.
4.1.1 Bebo
Bebo is a social-network that was founded in 2005. Its popularity had its peak in 2008, it was
the most popular website in the UK and Ireland. At this time in 2008 the site was purchased
by AOL for $850 million (Arrington, 2008). However only two years later in 2010 AOL sold
Bebo to Citron for less than 1% than what it had paid for it only two years earlier, a value less
than $10 million (Foley, 2010). Meaning a loss of value of 99%. In 2013 the original
founders Michael and Xochi Birch bought back Bebo for only $1 million (Tam, 2013). The
15
acquisition of Bebo by AOL is seen as one of the biggest mistakes and value destroying
acquisitions in the social-network sector.
Different factors have had an influence on the downfall of Bebo. Of the identified factors
mainly three stand out as having had a significant influence on the result of the acquisition of
Bebo by AOL.
- Choice and evaluation of strategic partner: It seemed that AOL did not enough
research on Bebo and the social-network segment it entered with the acquisition Bebo.
Malik (2013) argues that AOL bought Bebo out of envy of the success of Facebook.
AOL totally misjudged what it was buying (Barnett, 2010). In addition to this AOL
did not take the time to analyze the market (Robles, 2010).
- Paying the right price: since AOL was in a hurry to get into the social-network
segment and wanted to do this as quickly as possible they have overpaid to acquire
Bebo as an asset. Schonfeld (2008) even states that AOL was a desperate buyer. Bebo
was not worth the $850 paid by AOL (Needleman, 2009). It is even stated by Doge
(2010) that the valuation of Bebo was so wrong that it did not make any financial
sense post-acquisition.
- Post-acquisition leadership: AOL wanted to get in the social-network segment fast but
did not have a clear vision or strategy of what to do with Bebo (Needleman, 2009).
AOL did integrate their messenger application AIM/ICQ, but after that it seemed AOL
did not have any plans or vision for Bebo and even withdrew developers from the
project (Butcher, 2010)
In addition to these three factors AOL failed to invest in Bebo (Firth, 2010; Wilson, 2010).
Company insiders argue that Bebo declined because of the lack of investment and that this has
blocked the creative and technical process for the company (Robinson, 2010). Bebo had a
shockingly low number of engineers, especially compared to the number of engineers
Facebook or Myspace had at the time (Kiss, 2010; Barnett, 2010). This made Bebo a static,
less innovative and it did not evolve, the opposite of their more successful competitors.
4.1.2 De.icio.us
De.icio.us is a social bookmarking site created in 2003. Web bookmarks are created by web
users to sort and organize data on the web using a creating a unified resource identifier that
can be used across different formats. People can tag information and websites with keywords
16
they find relevant. De.icio.us lets users form groups and work collectively in certain fields of
interest. These groups could then be shared and followed by other users.
In 2005 De.icio.us was acquired by Yahoo!, for a price believed to be over $30 million
(Heilemann, 2006). In 2008 it reached 6 million users (Arthur, 2011) while in 2014 it has only
2 million active users left (Alden, 2014). However Yahoo! had also its own bookmark
application, Yahoo! Bookmarks 2.0. This application became the main focus of Yahoo! and
De.icio.us was not integrated with Yahoo! Bookmarks. This left Yahoo! with 2 applications
with basically the same function. De.icio.us became a backburner while Yahoo! focused on
Yahoo! Bookmarks (Hyatt, 2010).
In April 2011 del.icio.us was sold to the founders of Youtube under their new internet
company AVOS (Arrington, 2011) for a rumored price of only $1 million dollars (Arthur,
2011). Three of the factors have been identified to have had an influence on this result.
- Choice and evaluation of strategic partner: Arthur (2011) argues that De.icio.us did
not had a fit with the vision of the company and its means of carrying advertising. This
lack of strategic fit with the organization was the main motive for Yahoo! to sell
del.icio.us.
- Integration strategies: After acquiring del.icio.us and the upstart of Yahoo!
Bookmarks there were two bookmarking applications within Yahoo!. Integration of
del.icio.us within their search engine and bookmarking application never happened
(Arthur, 2011). It instead became a backburner (Hyatt, 2010) and del.icio.us was not
integrated within Yahoo! (Rao, 2010).
- Post-acquisition leadership: Yahoo! lacked vision with del.icio.us. Dave Dash, former
Yahoo engineer for the del.icio.us states that: “Yahoo! lacks vision. It had Del.icio.us
for years, but didn’t properly place it in its eco-system” (Rao, 2010).
4.1.3 Friends Reunited

