Merger of two large companies. Mergers and Accumulations: Major Business Combinations

Acquisition and merger of companies is a series of economic and legal procedures aimed at combining several organizations into one economic unit. The merger procedure is based on the principles of voluntary consent of all parties to the transaction.

Mergers and acquisitions of companies: main features of the processes

Economic theory and regulatory framework Russian Federation explains the concept of "merger of companies" in a different way than analogues of foreign experience.

So, with a foreign interpretation under merger companies refers to the combination of several operating firms, the result of which is the emergence of a single business unit.

If guided by the legislative acts of the Russian Federation, then in the case mergers companies, a new legal entity is created, which becomes the assignee of all obligations and rights of the reorganized companies in accordance with the deed of transfer (paragraph 1 of Article 58 of the Civil Code of the Russian Federation), and the participants themselves, who were considered separate companies before the merger procedure, cease to exist.

Thus, according to Russian law, a prerequisite for the merger transaction is the registration of a new legal entity. For example, there are three companies, A, B, and C. Entity A completes a merger with firms B and C, as a result of which a new enterprise D is formed, and the rest are canceled. At the same time, the management, assets and liabilities of A, B and C are fully transferred to the management of company D. Foreign practice implies that one of the merging economic entities continues its work. Such a process in the legislation of our country is called "accession" (A = A + B + C).

The legislative base of the Russian Federation clearly distinguishes between the conditions for the implementation of "merger" and "acquisition", and also has a third concept - "accession", which is not found in the laws of other countries.

A takeover differs from a merger in that, as a result of the first, one company buys out another, completely taking control over it into its own management. At the same time, the “eating” company acquires at least 30% of the authorized capital or a block of shares of the administrative and economic entity that goes under its control.

A merger is an association of two or more economic entities, as a result a new united economic unit is formed.

The merger of companies can occur according to one of the following principles:

The restructuring of economic entities occurs with their complete further liquidation as legal and tax forms. The newly formed company acquires all the assets and liabilities of the firms included in it.
Asset merging - there is a partial transfer of the rights of the companies participating in the merger as an investment contribution. At the same time, the participants retain their administrative and economic activities.

Any type of merger of companies is accompanied by the obligatory formation of a new legal entity.

How not to lose valuable employees during a merger or acquisition of companies?

Your competitors may find out about an upcoming merger or acquisition of the company and start an aggressive hunt for the best employees. To retain valuable staff, follow the instructions from the editors of the magazine "CEO".

When joining, one of the restructured companies is the main one and remains as a legal entity after the conclusion of the transaction, the remaining participants are dissolved. The main company thus receives all the rights and obligations of the canceled firms.

Practical economics knows the following reasons for the merger of companies:

the desire of the owners of enterprises to enlarge the business;
reducing costs by increasing the volume of activities;
the desire to increase revenues through synergy;
change of coordination of activities by methods of diversification, while the goal is either to change the market space, or to expand the range of manufactured / sold products;
combining the potential of complementary resources of different companies;
subjective grounds of top managers of firms;
improvement of management technologies;
monopolization and acquisition of competitive advantages;
protection measures.

Often, a measure of merger is resorted to simultaneously for several reasons. The purpose of the merger of companies is always to achieve greater financial results through joint management and increase the efficiency of the firms involved in this process. The practical experience of merging companies in the Russian market has shown that this event provides an opportunity to join the progressive global economic system and acquiring additional priorities in a healthy competitive environment.

The companies participating in the reorganization set themselves basic goals company mergers:

market expansion;
improving the quality characteristics of products;
cost reduction as a competitive advantage;
increase in the range of manufactured / sold products;
increasing awareness and emotional content of the brand;
product differentiation;
introduction of innovative technologies,
the acquisition of greater competitiveness in foreign economic relations;
increase financial result from doing business;
escalation of passive income;
increasing investment potential;
increasing creditworthiness and investment attractiveness;
increase in working capital;
appreciation of own shares;
improvement of the profit system.

Merger of companies: pros and cons of the operation

Mergers and acquisitions of companies are attractive for their pluses:

high probability of obtaining a quick positive effect;
this measure is highly competitive;
the likelihood of obtaining control over significant intangible assets as soon as possible;
geographical expansion of business;
taking control of an already established organizational system;
instant acquisition of a market sector;
purchase is likely working capital previously underpriced.

Here are those minuses these events that are known to businessmen:

significant cash costs associated with the payment of penalties to former shareholders and employees of the canceled companies;
a “miss” is likely in assessing the benefits of the transaction;
when doing business in various industries, the process of merging companies is a complex and costly operation;
upon completion of the merger or takeover, there may be difficulties with the employees of the acquired company;
when restructuring foreign companies, there is a risk of national and cultural incompatibility.

Types of company mergers: grounds for classification

Today, corporate management distinguishes between various options for mergers and acquisitions.

The classification features of these procedures are:

type of business combination;
national and cultural specifics of restructured organizations;
the position of companies in terms of the integration deal;
method of connection of resources;
type of assets;
company connection technology.

To the extent that type of association carried out by this procedure, differentiate the types of mergers.

Horizontal merger - integration of companies of the same type operating in the same area, or producing / selling a similar product, having the same technological and technical structure production process;
Vertical merger - the connection of diversified organizations that are in the same production system, that is, when the main company takes control of the previous stages of production closer to the source of raw material, or further stages - to the consumer.
Generic association - productions working on an interconnected product merge. An example of such a merger would be when a mobile device manufacturer merges with a developer company. software or with a manufacturer of cell phone accessories.
A conglomerate association is a merger of diversified companies that do not have industrial, technological or competitive similarities. In this type of integration, the concept of main production disappears. Conglomerate mergers are of the following types:
A merger of companies with an increase in a number of assortments (product line extension mergers), i.e. when restructured companies produce non-competing products, but have the same distribution channels and a similar technological production cycle. An example of this type of action is the purchase of Clorox by detergent manufacturer Procter & Gamble, which was specialized in the production of bleaching laundry detergents.
Expansion-geographic merger of companies (market extension mergers), i.e., when additional territories for the sale of a product are acquired. An example is the purchase of hyper- and supermarkets in previously unserved areas.
A true (pure) conglomerate merger where there is no similarity.

By national and cultural specifics restructured companies distinguish between mergers:

national - the business entities being combined conduct their activities in the territory of one country;
transnational - there is a merger of companies from different countries (transnational merger) or the purchase of firms located in another country (cross-border acquisition).

Recently, as part of the trend of business scale, mergers and acquisitions of enterprises are practiced not only from different states, but also from multinational corporations.

Looking at what position of companies in the conditions integration deals, share:

friendly merger of companies - occurs when the management of the companies comes to a mutual decision that, in conditions of fierce competition, the merger will help build a more profitable business;
a hostile merger where the managers of the target firm do not want the deal. The purchase of the target company occurs through a tender offer on the stock market for the acquisition of a controlling stake.

According to various joining technique resources distinguish forms of merger of companies:

corporate alliances - a merger of companies, the task of which is to obtain a positive synergy effect in a particular business area, in other segments of the company's activities they work independently. To organize a corporate alliance, separate infrastructures or joint ventures are often created;
corporations - at this event, the pooling of resources takes place in full, in all areas of the companies' activities.

From what view assets are prioritized transactions, there are mergers:

mergers of production assets - imply the combination of the production potential of companies in the expectation of expanding the scale of production and reducing costs;
merger of financial assets is the pooling of the capital of companies in order to take a leading position in the stock market or to obtain additional profit from investment activities.

The process of integration of companies can take place in equal conditions (50/50). But as practice dictates, equal conditions always create additional barriers to achieving the intended heights and benefits. A merger can always end in a takeover.

What type of merger the restructuring companies will determine for themselves depends not only on mutual benefits, but also on the conditions of the market environment, as well as on the potential that each of their business entities has.

The global practice of mergers and acquisitions also has specifics depending on the country in which the organizations operate. A striking example of this is the trend towards mergers and acquisitions in America of large corporations. Conversely, in the European part of the world, companies that organize small family businesses or small joint-stock companies in one market sector most often become target companies.

“Omni-channel commerce is what has become a trend now, and will be a necessity in the near future”: Kino Kwok on the merger of e-commerce and retail

Methods of merging companies in European practice and the practice of the Russian Federation

Mergers within Europe are governed by Directive No. 78/855/EEC of October 9, 1978, which defines two ways to merge:

acquisition or takeover of the assets of small firms by a large company, in which the infrastructure of the participants in the merger is partially preserved;
organization of a new company by transferring to it a full package of rights and obligations of the firms that have joined it, in which the structure of each participant in the transaction is completely changed.

