HOW TO WORK BUSINESS MERGERS AND ACQUISITIONS EFFECTIVELY?

Global investment trends are booming in Vietnam, bringing development and expansion opportunities for large businesses and corporations. However, to be successful, Merger and Acquisitions requires in-depth knowledge and practical experience. Apexcorp consultants will provide complete information about M&A. From concepts to famous deals, helping readers better understand this potential growth path. 

Mergers and Acquisitions concept

M&A – Mergers and Acquisitions are business activities. Including carrying out business acquisitions or mergers. From there, creating a new entity that is larger in scale and can bring economic benefits to related parties. This is a strategic tool to expand business scale. Enhance market position, grow rapidly or achieve other benefits.

• Horizontal M&A: Merger or acquisition of companies operating in the same industry. Or the same business field to enhance competitive strength and market share.
• M&A along the supply chain (Vertical M&A): Merging or acquiring companies operating in different links of the supply chain. To create economic efficiency and reduce production costs.
• Cross M&A (Conglomerate M&A): Merging or acquiring companies operating in different industries or business fields. To grow sales and diversify product and service portfolio.
• Restructuring M&A: Merging or acquiring companies experiencing financial difficulties or inefficient operations. With the purpose of restructuring their business activities to improve efficiency and profitability.
• Leveraged Buyout (LBO): A company or group of investors uses debt capital to acquire a company. And use that company’s assets as collateral for the loan.

Each form of M&A has its own advantages and disadvantages, depending on the business goals of companies and corporations when implementing.

Benefits when performing M&A

M&A allows companies and corporations to expand their business scale by merging or acquiring other companies. Strengthen your competitive strength and enhance your market position.

Rapid growth: M&A can help companies and corporations grow more quickly. By merging or acquiring other companies that already have market share and customers.
Cost savings: M&A can help reduce production and management costs. By sharing the resources and systems of the merging or acquiring companies.
Investing in new fields: M&A can help companies and corporations invest in new fields. Or expand your product and service portfolio. To increase sales and strengthen competitive strength.
Increase shareholder value: M&A can increase shareholder value of companies and corporations. Through revenue and profit growth after merger or acquisition.

However, M&A can also encounter many challenges and risks. Such as high costs, loss of management, difficulties in integration and restructuring of business activities of merging or acquiring companies. Therefore, companies need to be careful and have a clear strategic plan before conducting M&A.

Step 1: Determine M&A goals and strategies

This step includes determining specific goals of M&A, strategic direction, searching and selecting potential partners.

Step 2: Perform a preliminary assessment (Preliminary Due Diligence)

This step is a preliminary assessment of the partner company’s finances, management, legal issues, assets and other aspects to determine the likelihood of success of the M&A.

Step 3: Perform a detailed assessment (Detailed Due Diligence)

After the preliminary assessment, the next step is a detailed assessment of the partner company’s finances, business plan, management, legal issues and other aspects.

Step 4: Develop an integration plan (Integration Planning)

This step includes identifying the activities needed to integrate the two companies, such as human resource management, integrating business processes and finances.

Step 5: Negotiate and sign the M&A agreement

This step is the stage of negotiating and signing an agreement on M&A implementation, including terms on value and payment method.

Step 6: Carry out consolidation and post-M&A management

This step includes implementing the merger of the two companies, including technology transfer activities, human resource management and financial management. In addition, there needs to be a plan to manage and monitor activities after implementing M&A to ensure the success of M&A.

Popular method of calculating M&A

Depending on the purpose and objectives of M&A, companies will use appropriate calculations to evaluate and carry out M&A. Among them, there are the following popular M&A calculations:

Calculate enterprise value (Enterprise Value, EV)

This is a calculation commonly used to value a business during the M&A process. EV includes the market value of equity plus debt and the market value of a business’s cash funds.

Calculate equity value (Equity Value)

This calculation only calculates the market value of the business’s equity.

Calculate the exchange ratio (Exchange Ratio)

This is a calculation commonly used to convert the value of companies during the process of exchanging shares in M&A. The exchange rate is usually calculated based on the market value of the companies’ shares.

Calculate the P/E ratio (Price-to-Earnings Ratio)

This calculation is used to value a business. By dividing the market value of the business by the business’s after-tax profit in a certain period of time.

Calculate asset value (Asset Value)

Valuing a business by calculating the total net asset value (Net Asset Value, NAV) of the business.

Calculate Potential Value (Potential Value)

A method investors use to value a business by calculating the potential value of the business. It is based on the business’s projects, products or potential markets.

Famous M&A deals

World-famous M&A deals

• ABN Amro’s merger with Barclays PLC is worth $91 billion
• Unicredit SPA acquires Societe Generale SA and Capitalia SpA
• Bank of America acquires Merrill Lynch for $50 billion
• Wells-Fargo acquired Wachovia Bank for $15.1 billion
• UFJ Holding Bank merged with Mitsubishi Tokyo Financial group
• New York exchange NYSE buys Euronext for $14.3 billion
• Antel merged with TPG Capital and Goldman Sachs worth $27.5 billion
• Thomson (Canada) bought Reuters news agency (UK) for over 17 billion USD
• Sony Corporation merged into AB L.M. Communications Company. Ericsson
• Brand cooperation deal between Apples Ipod and HP
• Facebook acquired Instagram
• Elon Musk acquired Twitter
• M&A deal between Disney and Marvel Entertainment
• Oracle Corporation buys Siebel Company for $5.85 billion

Lessons Learned

From the above “classic” M&A deals, we can draw some lessons for businesses in the merger and acquisition process as follows:

For acquiring businesses (acquiring other businesses)

• There needs to be a clear strategy and implementation plan.
• Be careful in evaluating aspects of the target business, to have an overall perspective, strengths and weaknesses of the acquired business.
• Research carefully about the target market of the acquiring business.
• Don’t use just one valuation method.
• Effectively handle post-M&A issues.
• Effectively utilize quality human resources at acquired/merged businesses.

For acquired/merged businesses

• Strengthen your internal strength to increase competitiveness and enhance the value of the business.
• Be proactive with M&A, especially with information about consumer demand and market fluctuations to have appropriate business strategies.

M&A trends in Vietnam

FDI investors have invested in 17 industries out of 21 national economic sectors in the first 4 months of 2024. Of which, the processing and manufacturing industry leads with a total investment capital of more than 6.15 billion VND. USD. Accounting for nearly 66.4% of total registered investment capital, an increase of 19.8% over the same period. The real estate business ranked second with a total investment capital of more than 1.73 billion USD. Accounting for nearly 18.7% of total registered investment capital, an increase of 78.2% over the same period…

Although the M&A market in Vietnam has many prospects, there are still certain challenges. Among them, the three biggest challenges are time; accounting system and seller’s overpricing expectations.