Friends Reunited was one of the first social-networks launched in 2000. It offered the ability
to re-connect with people from your past, and gained large popularity in the UK. As business
model Friends Reunited installed membership fees to join the site in 2001. Despite the fees,
the site kept growing and expanding abroad (Clark, 2009).
In 2005 it was bought by ITV for £175 million. At this time it had a peak of 15 million
members. However it went downhill from there. In 2009 Friends Reunited was sold to
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Brightsolid for £25 million pounds, a value loss of around 85%, compared to the £175 million
paid in 2005 (Sweney, 2009).
ITV had problems integrating Friends Reunited. The first years went well, however the image
of Friends Reunited became less hip since ITV failed to innovate like other competing
networks (Cranmer, 2012; Clark, 2009; Young; 2009). Furthermore these alternatives had a
free membership model which led to a fast growth of these alternative networks and decline
of Friends Reunited. Friends Reunited switched to a free advertisement model, but it was too
late (Clark, 2009).
Four factors have been mainly influencing the demise of Friends Reunited.
- Choice and evaluation of strategic partner: Cranmer (2012) argues that ITV did not
know the social-network market. It bought Friends Reunited in an attempt to bolster
weak advertising revenues and under threat of competitors that did also entered the
social-network sector (News Corp just bought MySpace, see also paragraph 4.1.6).
There has been a struggle to see the strategic fit between ITV and Friends Reunited
(Davoudi & Bradshaw 2009).
- Pay the right price: Under pressure from competitors ITV paid too much for Friends
Reunited (over the odds) and it mirrored the acquisition of Myspace by News Corp
(Cohen, 2009). Which also turned out to be bought at a too high price.
- Integration strategies: ITV found it tough to integrate Friends Reunited. The
companies remained operating separately (Clark, 2009). ITV bought Friends Reunited
at its peak, after which it declined. Davoudi & Bradshaw (2009) argue that there has
been limited integration and that Friends Reunited was not really “woven into
ITV.com”.
- Post-acquisition leadership: The vision ITV had with Friends Reunited was limited,
Friends Reunited was not really integrated and the management failed to develop
Friends Reunited (Young, 2009). This led to Friends Reunited being taken over by
more innovative social-networks such as Facebook, Twitter and Bebo (Cranmer,
2012). Cohen (2009) argues that the (lack of) management of the site has led to the
subsequent sale of the site, and therefore the value loss.
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4.1.4 Hyves
Hyves was a social-network focused on the Dutch market. It used to be the most popular site
in the Netherlands around 2009 with over 8 million users. In November 2010 Telegraaf Media
Group (TMG) announced it takes over Hyves for €43 million (Derksen, 2011).
It seems that Telegraaf Media Groep (TMG) bought Hyves just after it has passed its peak and
eventually had to take a loss of €36.5 million on the value of Hyves, leaving it only with €7.5
million value (Kampen, 2013). In 2013 TMG decided to stop Hyves as a social-network and
continue it as a games platform. (Kasteleijn, 2013; Thole, 2013; Deira, 2013).
Four of the identified factors can be found to have had an influence on the success of the
acquisition of Hyves by TMG.
- Choice and Evaluation of strategic partner: When TMG acquired Hyves there already
where early signals Hyves was losing to Facebook. TMG ignored this signals without
further evaluation of Hyves and the social-network market segment (Kastelijn 2013).
- Pay the right price: It is argued that TMG overpaid for Hyves, taken into account
early signals that Hyves would lose from Facebook. Thole (2012) states that TMG has
overpaid for Hyves and would have paid much less if they had today’s knowledge.
- Post-acquisition leadership: TMG did not had a clear overall strategy/vision for
Hyves the strategy also changed a multiple times during the period TMG operated
Hyves as social-network (van Lier 2013). One of these failed strategies was focusing
on news content, however this strategy did not fit with the main audience Hyves had
(left over). These where mainly the younger kids (Eilander, 2012). Hyves lacked
leadership and a vision that fitted with its organization and audience.
- Managing corporate and national cultural differences: TMG group had envisioned
Hyves working together with Spits news. Both corporate however cultures clashed and
any attempts to work together broke down (Thole, 2012). Also (Benjamin, 2011)
argues that Hyves and Spits could not work together due to cultural differences.
Another factor influencing the decline of Hyves has been the lack openness and innovation.
Where Facebook was very flexible and let other parties integrate apps and games in their
social-network and let you sign up for other sites using four Facebook profile. Hyves was
lacking such possibilities and therefor became less attractive for users to be active on
(Kastelijn, 2013; Daalmans, 2010).
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Over time Hyves got a less cool and hip image and became a laggard instead of a leader.
Hyves users looked at Facebook as an example and where expecting the similar innovations
to be applied to Hyves (such as tagging friends in photos). Hyves however was unable to
come up with popular innovative features of their own (Crossmedia communicatiegroep,
2011).
4.1.5 Instagram
Instagram is a social-network mainly focused on sharing photos and videos. It enables users to
make videos or take pictures using various kinds of filters. It was created in 2010 and gained
rapid popularity with over 40 million active users in 2012. In that same year Facebook
acquired Instagram for 1 billion dollars in cash and stock (Primack, 2012; Rusli, 2012). The
main motivation for Facebook to buy Instagram seemed to be avoiding that Instagram
becomes a serious competitor or that it would be bought by a competitor such as google (Hill,
2012)
Under Facebook Instagram was allowed to keep operating independently and kept growing at
a fast pace without any pressure of creating monetary value (yet). Instagram seems to be a
successful acquisition by Facebook, however experts are still divided on whether gaining
profits from Instagram by advertising (without scaring away users) will be achievable
(Luckerson, 2013; Jackson, 2013; Raice & Ante, 2012). Facebook has announced that it will
be introducing advertising for Instagram (Nair, 2014) in the United States.
Several of the identified factors have influenced the acquisition of Instagram by Facebook,
which until now has been labeled successful with an enormous growth of Instagram.
- Choice and Evaluation of strategic partner: Price (2012) argues that there is a good
strategic fit between Facebook and Instagram, since both are in the same game of
photo sharing. Instagram was “essentially everything Facebook wants to be on your
mobile phone”. By adding Instagram Facebook could continue their strategy and
further expand their service to mobile devices. In addition (Nair, 2014) argues that
Instagram is resonating well in combination with Facebook advertising strategy, which
can lead to extra added value.
- Courtship: There has been a period of courtship between the owners of Facebook and
Instagram. The deal to acquire Instagram had already been discussed a year before the
actual it was actually realized (Raice & Ante, 2012). This illustrates that the deal was
not a quick decision to acquire a company that currently is “hot”.
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- Post-acquisition leadership: Facebook has had a clear vision on what to do with
Instagram after it acquired it. The main strategy was to let it grow organically without
capitalizing to early on it and scare users away (Indvik, 2012; Kar, 2012; Russell,
2012). This is a very similar way of growth as what Facebook has gone through itself.
In terms of growth this method paid off since the number of monthly users of
Instagram has gone from between 40 and 50 million at the time of the acquisition to
over 150 million currently (D'onfro, 2014).
4.1.6 Myspace
In 2005 News corporation acquired Myspace for $580 million. News Corp. is an Australian-
American multinational mass media corporation (Hill, 2011). At this time News Corp. was
not present in the social-network sector and aimed to gain a solid foothold in this sector, by
acquiring MySpace. At the time of the acquisition was Myspace market leader and in the top
5 most visited websites in the United States. In the subsequent 6 years Myspace lost almost all
its value. Eventually in 2011 Myspace was sold for $35 million to advertising firm Specific
Media (Rushe, 2011; Hill, 2011).
Of the identified success factors some have been specifically mentioned to have had a
negative effect on post-M&A performance for MySpace.
- Choice and Evaluation of strategic partner: Saporito (2011) argues that News Corp
wanted to get in the social-network segment quickly, stating that “there’s a fleeting
opportunity, buy it now or pay even more in the future, assuming something’s
available”. This opportunistic behavior led to reduced evaluation of the strategic
partner and the segment in general. This is supported by Lang (2011), stating that
News Corp. didn't know much about social networks or the difference between
Myspace and Facebook. It just knew that Myspace was growing fast and acquired it.
- Pay the right price: News Corp. was in a bidding war with Viacom driving up the
price and eventually (under the pressure of getting in the segment fast) won by paying
$50 million extra (Saba, 2011). These events made News Corp. pay more for Myspace
than it would have done otherwise.
- Courtship: As stated was News Corp. not yet active in the social-network sector and
had little knowledge about the social-network sector. It only knew that Myspace was
growing fast at the time of acquisition (Lang, 2011). Indicating that there has not been
any courtship between the companies.
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- Post-acquisition leadership: The management of MySpace was one of the main flaws
of News Corp. after acquiring Myspace. News Corp. owner Rupert Murdoch stated in
a speech to shareholders (Lynley, 2011) that MySpace was chronically mismanaged
"in every possible way". Gillette (2011). Supports this view arguing that there was
mismanagement and countless strategic blunders. In addition (Adegoke, 2011) states
that the management boiled over.
- Communication during implementation: During the implementation of Myspace there
has been some distorted communication lines that led to friction. Myspace chief
executive De Wolfe communicated issues directly with Rupert Murdoch, bypassing
Ross Levinsohn whose responsibility it was to oversee all News Corp. digital
properties and Peter Chernin, who was second in command at news corp. (Adegoke
2011). This created tension between those two men and De Wolfe.
Another big element for the demise of Myspace was that it got “out-of-touch” with its users. It
became inflexible and was not innovative. Johnson (2014) argues that Myspace has not been
flexible in adapting to customers preferences. While their main competitor Facebook had
done the opposite and was evolving to fit the needs of users. After the acquisition by News
Corp. My space was not innovative and changed little since it was taken over (Adegoke,
2011. O’reily, 2011). Bear (2010) argues what lessons could be learned from Myspace. The
main argument from these lessons is adapting to users preferences. Myspace was getting
alienated from their users, which had directly to do with their acquisition by News
Corporation. Investors wanted to recoup their investment and did not want to change business
models that have been successful in the past. This led to a lack of vision for Myspace, the
focus shifted to generating profits.
4.1.7 My Yearbook
My Yearbook was an online social network that could be used as an interactive yearbook to
keep in contact with former classmates. The site was started in 2005 and has grown a lot
since. In 2007 My Yearbook had over 3 million monthly users, mainly between the ages of 13
and 22 (Olsen, 2007). In 2008 My Yearbook claimed to have grown to 10 million monthly
users (Kincaid, 2008). My Yearbook continued to incorporate new features into the site. In
2008 virtual currency, in 2009 instant messaging client Meebo and in 2010 the whole design
of the site was improved to be more attractive for an older audience (Kincaid, 2008). In 2011
My Yearbook was acquired by Quepasa for $ 100 million in cash and stock (Rao, 2011;
Ovide, 2011; Kirpalani, 2011).
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Quepasa did not only capitalize on the success of My Yearbook but actively kept improving
the site and incorporating new features. Such as an IPad app in 2012 (Chan 2012). Quepasa
decided to rename both My Yearbook and Quepasa to Meet me, in order to better fit what the
social network stands for (Cook, 2012; Shallow, 2012; Ha, 2012).
Rebranding is a very delicate business, since you don’t want to alienate your users. Especially
such fickle users as those in the social-network sector. Quepasa however rebranded My
Yearbook very successfully to MeetMe (Cook, 2012). Catherine Cook, founder of My
Yearbook, analyses the rebranding. She argues Quepasa has put a large effort in the
rebranding process and that this investment paid off since there was no noticeable decline in
users. Even a slight rise followed after the rebranding. In this way one large social network
under the name MeetMe has been created.
Three factors have been identified that have influenced the acquisition of My Yearbook by
Quepasa.
- Communication before the merger: Catherine Cook, founder of My Yearbook,