Merger of companies through takeover - a merger, the result of which is the transfer of all property and obligations of the company / companies to another economic unit without liquidation of the former on the terms of payment of dividends to the shareholders of the acquired company in cash or in the form of shares of the acquired company, but not more than 10%. At the same time, the organizations that were absorbed are dissolved.

Merger of companies through the establishment of a new company - an event that takes place according to European standards in such a form, when all the property and obligations of the company / companies are transferred to another economic unit without liquidation of the former on the terms of payment of dividends to the shareholders of the acquired company in cash or in the form of shares of the new company, but not more than 10%. At the same time, similarly to the first case, the organizations that were absorbed are dissolved.

The concept of "fusion" is sometimes used in the case of a merger of several organizations of the same type in terms of production characteristics.

Restructuring Russian companies in the form of mergers/acquisitions looks somewhat different.

The legislative framework of the Russian Federation, similar to European practice, methods of "merger of companies through acquisition" and "merger of companies through the establishment of a new company" are considered as procedures for the transformation of companies in the form of a merger and accession of legal entities.

Normative legal acts of the Civil Code of the Russian Federation also regulate the following measures of integration of companies:

formation on the basis of the existing legal entity of a subsidiary / dependent company;
organization of organizations in the form of unions or associations;
contractual relations between persons - participants in business legal relations (financial and industrial groups, a simple partnership agreement);
purchase of the organization's assets by another company;
acquisition of shares (shares) of a company (purchase valuable papers with payment in cash or the purchase of securities with payment in other securities).

Organization of the merger: M&A agreement

The positive effect of the merger/acquisition transaction depends on the following factors:

determination of the optimal type organizational form mergers or acquisitions;
carrying out the transaction in strict accordance with the antimonopoly policy of the state;
sufficient financial resource to complete the integration;
the fastest possible and mutual decision-making on the choice of the main participant in future relations;
instant connection to the operation of combining the staff of the highest and middle levels.

In the merger process, it is important to remember from the beginning of the process (idea) to its completion the essence of these measures is to obtain a positive effect by joint activities and, as a result, higher profits. When planning this type of restructuring, the most important tasks will be to establish the type of transaction, ultimate goal and strategy development.

Throughout the synergy, it is important to see not only the positive impact of the merger, but also the mistakes made in the merger process. The guideline for the management of the newly created union should be not only obtaining a synergistic effect, but also maintaining it.

The merger/acquisition process can take place in the following ways:

Entity A acquires the assets of Entity B by paying in cash;
Entity A acquires the assets of Entity B by making payment in securities issued by Entity A;
entity A acts as a holding company, acquiring a controlling interest in entity B, which remains an active economic unit;
Entity A and Entity B exchange their shares;
the result of the merger of organizations A and B is the emergence of company C. Participants A and B proportionally exchange their securities for shares of company C.

Carrying out a transaction in strict accordance with the antimonopoly policy of the state is one of the conditions for obtaining a successful merger or acquisition.

Any state controls this species restructuring of companies at all its stages. The state authorities of the country in whose territory a merger or acquisition takes place have the right to suspend the transaction at any time if the actions of its process are contrary to antimonopoly policy. Russian entrepreneurs wishing to enlarge their business by merging companies, under certain conditions, are required to obtain the consent of the Federal Antimonopoly Service of Russia to complete this transaction (clause 8, part 1, article 23, part 1, article 27 of the Federal Law of July 26, 2006 No. 135- Federal Law "On Protection of Competition").

The merger/acquisition transaction is also controlled by the tax authorities. So, if the merging companies act as sellers of their securities, then it is their responsibility to pay tax on capital increases. The transaction is not subject to taxation if the old shares are exchanged for new ones.

If the transaction is recognized as taxable, then a mandatory measure will be to review the value of the assets of the affiliated company in order to identify profit or loss and calculate tax on them.

The tax status of this transaction also affects the amount of taxes that the company pays after the takeover. When a transaction is recognized as taxable, the assets of the affiliated company are revalued, and the resulting increase or decrease in their value is treated as profit or loss subject to taxation.

The financial resource required to complete a merger or acquisition is calculated based on how the members of the association evaluate the synergy effect from this event. If future results are inflated, then most likely, many of the buyer's cash costs will be unjustified.

The decision to merge or take over should not be at odds with strategic goals participating companies.

The process of merging companies sets itself the solution of such important tasks as:

increase in volumes (association of one-industry enterprises);
territorial expansion;
reducing risks and acquiring additional competitive advantages (vertical merger);
increase in the range of manufactured / sold products, improving the manufacturability of the processes of the main activity, etc.

Decor contractual relations and their specificity in the merger of companies with limited liability.

This measure and its legal registration regulated by Art. 52 of the Federal Law "On Limited Liability Companies".

The lawyers of each party to the transaction develop merger agreements before the general meeting of the owners of the merging companies is scheduled. When all positions of the contract are approved, the latter is signed by persons endowed with the functions of the sole executive body each side (general director, president, etc.).

According to paragraph 3 of Article 53 of the Federal Law "On Limited Liability Companies", the merger agreement should reflect:

stages and rules of the merger process:
date and terms of appointment of the general meeting of participants of the merging companies;
stages and terms of notification of creditors;
the date and timing of the appointment of a joint meeting of participants in the companies with a full breakdown of the rights and obligations of each party to the agreement;
stages and terms of publication of the fact of the transaction in the media.
stages and conditions for the mutual exchange of shares of the integrating companies and the newly created LLC.

Those shares of the company being transformed, which are part of another LLC - a participant in the merger, are automatically canceled.

It is important to remember that the authorized capital of an LLC during reorganization is formed exclusively from the liabilities of the legal predecessor (authorized capital and other own funds). At the same time, when establishing a new LLC, only assets are taken to form the management company.

Any transfer of assets is regulated in accordance with the deed of transfer (clause 1, article 58 of the Civil Code of the Russian Federation, clause 5, article 52 of the Law "On Limited Liability Companies").

The authorized capital of the new LLC formed during the merger transaction includes:

the authorized capital of all LLCs - participants in the association;
other own funds of LLCs being reorganized (additional capital, retained earnings, reserve capital, etc.).

This principle of formation of the authorized capital was developed for joint-stock companies, but in practice it is also applicable to LLC.

The authorized capital of an established LLC cannot be less than 10,000 rubles (paragraph 2, clause 1, article 14 of the Law "On Limited Liability Companies").

The merger agreement comes into force after it is signed by all parties at a joint meeting of participants in the reorganized companies, which is also reflected in this document in order to avoid possible misunderstandings.

When merging limited liability companies, the deed of transfer reflects the following provisions.

Conditions for the transfer of rights and obligations of reorganized LLCs to an established company, regarding all articles of accounts payable and receivables of the former (clause 1, article 59 of the Civil Code of the Russian Federation). If this item is not spelled out in the deed of transfer, then the tax authorities may refuse to establish a new LLC (paragraph 2, clause 2, article 59 of the Civil Code of the Russian Federation).
Deeds of transfer are drawn up by each company participating in the merger process. Thus, there will be as many deeds of transfer as there are parties to the merger/acquisition transaction.

Practitioner tells

Andrey Voronin, owner of ATH Business Travel Solutions, Moscow

Twice I myself had to observe the merger of two companies, which is called "from the inside." Every time I witnessed how, in this difficult time for the company, the aggressive attack of competitors manifests itself in active poaching the best shots vulnerable society to his state. They are often guaranteed wage 30-50% above average. We had our own strategy to keep the most valuable employees on our side.

Show everyone that you are one team. Teamwork significantly reduces the unfavorable situation in the staff: for this, the very first step will be the relocation of two companies to one office immediately after the signing of the documents on the merger of companies. In the case when it is not possible to immediately connect the teams, at least make sure that all the information disseminated is the same. Our experience was an example of such a situation: branches of the merging companies were located in different cities - from St. Petersburg to Yuzhno-Sakhalinsk. The perfect solution for us was to general meetings with their mandatory broadcast via Skype, so employees in all cities were aware of the decisions of the management team. To show that we are all one team, it is necessary not only for the team, but also for clients. So, for us, such a significant event was a conference on Sakhalin, where we invited not only employees from the company merged with us, but also customers from the Far East. So everyone understood that territorial changes do not in the least affect the results of our work.

Insist that you are not merging one business into another, but building a new one, taking the best from both companies. Thus, before the merger, our company could interact with the consumer in two ways: either the client received information directly in our office, or the service was remote. The merger with another company allowed us to apply their experience of other cooperation options.

Show employees career opportunities. The positive mood of the team increases significantly when you show them the possible prospects for business growth after the merger. An example of the positive impact of a merger and a great motivating impetus would be an increase in salaries or getting long-awaited positions for some employees.

