This article contributes to the literature on mergers and acquisitions that hitherto has neglected the demerger of previously merged/acquired firms by offering a process description. To provide structure and deliver insights into such a process, we apply the metaphor of a divorce process and use insights from a case study-namely, the demerger between Ford Motor Company and Volvo Cars Corporation. Our findings suggest that a demerger process of previously merged/acquired firms can be divided into six phases: disillusionment, erosion, detachment, physical separation, mourning, and second adolescence/hard work. The motives for the initial merger or acquisition and the degree of integration are possible factors argued to play a major role in the identified phases during the demerger.
Mergers and acquisitions (M&As) are among the most noteworthy corporate strategies in today’s globalized business landscape as they are used to accelerate growth, access and expand on valuable capabilities or assets, and reduce competition (Brueller, Carmeli, & Markman, 2018; Caiazza & Volpe, 2015). In 2016, M&A activity reached its third highest deal value since 2007, with more than 17,000 deals worth USD 3.2tn (Mergermarket, 2016). However, many M&As fail to meet their objectives (Steigenberger, 2017), resulting in reported M&A failure rates as high as 70% (Christensen, Alton, Rising, & Waldeck, 2011). Not surprisingly, many M&As not meeting expected goals are later divested (Bergh, 1997; Ravenscraft & Scherer, 1987; Shimizu, 2007; Shimizu & Hitt, 2005). Even in the 1990s, Kaplan and Weisbach (1992) learned that 44% of the acquisitions in their study were later divested. Two decades later, Deloitte (2018) found that 70% of 123 global organizations stated that they had undertaken more than one demerger in the preceding three years and equally as many expected to make at least one in the coming two years. The terms demerger and divestiture are often used as synonyms, among others, resulting in the fact that no common definition exists for a demerger (Böllhoff, Brast, & Grüger, 2007). Whereas some researchers understand a demerger as one form of divesture (e.g., Kirchmaier, 2003; Stonham, 1997)—that is, to spin off a division of an existing entity into a separate entity without any change in the ownership—others use the term demerger as an umbrella term for all firm divestitures (e.g., Basak, 2016). These studies lack a differentiation of the reasons behind the deal – that is, whether the divestiture is merely a reflection of the economic cycle, a proactive strategic step or a means to reverse a previous strategic decision. In this study, drawing on the thoughts of Charifzadeh (2002) and Cascorbi (2003), we define a demerger as the reversal of a previous M&A between two firms, where the pre-M&A status is re-established, either completely or partly. The demerged entity can be spun off, divested, or sold. Please note that a demerger can be the reversal of both a previous merger and an acquisition. Henceforth, when using the term demerger, we refer to this definition.