analyses the success of the rebranding. She argues that the clear and early
communication to their users, ensuring users of the benefits of the rebranding, and
letting users become involved has been the main driver for the success of the
rebranding (Cook, 2012).
- Integration strategies: After the acquisition Quapasa had a clear strategy on how to
incorporate both brands by creating a new one. One that would fit with what the
networks stand for (Shallow, 2012). In an investor presentation illustrating their
integration plans Quepasa states that it will create “a single platform that will bring
operational and product efficiencies” (Quepasa investor presentation 2011).
- Post-Acquisition leadership: Quepasa had a clear vision on how to operate the newly
acquired MyYearbook. Combining both networks and creating a global brand for
meeting new people (Shallow, 2009). This clear company direction translated in the
rebranding of both MyYearbook and Quepasa in a single social-network MeetMe. The
founders and CEO of MyYearbook, Catherine and Geoff Cook, will keep their
function under Quepasa (Sweeney, 2011) helping to smooth the transition.
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4.1.8 Skype
Skype is an internet platform that allows users to make (group) phone calls and video chat
with other users of the network. In 2005 online auction site eBay bought skype for $3.1
billion (Boslet, 2007; Bright, 2011).
EBay vastly overestimated the possible synergies between both of the companies (Masnick,
2008; Reardon, 2007; Wray, 2009). The acquisition of Skype did not help Ebay in its core
business. EBay took a 1.4 billion charge on Skype in 2007 and replaced its CEO’s (Boslet,
2007; Wray, 2009). In 2009 eBay sold 65% of the shares to investors for $1.2 billion less than
paid in 2005 (Wray, 2009; Bright, 2011).
In 2011 Microsoft bought skype for $8.5 billion. EBay receive $2.5 billion for its remaining
shares (Malik, 2011), so they were eventually making profit on their Skype acquisition.
However this has less to do with acquisition success or failure by eBay rather than a good
investment to hold on to 35% of Skype.
There are three different factors that have mainly influenced the decline and value loss of
Skype in the acquisition by eBay.
- Choice and Evaluation of strategic partner: Ebay had high expected synergies
between Skype and their online auction business. These however did not turned out as
expected and it seemed that eBay has highly overestimated these synergies and
strategic fit with their organization (Wauters, 2009; Masnick, 2008; Leckey, 2007). It
appeared that buyers and sellers were not interested in speaking directly with each
other and email contact was sufficient.
- Pay the right price: Skype co-founder Niklas Zennstrom has admitted that in the
purchase of Skype, eBay had "overshot in terms of monetization", meaning it paid too
much, due to an overestimate of the growth potential (Leckey, 2007).
- Integration strategies: After two years of the acquisition there was still no integration
of Skype with eBay, and any strategies that eBay had did not work (Reardon, 2007).
Also Malik (2011) states that eBay failed to integrate and their strategies had come
short. He even states that “eBay became the poster child of the how not to do a merger
case study”.
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4.1.9 Tumblr
Tumbler is a microblogging and social network-site on which users can easily share short
blogs, images or videos. It has a large user base but has failed capitalize on this success. In
2013 Yahoo! purchased Tumblr for 1.1 billion dollars (Sottek, 2013; Bigman, 2013).
This is a very recent acquisition and many experts are skeptical of its result. A much heard
comment is that Yahoo! would have (heavily) overpaid for Tumblr (Cohan, 2013, Navarro
2013, Brown 2013). This acquisition is seen as a last resort for Tumblr to escape yet another
financing round, meaning that founder David Karp would lose a lot of equity (Morrision,
2013).
The conclusion whether the acquisition of Tumblr, was a good deal, or a highly overpaid one
remains to be seen. Four factors have been identified that not have been utilized properly and
might predict a bad future. The first signs of which are already present, since brands have
already abandoned Tumblr. The adoption rate has been declining, since the takeover by
Yahoo! (D'Onfro, 2014).
- Choice and Evaluation of strategic partner: Cohan (2013) argues that Yahoo! has not
evaluated the strategic partner. He illustrates four reasons why this will not be a
successful acquisition. The first two of which illustrate limited evaluation of strategic
partner. First he argues that the market segment is very unattractive for Yahoo! and
secondly there are no synergies between the companies, meaning the combination will
not strengthen the companies compared to when they would operate on their own.
- Pay the right price: Another reason Cohan (2013) states that this acquisition will not
be successful is that Yahoo! is overpaying for Tumblr. This view is supported by
(Navarro, 2013) stating that the deal is tough to swallow and Yahoo! has history of
overpaying. Furthermore claims Brown (2013) that Yahoo! is paying 750 million for
goodwill and only 74 million tangible assets. This goodwill however can also fade
away quickly, especially in the social-network segment.
- Integration strategies: Lastly Cohan (2013) argues that Yahoo! will struggle to
integrate and has not sufficiently thought of their monetizing model by advertising.
This model does not fit with Tumblr, since Tumblr has a history of not showing
advertising on their website. Changing Tumblr might scare away (even more) users.
Upon hearing of the acquisition by Yahoo! many users already have voiced their
outrage and felt betrayed (Newman & Lewis, 2013), this further complicates the
integration of Tumblr.
25
- Managing corporate and national cultural differences: The first signs of reduced
company culture are already present. A former employee claims that “It got way less
fun. Over time, they hired more HR people and all these policies came into place”
(Morrision, 2013). This illustrates that the corporate cultural differences between the
relative small company Tumblr and the big Yahoo! have not been managed
sufficiently.
4.2 Data analysis