Introduce people from both companies. Often, the teams of the merging companies are configured with mistrust and doubt about each other. The situation will be replaced by their speedy acquaintance in an informal setting. In this regard, we were lucky: the merger took place in December, and the New Year's corporate party fit perfectly into the team building program. The small room deliberately chosen for this played an excellent role: in cramped conditions, but not offended. In general, it was not to be bored. I also advise you to consider the pastime of employees in a playful way, when the principle of a set of commands is based on a sign that has nothing to do with belonging to one or another company. For example, bowling or paintball with teams formed according to the zodiac sign.

Once we held a charity event, during which employees bought hand-made crafts from each other. The idea of a good deed for the benefit of a talented child from a low-income family rallied the team even more. All proceeds from this charity bazaar were put into a bank account for the boy's admission to a partner school in South Wales.

Instruct the HR director to hold face-to-face meetings with each employee. Individual conversations will help to positively set up the employee, find out his expectations and anxieties, as well as find out the general mood of the team. They give an understanding of which employees need additional motivation. Yes, this is a painstaking process, but a strong and cohesive team as a result is worth it. So, we had the first meetings with the staff held by me personally, and then the matter was entrusted to the HR director. The process of adaptation of employees in our company took almost five months.

An excellent solution for discussing individual proposals was the ability to anonymously ask questions to the governing body on an Internet resource for which a corporate website can be adapted. Participation in a cause that binds by common interest will also unite people. To do this, you can create separate project teams from workers who previously belonged to different teams.

In the matter of personnel, the most important thing is not to let things take their course.

Merger process: 7 steps

The process of merging companies in the classical version includes seven main stages.

Finding out the main tasks of the merger

The main goal of mergers and acquisitions is to achieve the highest results through joint activities and, as a result, increase the capital of the company and the income of business owners. Obtaining additional competitiveness can be achieved both by internal resources (improving the organization of management, introducing technological and technical innovations, increasing the production capacity of an enterprise, etc.), and external (mergers and acquisitions of companies).

Identification of alternative ways to achieve the goals

It is important to determine whether it is possible to achieve the goal by other, less risky methods than mergers and acquisitions. These may include procedures for developing a new corporate marketing strategy, acquiring/building new fixed assets, increasing internal capacity, and other restructuring measures.

Identification of a target company, search for a candidate for a merger, purchase

The most accurate assessment of the capabilities of the selected company and the expected synergistic effect will be important.

Preparation for the transaction includes the following steps:

A study of the sphere of unification. The first step will be the analysis of the market sphere chosen for the merger or acquisition: an assessment of the growth dynamics of its structure, the likely distribution of potential, the impact of foreign economic forces on it, the identification of opportunities in its structure associated with competitors, government bodies authorities and scientific and technical research, analysis of the dynamics of supply and demand regarding the selected structure. When evaluating a selected company, the first thing to do is examine its existing assets and liabilities.
Research of own possibilities. After the area of association is chosen, the company must conduct an objective self-assessment, determine its own potential, due to which the value of the acquired company is calculated. Based on the results of the analysis, the criteria for possible merger of candidate companies are determined.
The study of competing forces. A greater likelihood to feel all the advantages of a merger of companies and achieve a positive synergistic effect appears with a thorough study of the capabilities of competitors. By analyzing the actions of competing companies, it is easier to determine the future strategic direction and the long-term effect of intentions. Playing blindly, without guessing the opponent's next move, can only lead to a loss.

Having determined the industry of the target company, its capabilities and main characteristics, there comes the moment of choosing a specific company among the huge mass of economic entities. Important criteria in determining the candidate will be: the scope of market activity, the volume of labor and income, the territorial coverage of the market, the private or public form of organization.

Options used in the practice of searching for a target company:

Application of established relationships in this market segment. Established contacts, especially within the same field of activity, often help to select a candidate for acquisition.
Appeal to agents involved in the sale of operating companies. Intermediaries can be both brokerage companies and investment banking structures. Choosing this search path the right company, it is important to remember that a large number of firms may fit the criteria passed to the intermediary, which will complicate the selection process.

Analysis of the selected target company

All organizations selected according to the criteria must be carefully reviewed for future and present opportunities.

The task of this stage is to determine the most profitable party for a merger or acquisition. To do this, the goals of the firm-buyer are compared with the characteristics of each selected company. Technological and technical resources, information about the infrastructure and capital of the company.

Finding out the positive achievements that can be achieved through a merger or acquisition. The real idea of the possible synergistic effect largely determines the success of the company reorganization procedure. Careful attention is paid to the calculation of opportunities from the transformation of companies: combining production resources, distribution channels, expanding the geography of the market, reducing production and labor costs, technology exchange, and so on.
Explore the potential for value calculation through company transformation. You can find out the potential of the proposed merger by comparing the target company with the leaders in this segment. Do not forget that the changes will have to go through not only the acquired company, but also the buyer himself. It is necessary to make realistic forecasts and, if possible, turn all changes in a favorable direction.
Valuation of the target company. When there is a merger of companies, the value of the target company is formed by the following characteristics: internal resources (calculation cash flow in terms of a merger or acquisition) and external (average market prices, comparative assessment of such transactions). After defining financial side the issue, the decision is formulated in the primary agreement, which also contains an explanation of each stage of the merger or acquisition process. Further, actions are taken to complete this transaction (negotiations with state antimonopoly structures, intra-corporate preparation for merger, identification of sources of integration).
Checking the target company for reliability (due diligence). Information obtained from certain sources may influence the formation of the value of the company being bought, which will be reflected in the document of intent.

Approval of a resolution on a merger or acquisition. Development of an action plan

Implementation of all stages of the planned plan, taking into account the newly appeared changes

Mergers/acquisitions of companies is a delicate and complex process that is difficult to bring to a single model. Despite the significant experience of the Russian and foreign markets in this method of company restructuring, many organizations do not achieve the positive effect that is expected at the time of integration planning. The success of such transactions depends not only on how conscientious the approach to planning and distribution of responsibilities was, but also on the correct use of the opportunities opened up by the merger. The uncertainty that comes with the process of merging different economic units can cause the loss of valuable personnel and significant customers, lead to unplanned expenses and lead to the loss of already won market positions.

Analysis of the result of the transaction

After a certain time, the result achieved by the merger or acquisition is analyzed, the goals achieved or not achieved by the integration are determined.

The specifics of the process of mergers and acquisitions.

Permission to make a transaction from the federal antimonopoly body required when:

the total book value of the assets of the acquirer and the issuing company (whom they buy) is more than 3 million rubles:
the total revenue of the reorganized organizations for the year preceding the transformation is more than 6 million rubles;
the acquiring company or issuer is included in the Register of economic entities with a market share of a certain product/service of more than 35%.

Analysis of the effectiveness of mergers and acquisitions of companies

There is an opinion that a merger of companies will be effective if you simply choose a company from a progressively developing market area and acquire it at a relatively low price. However, this judgment is erroneous.

The analysis of the effective completion of a merger or acquisition operation includes the study of many moments:

calculation of cash receipts and expenses, calculation of the financial result from the merger process;
determining not only the goals of the merger of companies, but also finding out the parties that are in plus and minus from the integration transaction;
formulation of the problems that appeared with the implementation of the merger, in the field of personnel, tax collections, legal restrictions, accounting difficulties;
taking into account the basis on which the merger was made: restructuring of companies on an unfriendly basis often carries a lot more contingencies than a transaction on a voluntary basis.

Often, the beginning of the analysis of the effect of the integration of companies is the estimated financial achievements of the target company, which includes any increase in the money supply or reduction in costs. Further, the resulting discounted values are compared with the acquisition cost. The resulting positive difference from the projected financial flow of the target company and the value of the transaction is defined as the net benefit. In the case when the difference is negative, the decision on the merger of companies must be reconsidered.

For this comparative analysis, it is necessary to operate with the following data:

future capital increase of the target company in the future;
the value of the discount rate;
cost of capital to determine future cash flow;
the real value of the target company.

The disadvantage of this technique is that the information obtained does not always correspond to the real state of affairs.

The reason for this is that the determination of the price of the acquired company is subjective. The projected net benefit may be positive not because the merger has a positive effect on the business, but because the target company's real future capital increase is overstated. But if the forecast is too low, the failed restructuring of companies, which is really necessary and appropriate, will aggravate the existing business.

It is important before the transaction and its planning to determine for what reasons the cost of the merged companies will be greater than the price for each before the transaction, to calculate the economics of all benefits and costs.

Financial benefit (the same synergy effect) appears only when the value of the established company as a result of the merger exceeds the sum of the values of all parent companies before the transaction.

Analyzing the synergistic effect and determining its numerical value is one of the most difficult tasks in studying the results of a combination.

