What are the key factors for the success or failure of M&A process and operation?

Editor's note: M&A is an important way for enterprises to achieve rapid growth. M&A is not a patent of large enterprises. Wanxiang, Wahaha, Dongsheng and other private enterprises have accumulated a lot of wealth in a short time through successful M&A during their growth, and have gradually grown from "workshop" small enterprises to large enterprise groups with assets exceeding 100 million in more than 20 years, and some even developed into leaders in their respective industries. Similarly, some enterprises are in trouble because of blind mergers and acquisitions and expansion, until they go bankrupt. According to professional statistics, about 60% M&A in the market failed to meet the initial expectations, and some even failed. The failure rate of M&A is so high that we have to consider what is the key factor that determines the success or failure of M&A? How can a successful merger be carried out? Therefore, in this issue, we specially invited a well-known expert in the field of M&A in China, General Manager Zhang Bin of Beijing Zheng Tie Consulting Company, to come to the case class, hoping to share with you the way of M&A and how M&A can effectively create sustainable value for the growth of enterprises through the analysis of Dongsheng's growth process. M&A is a double-edged sword for enterprises. However, the temptation and risk of M&A are irresistible to entrepreneurs. As the biggest venture capital of an enterprise, once M&A's chariot is started, only through detailed M&A planning, careful investigation and meticulous integration process can risks be controlled, so as to achieve synergy among M&A enterprises and create more enterprise value. 1. Corporate strategic mergers and acquisitions are not an independent event. Many mergers and acquisitions are doomed to fail from the beginning, because mergers and acquisitions are not linked to the strategic development of enterprises, or enterprises do not know why they merge. However, more often than not, the initial strategic starting point was distorted or forgotten in the process. M&A activities can help companies improve their capabilities and performance. But sometimes M&A activities will drag enterprises away from the original direction, and a cheap acquisition target may be the strategic planning cycle trap of enterprises, so M&A activities must be carried out under the overall strategy of enterprises. Strategic planning is based on the evaluation of the company's environment and the analysis of the company's resources and ability to cope with the environment. Dongsheng Group seized the development opportunity, established the competitive advantage of the industry through mergers and acquisitions, and achieved extraordinary development in a short time. In the process of merger and acquisition, the enterprise strategy is constantly clarified and long-term strategic planning suitable for enterprise development is explored. As an expansion strategy, M&A has the speed advantage of rapidly increasing enterprise capabilities, products and markets compared with stable internal growth. Because the company's capabilities and environment are constantly changing, this process will be repeated by enterprises. In this process, the debate on whether to use M&A strategy will also be a continuous cycle. 2. After the strategic analysis of M&A process, if M&A is considered as a necessary means to realize the company's strategy, it is necessary to make an M&A plan, collect information, select targets and design transactions. M&A has no fixed format and template, and different M&A objects and purposes need different ways. Dongsheng Group initially entered the high-tech pharmaceutical enterprises through the merger and acquisition of state-owned enterprises, and in 1999, it controlled the listed company Qinghai Tongren Aluminum Co., Ltd., carried out industrial replacement, injected the high-tech pharmaceutical industry, and established a capital platform, which laid the foundation for a series of mergers and acquisitions in the later period. 1.M&A team In the process of M&A in Dongsheng, M&A's goals include both pharmaceutical enterprises and non-pharmaceutical enterprises such as Tongren Aluminum. In such a cross-industry and cross-regional large M&A, Dongsheng Group not only attracts professional managers with foreign background with the help of external intellectual support. M&A involves many aspects such as strategy, finance, production, sales and human resources. Therefore, M&A risks can be reduced by multi-disciplinary M&A teams managing M&A activities. In addition to internal managers and professionals, you can take less detours with the help of external brains, and you can't expect to do everything yourself, which often leads to higher costs. These external supports usually include legal advisers, financial advisers, consulting companies and other intermediaries. 2. Making a planned acquisition plan is the "road map" to realize M&A.. In the acquisition plan, it is necessary to clarify the objectives of mergers and acquisitions and the methods to achieve them. Including determining who is the subject of the merger. Subsidiary or parent company? What standards should M&A's goals meet? How to pay? Generally speaking, it should include the following contents: 1) The criteria for determining the target of M&A include enterprise scale, price, profitability and geographical location. 2) Clarify the responsibilities and division of labor of M&A team, including external support; 3) Determine the possible sources of funds; 4) Design the payment form (cash, stock or bond); 5) Safety measures; 6) Determine the bottom line of negotiation; 7) M&A timetable; 3. There is no fixed pattern and requirement for finding the target and choosing the target enterprise. Buyers can choose according to their own enterprises and their own strength. Generally, it is necessary to consider whether the acquisition target matches the economic strength of the enterprise, whether it has the management ability of the acquired business, and how big the integration potential of the acquired target is after the acquisition. Compared with the acquisition of listed companies, it is more difficult for non-listed companies to find targets, and companies can be collected by special departments. Open Internet, newspapers and magazines are important sources of information collection. Customers, suppliers and competitors, consumers and company employees can also provide information. Professional intermediaries are often good consultants. Dongsheng Group used the power of many parties to find and choose the acquisition target, saving time and cost for the company's acquisition. 