In business, enterprise mergers and acquisitions are one of the important driving forces promoting market development. For enterprise owner, the process of enterprise mergers and acquisitions is not just a business move but an indispensable part of each organisation’ growth strategy. In this article, Phuoc & Partners will join readers in determining the main components and risks to be avoided in developing successful strategies during enterprise mergers and acquisitions, from seizing opportunities to risk management and business value optimisation.
Main components in developing a successful strategies during enterprise mergers and acquisitions
- Researching and assessing the target enterprise thoroughly:
The first step in the process of enterprise mergers and acquisitions is always the determining of target enterprise. For the determination of the target to be more convenient and precise, the acquirer needs to research and assess the following factors of the target enterprise:
- Business capacity
- Financial situation
- Personnel structure
- Business operation process
- Outstanding legal obligation
- Identifying the implementation team:
The procedures, processes necessary for conducting mergers and acquisitions are often lengthy and require coordination from both enterprises. Therefore, it necessitates the selection of a team from various relevant departments to coordinate implementation, maintain effective communication and swiftly approval of internal documents, which help both enterprises save time, cost and limit the risks arising from the implementation progress.
Typically, this team will include representatives from many departments but is mainly carried out by the legal, accounting, human resources departments and owners of both enterprises. For convenience, many mergers and acquisitions appoint third parties such as laws offices and law firms to carry out this process instead of having to allocate internal resources.
- Managing the relationship, coordination and compatibility between two enterprises:
During the merger and acquisition process, differences between two enterprises will lead to inevitable misunderstandings and disputes. To limit this, during the process of negotiating mergers and acquisitions, two enterprises need to clearly state the individuals, departments, and parties responsible for each process and each objective of the process. From there, ensuring a smooth cooperative relationship for mergers and acquisitions.
In addition, the coordination and integration of two different internal structures is also a difficult problem for the merger and acquisition process. In fact, newly merged enterprises take a fair amount of time to adapt to the new structure, management and operating processes, so many enterprises after being merged still retain the same structure and only carry out restructuring after 06 months to 01 year. The above solutions aim to ensure relationships, coordination, and compatibility between old and new personnel, between existing processes and post-merger and acquisition processes.
- Managing legal risks:
In addition to the above factors, mergers and acquisitions between two enterprises always pose potential legal risks such as: tax issues, transfer of asset ownership between two enterprises, disputes related to competition, legal issues regarding human resources and labour, etc. To limit these risks, in addition to verifying and clarifying the target enterprise, the acquirer needs to coordinate to clarify and request the target company to resolve outstanding legal obligations as part of the merger and acquisition negotiation process.
- Issuing a specific roadmap:
Combining the above factors, to come up with a successful strategy during the enterprise merger and acquisition process, the two sides need to agree to come up with a specific roadmap for each work content as well as financial limitations. Time frames for each stage of mergers and acquisitions.
Risks to be avoided in developing a successful strategies during enterprise mergers and acquisitions
- Mistaking in the assessment and evaluation of the target enterprise
Due to many objective and subjective factors, the assessment and evaluation of the target enterprise may deviate greatly from the actual value of that enterprise. These mistakes come from a variety of factors, but in practice, common factors often include:
- Fraudulent or lack of transparency in disclosing business data, financial records and assets of the target enterprise;
- Valuation based on business situation overpriced the value of the target enterprise;
- Only evaluation based on financial aspects but ignore other factors such as brand reputation, customer relationships, etc.; and
- Failure to consider restructuring expenses causes restructuring expenses to be too high, reducing or losing the value of the mergers and acquisitions.
- Lacking the compatibility of interests leads to ineffective coordination between parties
Many enterprises in the process of mergers and acquisitions often rely on their own advantages to make claims, demands, and oppress the remaining parties in the transaction to gain the greatest benefits in the process. However, this can reduce goodwill, leading to cooperation and coordination in the steps of the merger and acquisition process becoming ineffective; and the inevitable consequence of delay and prolongation of the merger and acquisition process, reducing the benefits of both parties. In some cases, it can even lead to the termination of the merger or acquisition deal; causing loss of time, money for both parties
- Lacking a restructuring plan or restructuring ineffectively
As analysed above, in order for the structure of the target enterprise to operate smoothly, effectively and in accordance with the processes of the acquirer require a certain amount of time and a reasonable transition process. Therefore, without detailed and meticulous planning, this process will be slow and ineffective, leading to financial and human resource wastes.
Thus, the key factors and risks to avoid are all things that an enterprise needs to consider during the planning stage to come up with a successful strategy during the merger and acquisition process. If you encounter any difficulties related to the legal field, please contact us. Phuoc and Partners established in Vietnam and currently has nearly 100 members working in three offices in Ho Chi Minh City, Hanoi and Da Nang. Phuoc & Partners is also considered one of the law firms with a team of staff specialising in the leading legal field in Vietnam and whose practice areas are rated top in the legal market such as Labour and Employment, Taxation, Mergers and Acquisitions, and Litigation. We are confident that we are one of the Law Firms providing the best legal services to our clients.