The results of the case study will be analyzed based on consistency with both of the
hypotheses. In the following paragraphs both hypotheses are presented in combination with
results in order to analyze whether these hypothesis are applicable. The hypotheses are:
4.2.1 Post M&A value loss

The first hypotheses regards the post-M&A value loss and states that:
To be able to investigate this subject it is important to define what will be considered as an

M&A failure. For this study the loss of value is regarded as failure. In the studied cases the
value loss is analyzed, this is then compared with rates of value loss in traditional sectors.
For traditional companies there is an average value loss of 13-15% (Berger & Ofek 1995,
Lins and Servaes 1999), however this is the average for all M&A, both successful and
unsuccessful. Since this study accepts the premise that about 50% of all M&A activities fail,
the average value loss in failed acquisitions is estimated to be double as high as the mentioned
13-15%. Estimating it to actually be around 26-30%.
An overview of the loss of value in analyzed cases is presented in image 4.2. In this overview
only the cases are mentioned in which value loss has occurred. In addition the average value
loss based on these cases is shown as well.
26
Image 4.2 overview value loss in percentages
The overview shows that almost all of the individual cases of social-networks (in which post-
M&A value loss occurs) show a significantly higher value loss rate than the stated average of
26-30% for traditional companies. It shows that failed M&A in the social-network sector
generally leads to high value losses. In most of the cases even 80% or higher. The average
value loss in these cases is 78%.
Compared with the estimated value loss 26-30% for the traditional sectors the found average
of 78% value loss in the social network-sector is clearly much higher. This illustrates that if
value loss occurs as a result of M&A, the losses are much higher within the social-network
sector. This result is consistent with the hypothesis, showing that the impact of failed M&A in
terms of value loss is higher in the social network sector than it is for traditional sectors.
4.2.2 Success factors influencing M&A performance

The second hypothesis regards the factors that influence M&A performance.