4. The asymmetry of due diligence information has caused the phenomenon of "the essence of buying is not selling", so an accurate and detailed due diligence is very important. Due diligence needs to include all aspects of business operations, including not only the asset status, but also management factors. Contingent liabilities, such as guarantees, are often ignored, and it takes a long time for enterprises to find themselves caught in the guarantee trap after the acquisition is completed, so these potential legal responsibilities must be clear. Due diligence can confirm whether the company has the potential for product improvement or promotion. You also need to consider the main aspects of the business. The merger of companies must be able to bridge the gap in management capabilities and expand capabilities. The company's resources should be expanded to many aspects. 5. There are many methods for M&A to evaluate enterprise value, such as cash flow discount method, comparable company analysis method, comparable transaction analysis method, book value, liquidation value and so on. The discounted cash flow method has a strong theoretical basis, so it is widely used. Comparable company analysis is mainly used to evaluate private enterprises. Comparable transaction analysis is usually used to evaluate listed companies. Generally speaking, there are many methods to evaluate the value of an enterprise, and then these results are comprehensively evaluated or weighted. There is often a certain gap between the assessed value of an enterprise and the actual transaction value. The same target enterprise may have different values for different acquirers, so the evaluation value is often a reference value. 6. Transaction structure The design of transaction structure is the essence of M&A, and the innovation of M&A is often reflected in the design of transaction structure. To design the transaction structure, we must first understand the tax impact of the merger on the company. It is also necessary to know whether the accounting treatment to be carried out has any substantial economic impact. There are two accounting methods for M&A transactions: purchase method and equity pool method. The purchase method refers to the joint accounting treatment of one company acquiring another company, that is, buying the assets of the merged enterprise at a certain price and bearing the corresponding liabilities of the merged enterprise. The equity joint venture method refers to the merger of two companies, and the shareholders of the two companies jointly control all or all of their net assets and operations, and share the risks and interests of the merged company. There are three payment methods: cash purchase, stock purchase and mixed purchase. Cash payment reduces the seller's uncertainty, but increases the tax impact. Using stocks to pay makes the seller's actual income depend on the operating performance, but the financial pressure is small and taxes are avoided. Mixed acquisition has the advantages of both methods. Dongsheng Group acquired Qianjiang Pharmaceutical in cash and jointly acquired with other enterprises. It not only avoids the risks brought by huge investment acquisition, but also reduces the difficulty of acquisition. 7. Negotiating and completing the transaction can determine the negotiation objectives and upper and lower limits of the acquisition. The value and transaction price of the target company are often different, depending on the negotiation process. There are many documents and materials about the negotiation, which provide some good methods for reference. Perhaps an acquisition has been unsuccessful after many confrontations, but the final transaction was decided in just a few minutes at the top of the company. This does not mean that we only need to eat the "last piece of cake", on the contrary, it is the result of full preparation. After the acquisition of listed companies is approved by shareholders, it must also be approved by the Securities and Exchange Commission. Involving the transfer of state-owned shares or assets must be approved by the State-owned Assets Management Committee. Third, the completion of the integration transaction is not the end of the merger, as the nurse told the new mother: the pain has just begun. To achieve the goal of M&A and increase the enterprise value, we must go through a difficult integration stage. If the M&A goal is not achieved because of unfavorable integration, then the cooked duck really flies away. It's a pity that this kind of thing often happens. Therefore, the integration stage is very important, which is the decisive factor for the success of M&A. A lot of activities need to be carried out in the integration stage, and systematic and strictly controlled project management is a common way to manage integration. According to the nature and importance of integration activities, the integration team makes the integration project plan and timetable. In the integration plan, the main activities to be completed, the departments and personnel to carry out these activities and the resources needed to carry out these activities must be specified. Detailed contingency plans should be made for emergencies in integration. In this process, the introduction of performance appraisal will often bring some unexpected gains. M&A integration generally includes the following aspects: development strategy integration, organization integration, asset integration, business integration and human resources integration. 