After the financial benefit of the future transaction, i.e. its synergy effect, is known, it is necessary to determine the estimated financial costs necessary to implement the merger plan.

If the purchase condition of the target company is the immediate calculation of its full value, then the costs will be determined as the difference between the money paid for it and the market price of the acquired company.

Assuming that when the target company is acquired, its market value is paid immediately, then the cost of acquiring a company can be defined as the difference between the cash paid for it and the market value of the company.

Expenses that exceed the market value of the company are paid to the shareholders of the acquired company or business owners in the form of bonuses. Often, the benefit received by the acquired company does not exceed the costs incurred by the acquiring company. This is due to the fact that the implementation of the transaction is always accompanied by payments to banks, payment for consulting, lawyers and, which fall on the shoulders of the acquirer.

The difference between all of the above benefits and costs is defined as net present value.

A positive value of this indicator indicates the expediency of a future transaction.

To assess the synergistic effect of the merger of joint-stock companies, it would be reasonable to take into account the behavior of investors regarding the shares of the newly created company. Thus, when the price of the shares of the acquiring company falls after the publication of the fact of the upcoming transaction in the media, one can judge that investors doubt the benefits of the future merger, or why they consider the value of the target company to be unreasonably high.

It should also be taken into account that the good company when selling, the demand for it increases, and the process of buying and selling is more like an auction “who will offer the most”. Taking the upper hand in such a struggle may entail unreasonable costs.

Reorganization of a legal entity: step by step instructions

What can a company merger lead to?

Such transformations of economic units, such as mergers or acquisitions, can affect the future affairs of companies in different ways, both by providing additional benefits and reducing their results. economic activity. Numerous studies to determine the net synergistic effect on the experience of companies already restructured by this method show completely different results.

So, according to "Mergers & Acquisitions Journal", more than 60% of all integrations do not justify the finances invested in them. The Price Waterhouse audit network studied 300 mergers over the past decade and found that 57% of companies transformed by mergers or acquisitions have worst performance than similar companies in the same industry. Often a bad merger experience forces companies to separate again in order to return to the indicators that were achieved in the course of independent management.

According to analysts, the negative effect of the merger may arise for the following reasons:

incorrect assessment of the opportunities of the industry or target company chosen for the merger;
an error in the calculation of the finances necessary for the implementation of the integration;
wrong steps towards a merger or acquisition.

An incorrect assessment of the assets and liabilities of the acquired company leads to a decrease in the synergistic effect.

For example, an example of a miscalculation might be the assumption of an underestimated level of costs associated with increasing the production capacity of the acquired company or with the warranty obligations of a previously released defective product. In the case of a production merger by another acquiring company, an assessment is made of the impact that the acquired production has on environment. Most likely, all expenses for the elimination of negative polluting effects will be the responsibility of the buyer.

Often, an error in the calculation of the finances necessary for the implementation of integration is an obstacle to achieving the planned result of a merger or acquisition.

The miscalculation in future costs can be quite significant. Thus, the projected price of Rover was 800 million pounds, and in the end it cost BMW 3.5 billion.

Wrong steps in the way of the merger of companies have caused the failure of many mergers.

Managerial and leading personnel are not always able to cope with the problems that have appeared after the merger of companies. The individual nature of production, infrastructure and intra-corporate traditions, bookkeeping is often incompatible with similar areas of the integrated company.

The cost of many organizations is directly affected by the quality human resources, namely, the competence and degree of professionalism of all personnel - from top managers to ordinary workers.

Changes in the managerial staff change the criteria for assessing the work of personnel, planning career ladder employees, the policy of distribution of finances is changing. All this is reflected in the psychological mood of the team and can change both relationships within the company and informal ties. The situation when previously the owner of the company, who has a stake in the business, becomes an employee of the merger, negatively affects the working mood of a significant part of the staff and may even lead to the loss of significant personnel. The only way to save the situation complete satisfaction its new position as the former owner and the team work of the entire team according to a specially developed plan.

An analysis of the experience of mergers and acquisitions of many companies states the fact that it is often advantageous not to buy a company, but to sell it.

The receipt of the greatest benefits by the shareholders of the target companies in comparison with the profits of the owners of the firm-buyer is explained by two reasons:

The acquiring company is often much larger than the target company. In this situation, when dividing the financial result of the synergy, the owners of each company will receive equal shares of income in monetary terms, but in percentage terms, the shares of the shareholders of the new company will be much less;
turning the process of buying and selling an organization into an auction causes the offers to shareholders of the companies being bought to get better and better with each new buyer. Thus, the owners of the target company "pull" a larger share of the profits from the upcoming merger. An increase in the value of a company put up for sale may also be the result of anti-raider techniques.

Modern economics sometimes regards a merger large companies(eg guilds) as a sub-optimization.

Meaning this definition in the field of company restructuring is as follows. A strategy aimed at strengthening intra-corporate ties leads to the fact that purchase and sale transactions are made in "their" circle. But this does not prevent "their" organizations from setting the most favorable cost for themselves.

The effect of such mergers is either an unreasonably high price for the product of the newly founded enterprise, or the standard discussion of the cost turns into long clarifications of mutual claims. As a result, complex relationships within large guilds make it difficult, and sometimes impossible, to set prices that will satisfy companies on opposite sides of the system.

Reasons for joining even competing companies into business alliances

Practitioner tells

Vitaly Vavilov, Project Manager, Strategy Partners, Moscow

Virtually the only way to create value during a period of financial instability in a country is through a merger, acquisition, or alliance. These measures, firstly, reduce the value of assets, and secondly, they join forces to speed up during the crisis.

A good example of this is the American medical company LHC Group, which doubled its value in just six months of the crisis thanks to the merger. The outsourcing scheme of work made it possible to increase the structure of LHC Group by 8 in 6 months joint ventures, attracting medical institutions as partners. Guaranteed customer traffic minimized a potential drop in demand, and the resulting financial gain made it possible to acquire two companies that significantly expand the scope of services. Thus, during the general crisis, the LHC Group was able not only to maintain its positions, but also found a way for itself to invest in progressive development.

Choosing for yourself the path of various types of associations, the most important thing is to always see the final goal of each next step, which ultimately should result in the acquisition of additional benefits for each participant in the integration.

My personal observation is that vertical mergers are most successful. Here, the main task will be to select a like-minded company with the greatest competitiveness (for example, implementing a well-recognized trademark or otherwise attractive) or one that operates in a dynamic industry. The success stories of Hana Electronics (an Asian electronics manufacturer) and Alaska Milk (a Filipino dairy manufacturer) are a great example of just such a strategy.

A merger is a union of two equal companies. A takeover is the buyout of one company by another. The purpose of mergers and acquisitions is synergy, i.e. benefit from joint activities.

Mergers and acquisitions(eng. mergers and acquisitions, M&A) of companies - sets of actions aimed at increasing total cost assets through synergy, i.e. the benefits of working together. If simple, then mergers and acquisitions of companies describe the transformation of two companies into one. A merger is the emergence of a new company as a result of the merger of two equivalent companies, and an acquisition is a buyout of the acquired company by the absorbing company, as a result of which the absorbed company ceases to exist, and the absorber increases. A striking example of a takeover in Ukraine is UMC → MTS: the larger Russian company MTS bought out most of another company (UMC), and rebranded.

There are different theories about what acquisitions and mergers aimed at eliminating competitors, etc., but they are far from the truth. home the goal of any merger or acquisition is for the result to be greater than the sum of the terms(i.e. 1+1=3). In other words, companies that participate in the process hope to save costs and increase efficiency. Often, the productivity of a new/renewed company increases precisely by reducing costs.

The difference between takeovers and mergers

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Terms " merger" (English merger) and " absorption» (English acquisition) are often confused, or used as synonyms. Despite the fact that their meanings are very close and they always go in pairs, in fact mergers and acquisitions describe different concepts. It is clear from the terms themselves what the difference is; let's take a closer look.

Acquisition of one company by another company

As in the example of the Russian communications operator MTS, when one company buys out and "eats" another, often smaller company, this is called company takeover. (The image of swallowing smaller companies has given rise to the term "business shark".) Once a smaller company has been "eaten", it naturally ceases to exist in the legal sense.

In this scenario, all of the assets of the acquired or “eaten” company are taken over by the acquiring company. As a result of absorption, more big company gets bigger.

For example, Google is a very aggressive takeover shark that has already taken over 100 companies, including YouTube, Begun (Russian company), FeedBurner , AOL and many other companies around the world.

There are both aggressive and friendly takeovers.

aggressive takeover occurs when a smaller company does not want to be "eaten", but the acquiring company simply buys back a huge amount of shares, and leaves no choice
friendly takeovers occur when both parties agree and are in a normal takeover mood.

It often happens that acquiring companies do not want to advertise the actual takeover, and pretend that an equal merger has taken place. An example of such a takeover would be DaimlerChrysler: Daimler-Benz bought out Chrysler, but presented the deal as an equal merger. (Due to failures in joint work, Chrysler was then sold back to the Americans.)

Merger

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Merger is an association of equivalent companies that gives rise to a new company. Usually, companies in the merger are approximately equal by number of assets.

It is important to understand that the actual merger of companies is a rare occurrence. As described above, most often what is called a merger is actually a takeover behind the guise of a merger, as in the DaimlerChrysler example.

Synergy is the goal of acquisitions and mergers

The essence of mergers and acquisitions is synergy. Synergy is the benefit of working together. After all, this is obvious: when two companies turn into one, you need one accounting department, not two, one advertising department, not two, etc. When two companies become one, the benefits can be as follows:

staff reduction(eng. downsizing, rightsizing): as mentioned above, the number of employees from such auxiliary departments as finance, accounting, marketing, etc. is decreasing. Also, one of the manuals becomes unnecessary.
economies of scale: due to the quantitative increase in purchases, transportation, etc., the new company saves on wholesale terms. You also need to remember about everything you need, one piece per company: for example, server protection systems, a program for accounting for goods and personnel, etc.
increase in market share: When companies merge, the new company has more market share and brand awareness also grows. The advantage is that it is easier to win new market shares with a large share than with a small one. The conditions of creditors are also improving, as a big company is more credible.

But it's important to understand that not every merger or acquisition results in synergy. It often happens that conflicts occur in a new company, as happened with DaimlerChrysler, where the internal charters of the companies fundamentally did not coincide. Unfortunately, Unfortunate mergers and acquisitions are not uncommon.

Types of company mergers

There are many different ways of company mergers. These types of mergers are divided into 2 main groups: by the relationship between the companies and by the type of financing.

Types of mergers by relations between companies

Main types of mergers by type of relationship between the merging companies are as follows:

horizontal merger: the union of two competing companies that do the same thing and are in the same niche
vertical merger: association of supplier and consumer; for example, a furniture manufacturer and a raw material manufacturer (i.e. boards, plywood, etc.)
merger to expand the sales market: association of companies that are in the same industry but sell goods in different markets
merger of sales related companies: association of companies selling related products in the same market

On August 9, the Turkish brewing company Efes on the conclusion of an agreement on the merger of businesses in the Russian Federation and Ukraine with the world's largest Belgian AB InBev. Deal at the end of 2018.

Major merger deals - in the review of RBC.

In the late 1990s, after the German telecommunications company Mannesmann entered the British market, it was taken over by local giant Vodafone Airtouch PLC. Vodafone's first offer came in November 1999, and the deal closed in February 2000. The merged company had more than 42 million customers and was valued at $342 billion. In 2017, Vodafone was ranked 419th largest public company by Forbes with a capitalization of over $67 billion.

In January 2000, the world's largest media conglomerate Time Warner and the world's largest Internet company AOL announced a merger. The deal was valued at $164 billion at the time. A year later, when the deal was approved federal agency US communications, its amount was $111 billion. In the late 1990s, AOL showed annual profits of $1.2 billion, Time Warner - more than $1.9 billion. When the dot-com bubble burst in the early 2000s, AOL assets began to rapidly lose in price. In 2002, AOL Time Warner was forced to record a record loss in history. American companies- $ 99 billion. At the end of 2009, Time Warner and AOL split again. The deal is considered one of the worst in the industry.

In 2017, Time Warner was ranked the 153rd largest public company by Forbes with a capitalization of over $76 billion.

In October 2016, the world's largest brewer, Anheuser-Busch InBev, acquired its rival SABMiller in a $106 billion deal. Negotiations on the merger lasted about a year. Analysts noted that after the deal, AB InBev could overtake such a giant as Coca-Cola in terms of revenue.

In 2017, InBev ranked 126th in the Forbes ranking of the largest public companies with a capitalization of over $213 billion.

Photo: Robin van Lonkhuijsen / Reuters

In October 2007, after a long standoff with Barclays, a consortium of banks led by the Royal Bank of Scotland (RBS) received approval for a deal to acquire the Dutch bank ABN Amro. This acquisition almost proved fatal for RBS: in 2008, during the financial crisis, it was on the verge of collapse. Then the bank was nationalized and recapitalized, and after the crisis, RBS reduced foreign assets, including trading operations in the United States. He also left Russia.

In February 2000, American pharmaceutical companies Pfizer and Warner-Lambert announced a merger in a deal worth $90 billion. Prior to the deal, Pfizer had an annual profit of $3.4 billion and Warner-Lambert had $1.7 billion. US market and one of the largest in the world. When the deal was approved by the US Federal Trade Commission in June, Pfizer had to abandon four drugs to avoid monopolizing the market. In 2017, Pfizer was ranked the 47th largest public company by Forbes with a capitalization of over $203 billion.

In December 2006, US telecommunications giant AT&T closed a deal to acquire Southeastern US telephone operator BellSouth. After the acquisition, the number of corporation subscribers increased to 70 million people. The regulator approved the deal after AT&T pledged to maintain "net neutrality" of high-speed internet platforms for two years. The market reacted positively to the news about the completion of the transaction: AT&T shares rose by 0.7% after the close of trading. In 2017, AT&T was ranked the 11th largest public company by Forbes with a capitalization of over $249 billion.

In 1998, against the backdrop of falling world oil prices, American oil companies Exxon and Mobil have signed a merger agreement. The deal, which resulted in the formation of the ExxonMobil Corporation, was closed in November 1999, its amount was about $81 billion. In order for the deal to be approved by the regulator, the companies pledged to sell more than 2.4 thousand gas stations throughout the country. The deal reunited the two parts of Standard Oil, which had been split in 1911 by court order.

In 2017, ExxonMobil was ranked the 13th largest public company by Forbes with a capitalization of over $343 billion.

Sir Richard Sykes, Chairman of the Board of Glaxo Wellcome and Member of the Board of Directors of Smithkline Beecham

January 2000 pharmaceutical company Glaxo Wellcome agreed to acquire rival SmithKline in a $75.7 billion share swap. The deal went through in December 2000 after being approved by a British court.

Sanford Well, CEO of Travelers group and John Reed, CEO of Citicorp after the press conference announcing the merger

In April 1998, financial companies Travelers Group and Citicorp announced plans to merge and create the world's largest financial company Citigroup. The deal was valued at $70 billion. New company received 100 million customers, and the profit was expected at the level of $7.5 billion a year. Ten years later, the deal was criticized during the financial and economic crisis.

In 2017, Citigroup was ranked 12th largest public company by Forbes with a capitalization of over $164 billion.

In September 2016 American manufacturer of Dell computer equipment on the acquisition of a manufacturer of data storage systems - EMC. The deal was the largest in this sector of the economy. With revenues of around $74 billion, the resulting Dell Technologies was expected to become the largest private IT company in the US.

In June 2000, the merger of the telephone companies Bell Atlantic and GTE was approved. The new company changed its name to Verizon Communications and became the largest in the US market. In 2017, the company ranked 18th in the Forbes ranking of the largest public companies with a capitalization of over $198 billion.

Mergers and acquisitions of companies provide ample opportunities for business to reach a fundamentally new level. However, such operations are characterized by a significant degree of complexity and high risks. This requires relevant knowledge, and the ability to provide effective protection of the enterprise from hostile takeover is an integral part of business competence in modern conditions.

Friendly merger or hostile takeover?

Little Red Riding Hood is walking through the forest. Suddenly jumps out towards her Grey Wolf, elegant such, in a business suit. He looked at her curiously and said:
- In the current conditions, I see only two possible options way out of the current situation.
- And what? - Little Red Riding Hood asks frightened.
“Either a friendly merger or a hostile takeover…

A long period of stagnation, as well as an unfavorable change in the economic situation, require commercial enterprise increasing efficiency, which ultimately determines the survival of a business in the market. One of the strategic ways to achieve competitive advantage is through mergers and acquisitions of companies (Mergers and Acquisitions, M&A). Such transactions provide an opportunity for the enterprise to step-by-step improve economic indicators business, effectively capitalize funds and much more.

In particular, the conclusion of a transaction for a merger or acquisition of a company in specific economic conditions more profitable than the reinvestment of profits, since it gives the company a number of significant advantages. At the same time, the main motive is not just business expansion, but obtaining the so-called synergistic effect. It is understood as the result of the interaction of several factors, exceeding the cumulative result that could be obtained from these factors, acting separately.

In business, synergy refers to the advantage of the joint activities of several enterprises compared to their separate activities.
Copeland T., Kohler T., Murrin J. "Company Value: Valuation and Management"

The constituent elements of motivation when concluding M&A transactions, which are determined by obtaining a synergistic effect, include:

operational motives aimed at improving the production process and sales of products, the current activities of the enterprise;
financial reasons, implying additional financial mechanisms to improve efficiency and ensure the functioning of the company;
investment motives due to an increase in investment opportunities and investment attractiveness of an economic entity;
strategic motives designed to ensure a more stable position of the business in the market.

Motives for concluding mergers and acquisitions of companies

However, as practice shows, sometimes it is not possible to achieve a synergistic effect based on the results of M&A. Approximately 60–80% of such transactions do not achieve the expected synergy effect. Moreover, in at least half of the cases, mergers and acquisitions of companies do not justify the costs that were incurred during their implementation.

That is why, when considering such an alternative for business development, it is important to have a complete understanding of M&A transactions: their types and stages of implementation, typical advantages and disadvantages, potential risks, positive and negative experience of such transactions, as well as the features of their legal regulation in domestic and foreign legislation.

Video: Konstantin Kontor on Mergers, Acquisitions and Corporate Governance

Main types of mergers and acquisitions of companies

There are various signs of classification of M&A transactions.

Classification of types of transactions for mergers and acquisitions of companies

M&A deals are effective tool to restructure the company, establish control over the company and its assets, protect against competitors, expand sales markets, reduce costs, but in their implementation there is the possibility of establishing a monopoly in the market. In Russia, as in other developed countries, a monopoly is prohibited, which is why, in order to limit the possibility of creating a monopoly using M&A transactions, there is a legal regulation of mergers and acquisitions.
Anna Gorokhova
http://web.snauka.ru/issues/2016/05/66935

Due to the fact that both domestic and foreign regulatory legal framework is largely built on the basis of the classification of M&A transactions by the nature of the integration of companies, its consideration is of the greatest practical interest. Based on this classification feature, the following types of mergers and acquisitions of companies are distinguished:

horizontal, which are associations of entities that carry out economic activities in one industry, produce products of the same kind or provide similar services, which leads to an increase in a controlled market share, monopolization;
vertical, consisting in the association of entities engaged in economic activities in various industries, but connected by a common market and / or production cycle, which opens up opportunities for the creation of vertically integrated corporations;
generic, resulting from the association of business entities that produce related goods (often complementary goods) or provide related services, which ensures greater stability in the market, including in the context of an economic crisis;
conglomerate, consisting in the association of business entities from industries that are not related to each other in any way, which leads to the formation of multi-industry complexes, an increase in the level of business diversification.

Most Russian mergers are, in essence, takeovers by a large company of smaller firms.

It should be pointed out the fundamental differences in the understanding of the concepts of mergers and acquisitions in domestic and foreign law enforcement practice. According to the current legislation of the Russian Federation, a merger implies the creation of a new business entity by transferring the rights and obligations of two or more business entities to it with the termination of the economic activities of the latter. At the same time, in accordance with international practice, it is believed that the merger is the result of a decision by two or more economic entities, most often of a comparable size, to carry out further activities in the form of a newly created united company. This can be more accurately described as a "fusion of equals".

In addition, the concept of absorption is completely absent in the domestic legal field. In part, it is replaced by the term accession, which is interpreted as the termination of the economic activity of one or more entities with the subsequent transfer of all rights and obligations to the economic entity to which they join. This is close to the foreign understanding of the term takeover, but the definitions are not completely interchangeable. In particular, according to international practice, a takeover also takes place if one of the companies establishes control over another, positioning itself as its new owner.

In the practice of implementing mergers and acquisitions of companies by participants and researchers, depending on the depth of elaboration of the solution, a different number of stages are distinguished.

The main stages of the implementation of mergers and acquisitions of companies

In general, you can use the following approach.

Definition of corporate strategy

The stage involves evaluation and selection better way implementation of the business strategy. The M&A plan should be formed on the basis of the strategic plan of the corporation, that is, an organic combination of the mergers and acquisitions plan with the company's goals is the main condition for success.

Selection of a qualified team

The working group for the transaction often includes auditors, investment financiers, HR and business consultants, specialized lawyers, PR managers and other specialists, and, importantly, insiders. The purpose of creating such working group is a comprehensive analysis of the M&A process.

Determining the results of the transaction

Without identifying success criteria for a merger or acquisition transaction, business owners and management will not be able to assess whether the required results have been achieved in the end. Most often, indicators are set that characterize competitive advantages(new or aimed at strengthening existing ones). The rate of return on invested capital is used as the main of these parameters.

The main goal of M&A transactions is the growth of the main indicators of the company's activity: gross profit, profitability, rate of return on invested capital

Determination of eligibility criteria for the target company

To identify the required target company, the buyer first dictates the basic search parameters. At the same time, as a rule, preference is given not to the leading enterprise of a particular market segment, but not to an outsider either. This is due to the fact that a very significant price will have to be paid for a leading company, and it is unprofitable to pull a weak enterprise to the level of a satisfactorily functioning one. That's why the best option classically is the second or third company in terms of efficiency in the market segment of interest.

Target company search

According to the established criteria, the search is carried out both by the buyer itself and through industry contacts or with the involvement of intermediaries, which is more widespread abroad. The decision to start negotiations in any case is made by the buyer company.

Negotiations with the target company

The mutual provision of information about intentions by the parties is implied, and even before the start of the dialogue, the formats for presenting information about both the target company and the acquiring company are agreed. At this stage, it is also common to involve intermediaries.

Negotiations with representatives of the target company should be conducted by professionals: only then will they be successful

Target firm analysis

The implementation of a multilateral assessment of the acquired company, including operational, financial, environmental, legal audits, analysis of strategic aspects of the activity and its risks, identification of synergies, and so on, characterize this stage. Based on the results of such an analysis, the buyer decides whether to conclude a transaction or continue the search.

Implementation of the transaction

Legal registration of an M&A transaction is an important phase, which is preceded not only by an agreement on its terms with target company, but also obtaining the appropriate permission from the authorized state or local authority.

Firm integration

It consists in forming the structure of the merged company, determining the personnel composition, decision-making procedures, as well as solidarity corporate cultures, logistics and production processes, other aspects of activity.

Evaluation of the results of the transaction

The assessment is carried out on the basis of previously selected target indicators and allows you to assess the success of the implementation of the corporate strategy or make the necessary adjustments.

The results of the M&A transaction must be discussed at a meeting with the participation of the company's shareholders and specialists who conducted the merger in order to soberly assess the results

Advantages, disadvantages and risks of mergers and acquisitions of companies

M&A transactions generally have typical advantages and disadvantages. And also they are characterized by a high level of risks with a very low probability of achieving a successful result, which determines this type of transactions as complex.

Benefits of M&A

The advantages of mergers and acquisitions are obvious:

the possibility of obtaining a breakthrough result in the short term;
capturing new industry and/or geographic market segments;
instant gaining a certain market share;
reducing competitive pressure;
prompt and comprehensive acquisition of strategic assets, including intellectual ones;
the probability of accepting undervalued assets on the balance sheet;
purchase of a well-functioning infrastructure for the supply of raw materials and marketing of products.

A well-executed business merger provides tangible benefits to all companies involved in the transaction.

Disadvantages of M&A

The cons of the deals speak for themselves:

significant financial costs, since in some cases there are payments of bonuses to shareholders, severance pay to staff and other types of compensation;
it is possible that there will be difficulties with the employees of the acquired enterprise after the conclusion of the transaction;
incompatibility of corporate cultures, which is especially important in the case of cross-border mergers;
the complexity of the merger process when companies operate in various fields;
significant risks, especially in case of errors in company valuation.

M&A risks

The dangers that lie in wait for a firm that has decided to merge are usually related to:

with the legal purity of the merging company and the implementation of its legal activities from the moment of creation until the moment of sale (does the seller own assets on legal basis and whether they are properly executed, whether the company was established in compliance with all legal requirements, whether the shares of the acquired company are properly issued, whether all licenses necessary for the implementation of activities have been obtained);
with the implementation of corporate procedures in accordance with founding documents(whether the seller has all the necessary approvals);
with the coordination of the transaction with the authorities (whether all agreements and permits are obtained, as well as the necessary notifications are sent to antimonopoly and other authorities);
with additional restrictions or obligations regarding the acquired assets in accordance with local laws.

Many M&A deals have failed due to a misjudgment of the risks involved in merging multiple companies.

Methods of protection against hostile takeover attempts

The outcome of corporate conflicts is determined long before they begin, and depends on how much each of the warring parties is informed and prepared for the conduct of hostilities. Moreover, the tasks of the opponents are completely opposite: for the aggressor - to seize control over someone else's business with minimal time and resources, for the defending side - to effectively repel the attack and keep the business for themselves.
Andrey Pushkin
http://www.germostroy.ru/art_953.php

The presence of one or more of the following main signs with a fairly high probability indicates that the company may be subject to a hostile takeover:

intensive collection of various kinds of information about the company;
the emergence of problems with state regulatory authorities, which is especially true for unscheduled inspections with the seizure of documents;
unexpected or multiple lawsuits;
atypical activity of minority shareholders;
active acquisition on the market by third-party agents of the company's shares;
examples of hostile takeovers of similar companies in an industry or region.

At the same time, corporate defense vulnerabilities include:

existing significant violations of the law in the activities of the enterprise;
the presence of unregistered property in accordance with the procedure established by the current legislation;
strong dispersal of shares among minority shareholders;
low level of business structure (no distribution of assets between legal entities);
poor quality of constituent documents.

There are preventive and operational methods of protection against hostile takeover attempts, where the advantage should be given to the first. These include:

monitoring the information environment surrounding the company;
ensuring the security of inside information;
legal audit;
improvement of constituent and other internal regulatory documentation;
restructuring;
consolidation of a block of shares;
security legal protection assets;
effective management of accounts payable;
elaboration conflict situations with employees, management and partners of the company.

Operational methods of protection against attempts of hostile absorption are characterized by a sufficient variety.

Groups of operational methods of protection against hostile takeover attempts

They can be combined into the following groups:

passive methods of protection, which consist in organizing the company's activities in such a way that its takeover is unprofitable for other market participants;
judicial methods of protection, in which attempts of aggressive behavior on the part of other players are promptly suppressed by appropriate lawsuits;
legal methods of protection, implying the improvement and increase in the efficiency of the applied legal schemes;
publicity - to scare off aggressors, a corporate conflict is brought to the mass media or members of the public are involved.

Major M&A deals

The largest M&A deal is the takeover of the German telecommunications company Mannesmann, which attempted to break into the UK market about two decades ago, after which the local company Vodafone Airtouch PLC was forced to acquire it. The amount of the transaction, closed in 2000, amounted to $183 billion. The value of the resulting corporation was estimated by experts at $342 billion, but in 2017, only 419th place was taken in the Forbes ranking of the largest public companies, Vodafone, and its capitalization amounted to slightly more than $67 billion.

The most failed M&A transaction, which amounted to $ 111 billion, is currently considered to be the merger of the largest media conglomerate Time Warner with the Internet giant AOL. It also took place in 2000. In the period immediately prior to its inception, Time Warner showed a profit of about $1.9 billion a year, and AOL - $1.2 billion a year. Due to the fact that the overheated dot-com bubble burst at the beginning of the new millennium, the company's assets rapidly lost value. In 2002, AOL Time Warner recorded a record loss in US history of $99 billion. This resulted in the separation of Time Warner and AOL at the end of 2009. Time Warner currently ranks 153rd in the Forbes ranking, with a capitalization of over $76 billion.

Table: TOP 10 largest M&A deals

Company 1	Company 2	The nature of the deal	Deal amount, billion $	Year	Industry
Vodafone Airtouch	Mannesmann	absorption	183	2000	telecommunications
AOL	Time Warner	merger	111	2000	telecommunications
Anheuser-Busch InBev	SABMiller	absorption	103	2016	food industry
RBS	ABN Amro	absorption	98,5	2007	financial sector
Pfizer	Warner Lambert	merger	90	2000	pharmaceuticals
AT&T	BellSouth	absorption	86	2006	telecommunications
Exxon	Mobile	merger	81	1999	fuel and energy complex
GlaxoWellcome	SmithKline	absorption	75,7	2000	pharmaceuticals
Travelers Group	citycorp	merger	70	1998	financial sector
Dell	EMC	absorption	67	2016	Information Technology

As of the first half of 2017, the M&A market in the world is characterized by a decline.

Statistics of mergers and acquisitions of companies in the world in 2016

At the same time, the domestic market for mergers and acquisitions of companies fully offset the slowdown in growth observed in recent years, and showed a tangible positive trend. The first half of 2017 was marked by a number of major transactions related to the Russian Alfa Group.

The Pamplona Capital Management investment fund, which manages, among other things, the money of the shareholders of the Russian Alfa Group, bought the American provider of services for pharmaceutical, medical and biotech companies Parexel for $5 billion, including debt. This is the largest transaction in the first half of 2017 and the largest transaction in the service sector in the history of the Russian M&A market.
Bulletin "Market of Mergers and Acquisitions"
http://mergers.akm.ru/

Pamplona Capital Management is proud to successfully close the largest services deal in the Russian market

A small "but" in the end...

Until recently, in Russia, when structuring M&A transactions, in most cases, offshore schemes were used for mergers and acquisitions of companies and the creation joint organizations.
Eurasian Law Journal
https://www.eurasialaw.ru/index.php?option=com_content&view=article&id=6084:2014–05–26–08–38–05&catid=151:2010–08–18–06–09–43

English law is deservedly considered the primary source of the mechanism for mergers and acquisitions of companies. Due to this, in the regulatory framework foreign countries the procedure for M&A transactions is more developed and verified. However, in recent years, the tendency of frequent use of the Russian right to domestic market. At the same time, there is an increase in the number of joint ventures established in accordance with the norms of the legislation of the Russian Federation.

To date, the following main regulatory legal acts governing mergers and acquisitions of companies are in force in the Russian Federation:

Civil Code of the Russian Federation of November 30, 1994 No. 51-FZ (Articles 57, 58);
Federal Law No. 135-FZ of July 26, 2006 “On Protection of Competition” (Chapter 7);
Federal Law No. 208-FZ of December 26, 1995 “On Joint Stock Companies” (Chapter 2, Articles 16, 17);
Federal Law No. 14-FZ of February 8, 1998 “On Limited Liability Companies” (Chapter 5, Articles 52, 53);
Federal Law No. 312-FZ of December 30, 2008 “On Amendments to Part One of the Civil Code of the Russian Federation and Certain Legislative Acts of the Russian Federation”.

At the same time, due to the specific features of domestic legislation, the choice of foreign law when executing M&A transactions is not always possible. At the same time, when making such transactions, the parties, giving preference to foreign law, are guided by its advantages, that they are provided with a wide choice of legal protection mechanisms to ensure the interests of the parties. Among them are mechanisms that have proven their effectiveness, such as warranties (guarantees), indemnities (guarantees of indemnification), representations (assurances). Unfortunately, there are currently no direct analogues of these mechanisms in the current legislation of the Russian Federation. Hope should be expressed for the further development of domestic regulatory legal framework governing economic relations in such an important area as mergers and acquisitions of companies.

The market for mergers and acquisitions of companies in connection with the stabilization of the economic situation in the Russian Federation is growing noticeably. Therefore, knowledge about such transactions, including the motives and consequences of their conclusion, types and stages of implementation, risks and methods of protection against hostile takeovers, as well as the peculiarities of domestic legislation, becomes a necessary business competence in modern conditions.

The world economy is moving steadily in the direction of globalization, and Russia is no exception. The leaders of various enterprises are making significant efforts to strengthen the capital of their structures. It is this fact that determines such processes as mergers and acquisitions of companies. Such a strategy can significantly increase the level of efficiency and bring the organization to new horizons of large business.

The essence of the process

Speaking very simply about this topic, we can imagine the merger procedure as follows: several separate and independent enterprises are combined into a single company. But in such a situation, one organization, as a rule, acts as the dominant one, since it has the most powerful capital and economic potential as a whole. It is from her that the initiative for the merger comes. At the same time, it is worth understanding the fact that the shareholders of those enterprises that took part in the merger retain their shares, only the name of the company changes, but not the amount of dividends.

It is also important to understand that processes such as mergers and acquisitions of companies have some differences.

When one company absorbs another, it redeems all shares or their main part from the shareholders of the organization merging into the main, dominant enterprise. This means that those who owned a certain share of the capital in the acquired structure lose it after the completion of the acquisition procedure.

Modern approach

Initially, as mentioned above, there are two key goals Mergers: Acquisition of new competitive advantages within a particular market and increase in shareholder wealth.

It should be understood that, no matter what joint stock company we are talking about, the algorithm of the company's development will inevitably come to the point when the need arises for an acquisition or merger. In today's market economy, without such a strategy, it will be extremely difficult to take a leading position among active competitors.

If the company is not yet ready for such drastic measures, then you can choose a different path. We are talking about the use of such internal methods as the introduction of new technologies, improving management efficiency, as well as the quality of labor organization. Modern business schemes can also be attributed to this category.

At the same time, external methods, which include the merger of companies, are quite popular in the segment of medium and large businesses.