These factors are the independent variable within this study. In order to analyze the success
factors influencing post-M&A performance, existing literature has been consulted to find
factors that influence the post-M&A performance. Thirteen factors have been identified based
on the study of Gomes et al. (2013). Image 4.3 shows an overview of all thirteen factors and
their influence in each of the studied cases, including supporting sources.
27
Image 4.3 overview of factors per case and supporting sources
28
The case study illustrates that some of the factors are present more prominently across various
different cases, see image 4.3. However other factors have not been mentioned at all. This
does not necessarily mean that these factors were not present or taken into consideration
during the acquisition. These factors might have been less prominently present or had a less
significant influence on the post-M&A performance. Therefore from this result it cannot be
interpreted that these factors have completely no impact on M&A performance within the
social-network sector. However it is clear that there are factors that have a more promintent
influence on post-M&A performance within this sector.
There is a set of four factors that do stand out having a significant influence in multiple
different cases. These are found in multiple cases and multiple sources as having an influence
on the post-M&A performance. These factors are:
- Choice and Evaluation of strategic partner

- Paying the right price
- Integration strategies
- Post-acquisition leadership.
Choice and Evaluation of strategic partner
This factor has influencing the post-M&A performance in eight of the nine of the
cases. Because it is so prominently present in all cases with exception of one, it is one
of the most important factors to influence post-M&A performance within the social
network sector. This factor constitutes of the strategic and organizational fit of the
target of the acquisition with the acquiring company.
Choosing the right strategic partner requires an in depth evaluation of the potential
partner along with its position in the segment it operates. However the social-network
segment is currently very “hot” with high profile and large value acquisitions. For
some companies this creates a pressure to get involved in the segment fast, despite
having limited knowledge about the social-network market. This can lead to a quick
and inaccurate evaluation of acquisition targets and their position within the segment.
This often foreshadows the acquisition of a company with limited strategic and
organizational fit and that has a weak and declining position within the social-network
segment. This is illustrated in the cases of Bebo, Friends Reunited, Hyves and
MySpace, in each of which case the acquired asset was eventually sold or
discontinued.
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Paying the right price
Overpaying to acquire an asset creates loss of value. Goold, Campbell and Alexander
(1994) state that “one of the most common and most important sources of value
destruction in corporate development is paying too much”. In some cases overpaying
in order to acquire a social-network company is caused by the same pressure as that
causes limited evaluation of the strategic partner. Companies want to get in the
segment fast, they experienced a fleeting opportunity, buy it now or pay even more in
the future, as stated by Saporito (2011).
Integration strategies
In four of the nine cases integration strategies have played a vital role in the post-
M&A performance. In three of the cases the (lack of) integration influenced the post-
M&A performance negatively. In the cases of Del.icou.us, Friends Reunited and
Skype there never was a clear integration strategy, leaving them hanging on the side
without adding value or synergies. Eventually all three of these companies have been
sold for significantly less value than for what they have been acquired.
Quepasa on the other hand has been quite successful in integrating both social-
networks Quepasa and My Yearbook, under the new name MeetMe. From the start
Quepasa has had a clear strategy of combining both brands and has been upfront about
their plans, illustrating that having a strategy can pay off.
Some analysts also argue that Yahoo! will struggle to integrate Tumblr (Cohan, 2013).
It is however not yet clear whether this will be the case.
Post-acquisition leadership
Post-acquisition leadership is stated as being decisive action from the top in

establishing clear company direction and managing the necessary change during the
integration process (Gomes et al. 2013). In the studied cases mainly the lack of clear
company direction and vision has been influencing post-M&A performance.
Having a clear vision for the acquired asset proves to be very important. In three cases
a clear vision and company direction was absent (BeBo, Del.iciou.us, and Hyves).
Which in each of these cases led to high loss of value. In addition the management of
the changes within the acquired asset is very important. In the cases of Friends
30
Reunited and MySpace was the management flawed and failed to manage the
development the social-network after the acquisition. Therefore these social-networks
were taken over by more innovative competitors such as Facebook.
In the case of Instragram however, acquirer Facebook had a very clear strategy on
what to do with the Instagram after it was acquired. Integrating it without making
changes to Instagram and continue to let it grow in the pace that it has been doing
before the acquisition. This direction and vision has been successful, since Instagram
has more than tripled its users since the acquisition (D'onfro, 2014).
4.3 Interpretation
This paragraph will discuss the interpretation for the results. This is done both in comparison
with the stated hypotheses and a cross-case analysis in order to analyze the cases for further
implications and new insights.
4.3.1 Consistency with hypotheses

In regards to the first hypothesis “The impact of M&A failure is higher in the social network
sector than it is for traditional sectors.” the result of the data analysis indicates that in the
social-network sector there is a much higher loss of value in failed acquisitions. The average
value loss in failed acquisitions within the traditional sector is estimated to be 26-30% while
the results of this study show an average of 78% value loss for the studied cases in the social-
network sector. This is a significant difference confirming the first hypothesis.
The second hypothesis stated that “Factors influencing post-M&A performance have a
different influence in the social-network sector than in traditional sectors”. Thirteen factors
have been analyzed in each of the cases. A set of four factors stand out as having a significant
influence on post-M&A performance within the social-network sector, these factors are:

These factors are regarded to play a vital role in post-M&A performance within the social-
network sector. Not all of the other nine factors however can be disregarded based on this
results, and might still have an influence on post-M&A performance. Most of these factors
have cases and sources supporting them, although less prominent than the four main factors.
31
This illustrates that of the thirteen identified factors most will at least have a limited influence
within the social-network sector, and cannot be completely disregarded.
The set of four main factors takes a more prominent position significantly influencing the
post-M&A performance. This differentiates the social-network sector from traditional sectors,
which is consistent with the second hypothesis.
4.3.2 Cross case comparison

The cases are analyzed with each other to find common factors that have influenced the post-
M&A performance gaining new insights.
Maintaining innovativeness & flexibility
Analyzing cross-case statistics made a few interesting insights come to light. Six of the nine
acquisitions are considered a failure, two are considered a success and one (Tumblr) is not
clear yet.
Four of the six failed acquisitions had one additional new factor in common, reduced
innovativeness and flexibility. This has been identified as an additional factor responsible for
the failures of M&A in the social-network sector. Eventually these social-networks become
laggards and are bypassed by more innovative networks such as Facebook or Twitter (which
are currently leading social networks). This shows that being flexible and innovative is a vital
factor to be a successful for any social network. This raises questions on why this
innovativeness & flexibility has such an enhanced importance within the social-network
sector and if M&A has an influence on this innovativeness & flexibility.
A difference between social-networks and traditional products is the monetizing strategy.