1. The business ability and external environment of strategic integration enterprises are constantly developing and changing. Merger and acquisition has changed the operating environment and internal operation of the company, and timely strategic adjustment is the reflection of these changes. The original strategies of the two merged companies are based on the estimation and judgment before the merger, especially in some strategic acquisitions, the original strategies of the merged companies may be inconsistent with the strategic objectives of the merged companies, and strategic integration and adjustment are needed. 2. Organizational integration Due to the change of enterprise scale after the merger, the business has increased and the number of personnel has increased. Therefore, organizational integration is a process of reorganizing management structure. For mergers and acquisitions between some growth enterprises, the original organizational structure is usually functional and simple, which can not adapt to the sudden growth of the organizational system after mergers and acquisitions, so the organizational structure changes more dramatically. M-type organizational structure is a better choice. Organizational integration should be able to form a smooth network structure of logistics, capital flow and information flow within the enterprise, with clear rights and responsibilities between departments, which are both cooperative and mutually restrictive. Management system integration is another content of organizational integration. There will be many difficulties in implementing the new management system. We should adopt a step-by-step approach and gradually introduce and implement the management system of the acquirer's enterprise on the premise of deeply understanding the original enterprise management system. The integration of management system involves all aspects of enterprise management: financial accounting, marketing, personnel, equipment, materials and production management. 3. Asset integration Asset integration is not a simple addition of balance sheets. Asset integration needs to integrate and split the assets of both enterprises (mainly target enterprises). M&A enterprises should identify, absorb or divest their assets according to their own development strategies and goals. For assets that have not produced benefits for a long time, assets that are not suitable for the development strategy of the acquirer, redundant production administrative assets and other "chicken ribs" that are difficult to be effectively utilized, they should be divested and sold in time to avoid increasing the extra burden on enterprises. 4. Personnel integration Personnel integration is the most difficult of all integrations, especially for some high-tech companies, the most valuable part of the company may be the staff team. In the due diligence stage, key personnel information should be collected as an important reference for future decision-making. When the organizational structure of the new organization is determined, it becomes clear how many and what types of personnel are needed, and the staff can be decided to stay or not according to the performance during the transition period. Senior managers are often retained, which is conducive to maintaining the stability of management after the merger, but there may be a phenomenon that the retained senior managers do not fully accept the leadership of the acquirer. After the merger, the two companies still seem to be separated, which is one of the reasons for the failure of integration. Therefore, it is necessary to grasp the appointment and removal rights of senior personnel in time after the merger. After determining the top-level personnel, the next-level personnel will be selected until all positions are arranged. Therefore, it is very important to determine high-level positions and key personnel as soon as possible in order to achieve a smooth transition and consolidate the organizational structure. How to treat people who leave is also important. In a takeover case, a middle-level manager was told by the security guard not to touch or take anything from his office without any prior notice, and was "escorted" out of the company because he was no longer employed. The remaining employees witnessed all this, and a dozen executives left the company a year later. As far as possible, providing some help and compensation to employees who leave their jobs will have an important impact on the future ethics and culture of the enterprise. A company full of human feelings will help to build a competitive new company. 5. Business integration In horizontal mergers and acquisitions, the two sides have similarities in technology, production equipment, process flow and technical quality of employees, and integration is relatively easy. The production capacity and pattern should be rearranged and adjusted according to the strategic objectives, and the procurement business and sales business should also be integrated. Centralized procurement or unified sales can achieve scale effect. Dongsheng gives full play to the advantages of OTC sales channels in the process of merger and acquisition, and further promotes channel construction through merger and acquisition integration. Vertical mergers and acquisitions need to select businesses and products, and those that do not meet the strategic objectives should be divested. Many merged enterprises often suffer serious losses. Generally speaking, it is necessary to integrate products, cut off unprofitable product lines or varieties, increase investment in profitable product lines or varieties, adjust the product structure of enterprises and improve profitability. Dongsheng Group achieved explosive growth through mergers and acquisitions in a short period of more than ten years, especially in the eight years after 1996, and finally successfully entered the development ranks of large enterprise groups. In the development of Dongsheng, clear strategic objectives and excellent M&A control ability are the keys to the success of M&A strategy. Dongsheng's M&A development road shows that small and medium-sized private enterprises, especially the growing private enterprises that have entered the rapid development cycle, can also use M&A strategic tools to achieve extraordinary development. /Zhang Wen Bin