Action strategy

There is a certain algorithm on the basis of which a successful takeover or merger procedure can be carried out. These are the following steps:

competent choice of the organizational form of the transaction;
necessary financial resources to conduct a full-fledged procedure for connecting companies;
conducting the transaction in such a way that it does not violate any requirements of the antimonopoly law;
if it was decided to start the process of merging companies, then it is necessary to determine as soon as possible who will occupy a key leadership position;
it will also require the most effective inclusion of both top and middle management specialists in the process.

If you thoroughly approach the implementation of these steps, then the merger procedure will be painless.

When takeover is most relevant

It makes sense to touch in more detail on the main motives for launching such processes. You can start with the situation when a particular firm needs a significant reduction in the risks that are possible within the framework of its core business. To do this, a merger of two or more companies can be carried out, moreover, from different market segments. The merger or acquisition of several enterprises makes it possible to produce different kinds products, while using in the process of marketing finished goods or raw materials such a tool as geographic diversification. This strategy allows the main company to significantly expand the scope of its presence.

An actual merger of companies may be in the event that the company reconsiders the priority of key activities. At this stage, new relevant production areas may appear, replacing the old ones that have become unprofitable.

Finally, a takeover can be a good strategy for a company that is doing well in a particular industry but still needs to strengthen its own position to gain the desired competitive advantage. In this case, the merger is made with organizations operating in the same segment as the acquiring company.

Types of company mergers

There are many forms that the merging of several organizations into one can take. The same can be said about absorption. Here are the most common ones. They will be discussed.

First, it makes sense to mention conglomerate and generic mergers.

The first type characterizes this type of association, in which companies that do not have any commonality on a production basis merge. That is, we are talking about enterprises from completely different industries. This means the absence of any connection (competition, consumption and supply of goods).

When structures without technological and target unity are combined in a conglomerate format, this often leads to the abolition of the main activity of the integrating enterprise. Instead of a key profile, many equal directions of production appear.

A generic merger of companies looks somewhat different. In this case, it should be understood that we are talking about enterprises that produce interconnected commodity groups. An example is the merger of a company producing mobile gadgets with an enterprise specializing in digital technology as such.

When management disagrees

Another group of mergers, defined in relation to the transaction of managerial personnel, is friendly and hostile associations. In the first case, the initiative of such a process is supported by both the heads of organizations and the shareholders of both enterprises.

But the hostile form implies that the planned transaction does not receive the approval of the leadership of the structure that should be absorbed. As a result, certain anti-seizure measures can be taken. With such a reaction, the owners of the initiating company begin an aggressive game in the securities market, aimed at absorbing the target.

National and transnational format

It is worth noting that sometimes the merger of companies can take place within the framework of the 50/50 principle. But the experience of many firms has shown that such a parity model of integration is extremely difficult to implement.

Now for the national merger. This term is used to define the combination of companies that are located in the same country.

The definition of transnational integration is used to describe the merger of enterprises located in different countries.

Vertical and horizontal type

This direction is determined depending on the nature of the merger.

The image of the vertical is used to describe integration, in which companies from different industries that have a common technological process release of the finished product. In other words, the firm initiating this process extends the subsequent production stages to the end consumer, or the previous ones up to work with sources of raw materials. An example is the integration of metallurgical, machine-building and mining enterprises.

The horizontal merger of companies is distinguished by the fact that the specifics of the activities of the structures completely coincide within the industry, the direction of production and its various stages, inclusive.

Association methods

If we take into account exactly the way in which the integration of companies is carried out, then two key areas can be distinguished:

Corporations. This type of merger is used when it is necessary to merge all the active firms that are involved in the transaction.
corporate alliances. In this case, we are talking about the takeover or merger of two or more companies whose activities are deployed within a specific type of business. Such a transaction allows, as a result, to obtain a synergistic effect only in the direction of this type of activity. As for other production areas or types of services, the dominant organization is engaged in them independently, without involving additional resources from outside. Separate structures can be created to organize alliances.

The most striking examples

Acquisition initially implies a procedure that should ultimately give the dominant company a significant competitive advantage. Nevertheless, there are also cases when the merger of sufficiently serious firms ends in failure.

Considering the largest mergers of companies, the first example is the 2001 acquisition of the AT&T division by the media conglomerate Comcast. This allowed the latter to take one of the leading positions in the United States in the cable television market. This process required quite serious expenses in the amount of 76.1 billion dollars. This strategy of buying out the selected company piecemeal has had a tangible positive effect.

Competent actions of Comcast led to the fact that at the same time there was a neutralization of the key competitor in the field of activity relevant to them and an increase in the quality of services provided by expanding the geography of the cable network.

To better understand what consequences a merger can generate, examples of the negative outcome of such a process should also be studied.

One of the most costly and unsuccessful was the merger of AOL and Time Warner Cable. More than $180 billion was allocated by AOL to conclude this deal. Initially, everything looked more than promising, but in the end, both companies dropped out of the list of leaders within their segment. As one of the key reasons for the collapse of the Internet giant AOL, experts cite the loss of financial flexibility after carrying out an excessively costly merger procedure.

Now we should return to successful transactions and pay attention to the merger of Mobil and Exxon. In principle, at first glance there is nothing interesting here. But if you delve a little into the history of these enterprises, you can find out that initially they were one entity, until 1911 being part of the Standard Oil Company, owned by John Rockefeller. The long-standing division occurred on the basis of an antitrust court verdict. As a result, the once fragmented capital united again, although only partially. But even this was enough to obtain powerful competitive advantages.

How are things in Russia

In the expanses of the CIS, the association large enterprises happens a little differently than in the Western market. If we try to highlight the most common format in which the merger of Russian companies is carried out, then it makes sense to pay attention to the integral form.

In the current crisis of non-payments, vertical associations provide one key advantage - to neutralize such a problem as receivables. With the help of such transactions, production tasks are also solved.

It is also important to note the fact that the merger of Russian companies in the vast majority of cases is markedly politicized. Such transactions are used within the interests of representatives local administration or more high levels authorities.

Merger Features

A surge in associations of various kinds in Russia was recorded throughout 2003, when it reached a total level of $22.9 billion. But in the following year, this figure dropped slightly.

When it comes to various kinds of mergers, the state often acts as the main player. Basically, the enterprises operating in the oil and gas sector, as well as in the segment of metallurgy, are taken into account.

As for the interests of foreign enterprises, they also choose representatives of the oil and gas industry for integration, but do not forget about the food sector.

What does a merger look like in Russia

As one of the clearest examples of the merger process in the CIS, one can cite the experience of such an enterprise as UMMC-Holding LLC. This company has consolidated 10 processing, non-ferrous and ferrous industries. On the this moment UMMC's sphere of direct influence includes the control of 22 companies located in 7 cities of the Russian Federation. This also includes the Litaskabelis plant operating in Lithuania (Panevėžys city).

The key goal for which numerous merger procedures have been initiated is to increase the company's market share. It was the integration that allowed UMMC to create additional production capacity. Also, investment risks were significantly reduced, since only those companies, whose functioning was verified by the real market, joined.

Results

In conditions modern economy mergers and acquisitions are current perspective dynamic development for many companies that have ambitions but lack sufficient capacity.

At the same time, it is worth mentioning that integration is a risky process. In case of unsuccessful forecasts, it is possible to suffer such financial losses, after which the enterprise will no longer be able to recover.

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Merger of companies: pros and cons of the operation

Types of company mergers: grounds for classification

Methods of merging companies in European practice and the practice of the Russian Federation

Merger process: 7 steps

Analysis of the effectiveness of mergers and acquisitions of companies

What can a company merger lead to?

The difference between takeovers and mergers

Acquisition of one company by another company

Merger

Synergy is the goal of acquisitions and mergers

Types of company mergers

Types of mergers by relations between companies

Friendly merger or hostile takeover?

Video: Konstantin Kontor on Mergers, Acquisitions and Corporate Governance

Main types of mergers and acquisitions of companies

Definition of corporate strategy

Selection of a qualified team

Determining the results of the transaction

Determination of eligibility criteria for the target company

Target company search

Negotiations with the target company

Target firm analysis

Implementation of the transaction

Firm integration

Evaluation of the results of the transaction

Advantages, disadvantages and risks of mergers and acquisitions of companies

Benefits of M&A

Disadvantages of M&A

M&A risks

Methods of protection against hostile takeover attempts

Major M&A deals

Table: TOP 10 largest M&A deals

A small "but" in the end...

The essence of the process

Modern approach

Action strategy

When takeover is most relevant

Types of company mergers

When management disagrees

National and transnational format

Vertical and horizontal type

Association methods

The most striking examples

How are things in Russia

Merger Features

What does a merger look like in Russia

Results

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