Access to most social-networks is free and revenue is created by showing personalized
advertising to users. In this model users are not the ones providing income for these social-
networks, but they are part of the process of generating revenues (Strickland, 2009). This
means users have to keep coming back in order for the social-network to be able to keep
generating revenue. More users mean more advertising opportunities, leading to enhanced
revenues. Therefore a social-network is never a finished product. It continues to evolve and
innovate, keeping in touch with user preferences and wishes, attracting new users making sure
current users come back to the site. This underlines the importance of innovativeness, to keep
users interested.
32
Another element is that alternative social-networks are free to use, meaning that there is no
barrier for users to try another social-network. If this other social-network offers features that
fit better with the preferences of users, they are likely to stay on the other social-network.
Therefore being innovative and keeping in touch with user preferences is vital for social-
networks, reducing the risks of users leaving.
In the studied cases four out of the six failed acquisitions, the innovativeness of the social-
network has been lacking since the acquisition. Indicating that an acquisition can destroy
innovativeness and eventually triggered decline of the network. The social-networks have
suffered from reduced innovativeness and gotten “out of touch” with their users. The cases in
which this occurred are Bebo, Friends Reunited, Hyves and Myspace. Eventually each of
these social-networks got sold (for a significantly lower price) or were discontinued as social-
network.
Lacking innovation and becoming an industry laggard also affects the brand image a social-
network has, being hip, being new and innovative, or just following along. The effect of users
leaving a social-network and trying something else is even further enhanced by the
demographics of social-network users. There are relatively more young people which are
more likely to try new things (Leather, 2009). In addition young people are more influenced
by brand image, adolescents show a heightened interest in brands (Pechmann, Levine,
Loughlin, & Leslie, 2005).
The demographics in the social-network

sector are buildup of a relatively large group
of young users. The percentage of users of
social-networks declines for each older age
group. Pewinternet (2013) published a list of
demographics for social-network users.
Image 4.4 shows how social-network use is
distributed across different ages. This shows
that the category of people between 18 and
29 are constantly above the average in terms
of social-network usage. The group of 30-49
is on par with the average, while older
groups are below average. Image 4.4 demographics of social-network users
33
This combination of relatively more young users and free alternatives leads to very fickle
behavior of social-network users, in which lack of innovation, fit with customer preferences,
and brand image can influence the rise and decline of social-networks.
Acquisition of these social-networks can reduce their innovativeness & flexibility. Acquiring
companies tend to invest less in the innovative process and focus more on generating direct
profits from their investment. This reduces the flexibility and innovative abilities of the
acquired social-network which in turn can lead to its decline. Being acquired makes the
social-network less flexible to innovate in ways which fits with the original (successful)
vision of the network and the preferences of users. Investors want to recoup their investment
making it hard to change business models that have been successful in the past (Bear, 2010).
This leads to less investment in product development after acquisition. For example the
acquisition of Bebo after which AOL lacked to invest in its acquired social-network. At a
certain point Bebo only had 40 product engineers, where competitors such as Facebook had
over 2000 (Kiss, 2010). Keeping the social-network innovative and flexible is an important
factor to take in consideration during and after M&A within the social-network sector.
Acquisition of social-networks by social-networks
Another interesting element comes forward after analyzing the results the cases. From the
nine cases two are considered a success post-acquisition. It is very interesting to notice that in
both cases the social-network was acquired by another social network: Instagram by
Facebook and MyYearbook by Quepasa.
This indicates that M&A within the social-network sector is more likely to succeed if the
company has already is active in this segment and has experience within the social-network
sector. Further supporting that the social-network sector indeed is differently compared to
traditional sectors. This underlines the importance of evaluating a strategic partner but also
the sector in which the partner is active.
Of the thirteen identified factors the main factor that these two cases have in common, is that
both cases displayed a high level of post-acquisition leadership and established a clear
company direction and vision for the acquired asset. This illustrates that the vision and
company direction for the acquired asset is very valuable in order to make the acquisition a
success.
34
It will not be impossible for companies from other sectors to get into the social-network
sector, however entering the sector because it is currently popular, and management feels
pressure to get in the segment fast, without a decent vision or strategy will probably lead to
failure. This effect is enhanced by the fickle users and low barriers for users to use alternative
social-networks if they feel that their current social-network does not fit with them anymore
(Robinson, 2010).
5 Discussion and conclusion

This chapter will present the discussion and conclusion regarding this study. The first chapter
will present a short summary of the research objective and key findings. This is followed by a
discussion in which the results are discussed in relation to prior research. The third paragraph
will contain the theoretical and managerial implications of this study, followed by future
research topics. In the fourth paragraph the limitations of this study and method are discussed.
Finally the conclusion for this study will be presented.
5.1 Summary of key findings

Research objectives for this study are: analyzing whether there is a difference in level of
success in M&A between the social-network and traditional sectors, and studying success
factors influencing post-M&A performance in order to determine if different factors are
applicable for the social-network sector compared with traditional sectors.
The level of M&A success has been split up in two components: the failure rate and the value
loss as a result of failed M&A activities. The M&A failure rate have not been significantly
different for both sectors. However the loss of value as a result of M&A failure has been
significantly higher within the social network sector. Where the estimated 26-30% value loss
is average for traditional sectors, the social-network sector has an average of 78% value loss
in failed M&A attempts.
In the analysis of the success factors, thirteen different factors influencing M&A in traditional
sectors have been identified based on the study of Gomes et al. (2013). After analyzing these
factors in the studied cases, four factors stand out by having a significant influence within the
social-network sector. These factors are:
35
- The choice and Evaluation of strategic partner
Furthermore, the cross-case analysis has shown that maintaining innovativeness & flexibility
is a fifth important factor for successful M&A within the social-network sector. Making it
vital to invest in innovation and having a post-M&A vision and direction for the social-
network.
Finally is it very remarkable that of the studied cases the only successful M&A has taken
place in cases in which a social-network was acquired by another social-network. This
indicates that the social-network segment is more difficult to enter by companies outside of
the segment. There are some distinct differences in the social-network sector compared to
other sectors that might explain this. The demographics are relatively young, meaning more
fickle users. In addition are the business models so that users have no barrier to move to an
alternative social-network, even further enhancing the volatility in the segment.
5.2 Discussion
This study has been analyzing post-M&A performance within the social-network sector. The
focus has been on this sectors since multiple recent acquisitions have taken place, leading to
high value loss for the acquiring company. Since the social-network sectors are relatively
new, limited research has specifically focused on M&A within this sector specifically. In this
way the study differ from previous studies and adds to the existing literature.
The findings of this study shows that within the social-network sector the value loss as a
result of failed M&A is significantly higher than for traditional sectors. The average value
loss because of failed M&A is estimated to be 26-30% in traditional sectors, while the
average value loss analyzed in the studied cases is 78%. This indicates risk of higher value
loss when engaging in M&A within the social-network sector compared to traditional sectors.
Illustrating that recent examples of high value loss after M&A is inherent to the fact that the
M&A took place within the social-network sector. Therefore it can be stated that within this
sector loss of value as a result of M&A failure is higher.
To explain why this high value loss occurs within this sector, thirteen different factors that
influence post-M&A performance have been analyzed. Four of these factors stand out as
having a more prominent effect than the other factors.
36
The results of this study extend the previous literature by analyzing the applicability of these
factors in the relatively new social-network sector. The results illustrate that the factors
identified by Gomes et al. (2013) are applicable within the social-network sector. However
four factors are more prominently influencing post-M&A performance. This indicates that the
factors Gomes et al. (2013) have identified are applicable across different sectors. However in
various sectors, different sets of factors can have a prominent impact while remaining factors
have a limited impact.
In addition to the factors identified by previous literature, a new factor has come to light in the
cross-case analysis, maintaining innovation & flexibility. In many of the cases M&A has
drastically reduced the innovativeness and flexibility of the acquired social-networks. This is
an additional factor influencing M&A performance within the social-network sector. It is
important because the business model social-networks use require social-networks to have as
many users as possible. This makes it vital to evolve and continue to fit with the user’s
preferences.
There is no barrier for users to leave and use alternative social-networks, this is due to the free
alternatives. In combination with relatively young demographics of users, is the behavior of
users in the social-network sector is much more fickle than the behavior of customers in other
more traditional sectors.
This behavior could be even further enhanced by a “knock-on” effect described on The
Nology (2012) in the article “Draw Something App Had Growth But Did It Have Value?”.
This article describes the draw something gaming app and argues that users influence other
users by their decision to stop or start playing this game. “If your friend stops drawing, you
can’t draw either, so every time one person wants to quit the game, it is most likely going to
have a knock on effect”. However this effect can also be applicable for social-networks, if
their friend moves to another social-network a user might be inclined to follow their friend,
and in turn affecting others to leave as well. This effect further enhances the volatility of the
users in the social-network sector and can help explain the rapid rise and falls of some social
networks.
If this effect is true within the social-network sector, it further underlines the importance of
staying innovative and flexible. This in order to stay close to the users and to not give them
reasons to try other alternatives, since it could start the demise of the social-network.
37
5.3 Implications / contributions
Theoretical implications
The result of the case study suggest that the factors influencing M&A-performance, that have
been acknowledged in existing literature and identified by Gomes et al. (2013) are applicable
within the social-network sector. However a set of four factors stand out as having a more
prominent influence. This suggests that not all these factors have a similar level of impact on
M&A performance in the social-network sector.
In addition has the cross-case analysis shown an additional factor being prominently
influencing post-M&A performance within the social-network sector. The ability to maintain
innovativeness & flexibility abilities after M&A. This factor is added to existing theory on
factors influencing M&A performance within the social-network sector.
Managerial implications
Managerial implications of this study are raised awareness of the differences of the social-
network sector compared to traditional sectors. This sector has a fickle user base and no
barriers for users to move to another social-network. Entering this sector by M&A has an
increased risk of high value loss. A total of 5 factors have been found that have a large impact
on the success of M&A win the social-network sector:

- Post-acquisition leadership
- Maintaining innovativeness & flexibility
Being aware of the risks and the factors that influence post-M&A performance enhances the
awareness of manager regarding these factors, when engaging in M&A within the social-
network sector.
Managers should aware of the risks of entering the new and unfamiliar segment and the risks
it might bring if these are entered by the wrong motives. Motives such as pressure to rush into
the segment out of the fear that entering will be more expensive later, or because a competitor
made the move to the social-network segment. The successful cases of entering the social-
network sector show that knowing the social-network sector and having a clear strategy/
vision is important and has a positive effect on post-M&A performance. When engaging in
38
M&A in the social-network sector, it is vital to take in account these five factors. Neglecting
or rushing these factors, in many cases, foreshadows failure.
Future research topics
Based on this study multiple issues can be raised and used as future research topics. An
interesting concept this study shows for the social-network sector is that out of all the
identified factors that influence M&A performance, there is a set of factors having a more
prominent influence within the social-network sectors. However this may also be true for
other sectors, with another set of factors. Future research could focus on analyzing whether in
different sectors different (sets of) factors have a more prominent influence on post-M&A
performance.
Another future research topic can be a study analyzing the applicability of the “new” success
factor found in the cross-case analysis, maintaining innovativeness & flexibility, within other
sectors. This study shows that this factor is prominently influencing post-M&A performance
within the social-network sector, among four other factors which have been identified by
existing literature. However this new found factor could also have an unknown effect on post-
M&A performance in other sectors than the social-network sector, which can be a very
interesting future research topic.
5.4 Limitations
A limitation within the case study is the lack of direct feedback of involved experts. The
results of this study have been formed by observing multiple cases and cross-case analysis,
however the lack of access to involved experts restricted the ability to test the results against
their expert opinion. In addition, the lack of inside information made some factors harder to
judge since the study relied on outside sources or statements made by involved experts. This
also allowed less depth or follow-up questioning in regards to those statements.
Data has been analyzed by adopting the lens/view of Gomes et al. (2013) and categorizing the
findings, using the factors they have identified in their extensive literature review. A
limitation of case studies is that produces mainly qualitative data which in some instances
needed to be interpreted in order to fit within the factors identified by Gomes et al. (2013).
Yin (1994) describes biased selectivity of documentation and reporting bias (reflecting
unknown bias of author) as methodical limitations of using documentation. These are
countered by using similar systematic searches on each of the cases and if possible articles
39
form the same respectable and unbiased sources for multiple cases. However it cannot be said
with absolute certainty whether this effect is fully excluded from the used sources.
In addition the social-network sectors is a relatively new and fast moving sector in which
companies can rise and fall very quickly. Since this sector is subject to fast changes it is
important that the conclusions of this study will be continuously tested against recent
developments in the field.
5.5 Conclusions
The first conclusion from this study is that M&A within the social-network sector does have
different elements to it, compared to traditional sectors. The social-network sector differs
mainly from other sectors in terms of used business models and user behavior, users are much
more fickle and there are no barriers for users to switch to another social-network. There are
three main conclusions from this study, based on the stated hypotheses.
Failed M&A within a social-network results in significant higher value loss compared to
traditional sectors. The average value loss in traditional sectors is estimated to be 26-30%
while the study shows that for social-networks it averages at 78%. Therefore the risk of high
value losses is higher within the social-network sector, than it is for traditional sectors.
Thirteen factors influencing the post-M&A performance have been analyzed on their
applicability within the social-network sector. It is learned that four factors have a more
prominent influence on post-M&A performance within the social-network sector. These
factors are:

- Post-acquisition leadership
Finally, a new factor has been identified in the cross-case analysis: maintaining
innovativeness & flexibility. This factor has a prominent influence on the post-M&A
performance within the social-network sector, in addition to the set of four identified factors.
40
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Master Thesis

M&A in the Social-Networks sector

Submission date: 26-08-2014

- (1) Construct a public or semi-public profile within a bounded system.

1.2 Prior literature

1.3 Research objective, design, results

2.1 Literature review

2.1.1 Failure rates

2.1.2 Impact of failure

Image 2.1 M&A success factors by Gomes et al. (2013).

2.3 Definition of key concepts

The key concepts of this study are:

2.3.1 Social-network sector

2.3.2 Post-M&A performance

2.3.3 M&A success factors

2.5 Conceptual model

Social-network vs Traditional sector

2.5.1 Dependent variable, post-M&A performance

2.5.2 Independent variable, M&A success factors

2.5.3 Moderating variable, social-network vs traditional sector.

- 1) the type of research question

3.1 Data collection

3.2 Operational definitions

3.3 Data analysis

4.1 Descriptive analysis

4.1.3 Friends Reunited

- Communication before the merger: Catherine Cook, founder of My Yearbook,

4.2 Data analysis

4.2.1 Post M&A value loss

To be able to investigate this subject it is important to define what will be considered as an

4.2.2 Success factors influencing M&A performance

- Factors influencing post-M&A performance have a different influence in the social-

- Choice and Evaluation of strategic partner

Choice and Evaluation of strategic partner

Post-acquisition leadership is stated as being decisive action from the top in

4.3.1 Consistency with hypotheses

- Choice and Evaluation of strategic partner

4.3.2 Cross case comparison

Maintaining innovativeness & flexibility

A difference between social-networks and traditional products is the monetizing strategy.

The demographics in the social-network

Acquisition of social-networks by social-networks

5 Discussion and conclusion

5.1 Summary of key findings

- Choice and Evaluation of strategic partner

Future research topics

- Choice and Evaluation of strategic partner

6.1 Academic literature

Eisenhardt, K. M. (1989). Building theories from case study research. Academy of

Leather, N. C. (2009). Risk-taking behaviour in adolescence: a literature review. Journal of

Lubatkin, M. (1983). Mergers and the Performance of the Acquiring Firm.Academy of

Rostand, A. (1994). ‘Optimizing Managerial Decisions During the Acquisition Integration

Schoenberg, R. (2006). Measuring the Performance of Corporate Acquisitions: An Empirical

6.2 Reports and articles

Arrington, M. (2005). Yahoo.icio.us? – Yahoo Acquires Del.icio.us. Retrieved from:

Arrington, M. (2011). Yahoo Sells Delicious To YouTube Founders. Retrieved from:

Arthur, C. (2011). Yahoo to 'sell Delicious for $1m'. Retrieved from:

Baker, L. (2005). Yahoo Acquires Del.icio.us : FlickrYahoolicious! Retrieved from:

Benjamin, J. (2011). Samenwerking Hyves en Spits mislukt wegens cultuurverschillen.

Budd, A. (2009). Why Friends Reunited Failed. Retrieved from:

Chan, T. (2012). myYearbook Launches iPad App. Retrived from:

Cohen, B. (2009). Why ITV failed Friends Reunited. Retrieved from:

Cook, G. (2011). Why We Sold myYearbook. Retrieved from:

Cranmer, C. (2012) ITV takeover friends reunited. Retrieved from: