Deals in a big way: why the market of mergers and acquisitions is growing in Russia. What you need to know about mergers and acquisitions of companies (M&A)

Mergers and Acquisitions ( Mergers & Acquisitions, M&As) are transactions that, along with the transfer of ownership, primarily imply a change in control over the enterprise (Corporate control) . Consequently, the acquisition of minor, incl. oriented exclusively to obtaining speculative income, shareholdings by individuals and / or institutional investors (portfolio investment) does not apply to them.

The concept of absorption ( Acquisition) covers the acquisition of the entire enterprise, its individual parts, as well as strategic participation in capital (direct investment). Confluence ( Mergers) in turn represents a special form of absorption in which the acquired company loses its legal independence. Acquisitions are often referred to as acquisitions ( takeover), which can be carried out with the support of the management of the target company ( Friendly takeover) or contrary to his expressed wishes ( Hostile takeover). In the case when, during a merger, both participating enterprises lose their legal independence and become part of a new company, one often speaks of consolidation.

In a broad sense, mergers and acquisitions also mean the creation of strategic alliances with other companies and the separation of assets ( Divestitures). Most often, strategic alliances are created on the basis of mutual participation in capital, or with the establishment of joint ventures ( joint ventures) at the expense of contributions to a common subsidiary. The most common form of asset separation is the sale of an existing subsidiary to another company. Sometimes a part of the enterprise is separated separately as an independent company (“spun off”) and the shares of participation in it are proportionally distributed among the shareholders of the parent company ( Spin- Off). If at the same time we are talking about the liquidation of the entire parent company, they talk about crushing ( Split- Up). It is also possible to legally spin off a part of the enterprise by exchanging the shares of the parent company for the shares of the new company ( Split- Off). At the same time, the parent company can sell the shares of the spin-off company to a third party and thereby receive additional capital ( equityCarve-out).

The purchase of an enterprise is usually carried out by acquiring shares ( share Deal), which are offered either in exchange or over-the-counter trading. When buying legally non-independent shares, an alternative is the transfer of the relevant property items ( asset Deal). In contrast to the Share Deal, with an Asset Deal, there is a certain possibility to carry out a transaction without its approval by the general meeting of shareholders.

Currently, a significant number of major mergers and acquisitions are of an international nature and are therefore often carried out in accordance with international, mainly Anglo-Saxon customs. Let's consider the most important of them.

Organization of transactions

Mergers and acquisitions use various methods of company valuation, the contents of which are detailed in the relevant literature. But since often not all the information necessary and reliable for estimating the value of a company is available, valuation of a company is ultimately more of an art than a science (Garbage In - Garbage Out). In practice, several valuation methods are used in parallel and their results serve to determine the true value of the company.

In the Anglo-Saxon countries already long time A key element of the acquisition process is Due Diligence, which allows potential buyers to conduct a qualitative analysis of the acquired enterprise.

All those interested in buying during Due Diligence get access to a standardized set of data. In particular, within the framework of Due Diligence, as a rule, the following are provided:

• general information about the company: extract of registration, articles of association, information about managers, company structure, affiliated companies, etc.
• information about the property status and obligations of the company: a list of all tangible and intangible assets, information on existing short-, medium- and long-term obligations (indicating debtors and creditors, interest rates, payment terms), mutual obligations within the company, etc.
• financial statements: annual and quarterly balance sheets, income statement, audit report, etc.
• existing agreements with the staff and trade unions within the framework of labor legislation, pensions, etc.
• other contractual obligations and rights: contracts within the company, lease agreements, agreements with customers and suppliers, etc.
• information about possible legal processes (civil, labor, tax, administrative, etc.)

Verification of the reliability of the information provided as part of Due Diligence, as well as the validity of the estimated purchase price, is often carried out by the buyer with the involvement of various consultants.

As a rule, auditors and lawyers involved in the acquisition of a company are engaged in optimizing the legal and tax aspects of the transaction. An important policy decision in this regard is the choice between Share Deal and Asset Deal. When acquiring shares, the tax environment of the acquired company is usually preserved and therefore there are fewer opportunities for optimization than the direct purchase of a part of the property. With an Asset Deal, it is possible, for example, to exclude certain property and liabilities from the transaction, thereby reducing tax payments.

One of the advantages of Share Deals is that the management of the target company can be excluded from direct influence on the execution and execution of the transaction, and at the same time it is possible to avoid the influence of existing conflicts of interest between the owner and the management of the company. Thus, hostile takeovers occur, as a rule, in the form of a Share Deal, since they are directed directly against the interests of management. At the same time, there is a risk that the remaining minority shareholders may challenge the rights of the buyer, complicating the transaction.

In the US, financing of acquisitions (in particular, hostile ones) is often carried out by placing (selling) high-yield securities ( Quasi- equity, junk Bonds), while the degree of indebtedness of the enterprise increases significantly. So, one of the well-known methods of financing - Leveraged Buy Out (LBO) forces the management to a radical program of company restructuring ( Restructuring) necessary to ensure the ability to meet obligations on high interest payments by increasing the profitability of the business, thereby preventing a possible bankruptcy of the company. At the same time, the interests of employees, customers and suppliers are often taken into account to a lesser extent.

Mergers and acquisitions are currently one of the key aspects of the activities of investment companies and banks that provide advisory and other services in the field of corporate finance.

In addition, services for the organization of mergers and acquisitions are provided, along with investment banks, also by specialized departments of universal banks and consulting companies, as well as legal and specialized companies ( M& A- boutique). They usually represent the interests of one of the parties involved and provide support to the client at every stage of the process. In contrast, a number of companies (brokers) mediate between the parties involved and, as a rule, receive remuneration from each of the parties. Their efforts are concentrated mainly on establishing contacts and are limited in most cases to transactions of low value and of a local nature.

Due to legal restrictions on transactions using insider information, companies and banks are forced to separate consulting activities from their own and other market operations. As a result, M&A has developed a distinct corporate and industry culture.

Professional consultants have a detailed knowledge of national and international customs in the implementation of mergers and acquisitions, which allows them to organize and carry out the acquisition process more efficiently. As a rule, their activities include, along with strategic consulting (in particular, structuring the acquisition process, business valuation, collecting information about potential investors, negotiating, information support for clients), as well as the technical implementation of the transaction.

By engaging consultants, the parties involved seek to avoid unnecessary delay in transactions, adverse conditions the conclusion of the contract, possible risks of liability, as well as integration problems after the conclusion of the contract, which ultimately contributes to the maximization / minimization of the sale price / purchase price. In addition, the acquiree often engages consultants to implement safeguards ( Anti Raid), or to check the reasonableness of the proposed price.

Specialized M&A firms tend to succeed in the market through a certain industry or regional specialization, as well as through medium-sized transactions. In turn, specialized departments of universal commercial banks often provide such services to corporate clients as one of the elements of comprehensive services.

The consultants act as a partner of the company's management, providing them with support in managing the process of acquiring/selling a business using their expert knowledge regarding technical implementation transactions and industry specifics.

The quality of the consultant is determined by his ability to determine the best conditions for the implementation of the transaction. The so-called Closing competence is also essential, i.e. the ability at a decisive moment to push the client to the actual transaction. The successful execution of an M&A requires, in addition to strategic competence and technical knowledge of the details of the process, the ability to engage various specialists (lawyers, auditors, etc.) to optimize the legal and tax aspects of the transaction.

The selection of a consultant is carried out through careful selection ( Beauty Contest). All applicants, as a rule, receive a standardized information package about the planned transaction with an offer to present (present) the company for participation in the competition. The assessment of the attractiveness of a particular company as a consultant in a planned transaction is carried out on the basis of a discussion of the following aspects:

• Project plan: a step-by-step description of the transaction with the timing of each stage, the participation (involvement) of the company's employees and the presence of the project team on site.
• Transaction partner: selection of possible applicants for the implementation of the transaction, possible motives for the acquisition and, accordingly, sale, registration of the process.
• FROM project team specifics: the composition and availability of the necessary experience among employees (knowledge of the industry, the ability to perform tasks), recommendations ( track record), the possibility of attracting additional experts (lawyers, management experts, etc.).
• The amount of the fee .

The execution of the contract for the provision of consulting services is carried out after the company has been given the appropriate order ( Engagement Letter) to participate in the transaction.

The consultant's remuneration usually consists of a fee, the amount of which depends on the success of the transaction ("success fee"). So, for example, by the acquired companies, it is set as a certain percentage of the income from the sale. In the event that the transaction has a relatively small value, as a rule, the minimum amount of the fee for its successful implementation is stipulated ( Minimum success Fee). Acquisition companies often provide financial incentives when hiring consultants to pay a lower purchase price, such as a percentage refund of the difference between the maximum expected price paid and the price actually paid. It should be noted that previously the Lehman scale ( Lehman), establishing the 5-4-3-2-1 rule. Thus, the amount of remuneration is 5% for the first million, 4% for the second million, 3% for the third million, 2% for the fourth million and 1% for the rest of the purchase price. Currently, this rule is at least used as a starting point in fee negotiations. At the same time, the fee for large transactions in emerging markets ( Emerging markets) is often accompanied by higher rewards, while smaller trades in established markets may be valued lower.

Along with the size of the transaction, the size of the fee is also influenced by a number of other factors, such as the complexity of the transaction, the expected duration of the merger, the reputation of the consultant and the overall profitability of the project.

In addition to the fee, the amount of the advance payment is negotiated ( Retainer Fee), which is credited upon successful completion of the transaction towards the fee, as well as additional expenses (travel expenses, information support costs, etc.) are reimbursed. In some cases, the amount of compensation (commission) is stipulated in the event of (early) refusal to complete the project by the client or the opposite party (usually hourly compensation).

Creating value

The growth of the company's value largely implies the presence of a value-oriented management of the corporate investment portfolio, incl. when acquiring and selling, both from tangible and intangible assets. In this regard, mergers and acquisitions are not in themselves the ultimate goal of transformation, they are always only a means to an end.

The assessment of a proposed M&A begins with a detailed analysis of the competitive environment. It is produced either by our own design team or with the assistance of a consultant.

At the same time, the increase in the value of the company, as well as potential threats to its reduction, are both on the active and passive side of the company's balance sheet.

In the asset balance of the enterprise, the following points and factors are of the greatest importance, in particular:

• The geographic and product-related size of markets (which determines, among other things, the possibility of the emergence or availability of substitute products and the degree of substitutability, i.e. price and cross elasticity of demand);
• Maturity of the product range and customer preferences;
• Competitors' capacity and product mix expansion potentials (short-term and long-term price elasticity of supply), as well as other competitive strengths and weaknesses;
• Existence of entry barriers in the relevant market;
• Competitive and supply conditions in factor markets, as well as costs associated with barriers to exit the market;
• Legislative and other (including political) restrictions on the market activities of the enterprise (competitive policy, administrative interference, etc.).

On the passive side of the balance sheet of the enterprise, it is necessary to take into account, in particular, the following factors:

• The impact of capital costs and the possibility of changing the structure of capital;
• The profitability of the company and the risk of its bankruptcy;
• Future tax liabilities;
• Advantages and disadvantages of the methods of financing used;
• Access to financial markets.

Acquisitions in general can be based on both economic and financial motives. Financial benefits can indirectly help reduce capital costs, increase future Net-Cash Flows, and increase company value. Among the economic incentives, the main one is the synergy effect, as well as a number of other potential opportunities, including:

• Achieving economies of scale and, accordingly, reducing fixed costs (Economies of Scale);
• Reducing costs by expanding the range of products (Economies of Scope) or integrating production activities along the value chain (Economies of Vertical Integration).
• Advantages of specialization and cost reduction effects in the operational or administrative sphere;
• Obtaining new sales channels for products and providing access to untapped (new) markets and technologies;
• Increasing control over the market, increasing market share - taking into account possible negative political and legislative consequences that limit the exercise of market power (for example, restrictions on competition);
• Increasing market entry barriers for potential competitors by creating excess capacity, additional product differentiation, etc.;
• Improving the quality of management in the acquired (target) enterprise.

It should be noted that the economic benefits of an acquisition often go hand in hand with performance losses due to the difficulty of integrating various corporate cultures. In addition, with the complication of the combined structure, there is an increase in the administrative apparatus, bureaucratization and a decrease in the business activity of individual units.

The main prerequisite for the implementation of mergers and acquisitions is ultimately a different valuation of the object by the buyer and the seller. Sometimes this is due solely to an erroneous assessment. In the longer term, the feasibility of the transaction is related to the assumption that the buyer can better realize the economic and financial growth potentials of the company's value. At the same time, various empirical studies show that the shareholders of acquired enterprises, as a rule, have more benefits from the transaction, while the buyer in the long run often cannot significantly improve its profitability. This can be explained, for example, by the fact that the seller is often able to appropriate possible value gains in price negotiations.

The buyer and the acquiree may operate in the same market ( horizontal merger), on the different stages value added ( vertical) or in unrelated markets ( conglomerate e). Directly economic advantages prevail in horizontal and vertical mergers, while in conglomerate transactions they are often justified by financial advantages. International transactions (foreign direct investment) are characterized by relatively higher current costs ( Managing ata Distance) and often lead to increased competition, restructuring of enterprises located on the local market.

The growth potential of the company's value can be associated either with organic development through investments (internal growth) or through acquisitions (external growth). The attractiveness of the acquisition increases with the complexity of the company's competitive advantages ( Competitive advantage).

Acquisitions often require a shorter period of time to develop new products and therefore enter new markets, and are often associated with lower business risk. However, as already noted, integration problems can lead to smaller increases in value compared to organic growth in the medium and long term.

The Mergers and Acquisitions Process from a Seller's Perspective

Consider some of the most important stages of mergers and acquisitions.

The seller is interested in maximizing the proceeds from the sale of the business and therefore has an incentive to set future Cash Flows too high. In this regard, the role of the consultant in the preparation of the transaction is to verify the reliability (Due Diligence) of various company data (balance sheet, income statement, planned Cash Flow) and bring them in line with reality. In addition, the consultant is engaged in ensuring the availability of information about the offer to sell the business to third parties. It is important that the information provided about the company being sold does not contradict other information about the company's market position and strategy. The consultant then determines the value of the company, which is taken into account by the client when calculating the potential synergy (Synergy) and serves as the basis for future negotiations on the total cost of the transaction.

In practice, the consultant draws up an agreement with the client in such a way that the risk of liability for errors or unsatisfactory results in the preparation of the transaction in many cases is transferred to the seller. This, of course, contributes to improving the quality of information provided by the client.

The consultant then develops, in collaboration with the client, an information memorandum (in industry jargon, Equity Story), which contains key balance sheet items and a description of the company's market position, its strategic advantages, as well as possible business directions for potential buyers. The central quality criteria are the reliability, completeness and persuasiveness of information, incl. performance possible scenarios company development.

The goal of the client is to identify and notify the group of potential buyers as fully as possible. Therefore, when identifying possible interested parties in the purchase, the consultant uses a wide range professional sources of information, including various databases, trade publications, exhibitions, reference agencies and the Internet.

The consultant prepares an initial list of potential buyers (the so-called Long List), incl. their profile is compiled, financial opportunities for investing capital, strategic compatibility are assessed, and other important criteria are taken into account for each specific transaction, depending on the volume of this list of companies. Then, together with the client, they are classified into groups using certain selected criteria, the most attractive companies are entered in a separate list (Short List). At the same time, it is advisable to focus on the potential for realizing synergy, since this will contribute to achieving a higher sale price of the business in subsequent negotiations.

Selected potential buyers are sent an offer with anonymized key data of the company being sold (so-called short profile) to determine their possible interest in acquiring the company.

If the answer is positive, the companies interested in buying receive an information memorandum. Previously, they sign a Confidentiality Agreement, which stipulates the obligation of the parties not to disclose information received as part of the negotiation process. So, for example, it is stipulated that in the event of an early termination of negotiations, it is necessary to return or destroy all received documents.

After receiving the information memorandum, potential buyers are offered to submit their proposals (without obligations) for the transaction within a certain period of time, on the basis of which the seller preliminarily determines the most attractive candidates. At the same time, the seller must ensure that competition between potential buyers and, accordingly, the proposed purchase price of the company does not decrease.

At the next stage, potential buyers get the opportunity to study the company in more detail (Due Diligence), incl. an inspection of the enterprise is carried out, a meeting with the management is organized, and they are also provided with a room (Data Room) with access to actual (legal, financial and other) information about the enterprise.

The volume and quality of the information provided by the seller at this stage, of course, is essential, since hiding important information by him, as a rule, is perceived negatively and reduces the interest of buyers in the transaction. On the other hand, high transparency can lead to accessibility important information competitors.

After due diligence is completed, potential buyers refine and resubmit their proposals for the deal, which serve as the initial basis for further negotiations. As a rule, a closed auction (Sealed Bid Auction) is organized, while the received applications are not publicly disclosed, the number of buyers and the degree of competition between them at the end of the auction is also not announced by the seller. The seller reports the highest offer, then a new auction is held. As a rule, this form of trading helps to improve the buyers' previous offer, corresponding to the seller's idea of ​​the level (or higher) of the minimum transaction price.

As a result of the auction, the seller chooses the best offer and undertakes to suspend negotiations with other buyers. In addition, it is possible that a potential buyer establishes an attractive offer of the offer already during the auction (Preferred Bidder). If from the very beginning the possibility of competition with other buyers for a better offer (Preemptive Bid) is excluded, the seller proceeds directly to the final stage of the transaction.

A potential seller at the final stage of the transaction, as a rule, instructs his auditors and lawyers to conduct further Due Diligence in order to double-check the information received earlier, which constitutes the basis for the final contract of sale. At the same time, relevant information is analyzed in comparison with the data of the first Due Diligence, and a description of the financial and economic situation of the acquired enterprise is given. Potential buyer during this period retains free access to all intra-company information.

Both contracting parties discuss in this phase all relevant details of the transaction.

The final price may differ significantly from that stipulated in the preliminary contract if the repeated Due Diligence reveals new significant data about the object of sale.

Completion of the transaction (Closing M&A Deals) is associated with the payment of the agreed price. At the same time, the contracting parties may sign a number of additional agreements at the conclusion of the contract, which, for example, provide for the restriction of competition between companies, in particular, it is forbidden for the seller to operate in the same industry for a certain period or it is not allowed to poach employees of the sold enterprise. At the same time, buyers seek to exclude the leakage of important information to competitors.

In conclusion, it should be noted that the distribution of risks in mergers and acquisitions can be adjusted by including various obligations in the contract, incl. provision of guarantees in favor of the buyer. As a result, the end result of the transaction may significantly worsen the position of the seller and in this regard, a distinction is made between the sale price specified in the contract and de facto paid by the buyer.

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, the Gray Wolf jumps out to meet her, elegant, in a business suit. He looked at her curiously and said:

- In the current conditions, I see only two possible ways out of this 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 a commercial enterprise to increase 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 the enterprise with the opportunity to improve the economic performance of the business in leaps and bounds, 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 means benefit from joint activities several enterprises compared to their disparate 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 transactions are an effective tool for restructuring a company, establishing control over a company and its assets, protecting against competitors, expanding sales markets, reducing 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 creating vertically integrated corporations;
• generic, resulting from the union of subjects economic activity that produce related goods (often complementary goods) or provide related services, which ensures greater stability in the market, including in times of 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 current legislation Russian Federation, the 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 activity 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 business 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, different quantity stages.

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 a 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. Therefore, the best option is classically the second or third enterprise 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 stipulated. 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

Carrying out a multilateral assessment of the acquired company, including operational, financial, environmental, due diligence, analysis of strategic aspects of 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 the target company, but also by obtaining the appropriate permission from the authorized state or local authority.

Firm integration

It consists in forming the structure of the united company, determining the personnel composition, decision-making procedures, as well as solidarizing corporate cultures, logistics and production processes, and 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 cleanliness of the company being acquired and its legal activities from the moment of creation until the moment of sale (does the seller legally own the assets and are they properly registered, is the company established in compliance with all legal requirements, are the shares of the acquired company properly issued, are all necessary licenses for carrying out activities);
• with the implementation of corporate procedures in accordance with the constituent 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 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;
• ensuring legal protection of 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 transaction 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

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 last 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 investment fund Pamplona Capital Management, 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 of 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 of foreign countries, the procedure for M&A transactions is more developed and verified. However, in recent years, the trend of frequent use of Russian law in the domestic market has shown itself. 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. It is to be hoped that further development domestic 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 of 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.

M&A in translation from English means "mergers and acquisitions" ("mergers and acquisitions"). The largest M&A market is concentrated in Western countries, in particular in the USA. In Russia, the civilized M&A market is in its infancy. Nevertheless, in the short term, the M&A market is able to gain significant momentum in Russia, which will allow ordinary traders to earn additional profit.

So what is the M&A market and how did it come about?

Actually, the practice of mergers and acquisitions has been established for a long time - companies have merged with each other or absorbed smaller competitors throughout the entire time. The M&A market reached its peak in the 80s of the 20th century in the United States due to the widespread use of "junk bonds" (junk bonds), i.e. bonds with a low credit rating and high interest income.

The mechanism for using junk bonds was quite simple: the company issued a large number of junk bonds and bought the target company with the proceeds. The cash flow received from the acquired company usually covered the interest payments on the bonds, and the companies continued this practice, which ultimately led to truly gigantic transactions and soaring stock indices.

Mergers and Acquisitions

Mergers and acquisitions of companies occur in three main areas

horizontal merging.

A horizontal merger occurs among companies in the same industry. Let's say two oil companies decided to unite. This will lead to some savings, for example, duplicating positions will be reduced, production capacities will be better used, and excess ones can be sold, etc. Thus, the efficiency of the merged company will be higher than the total efficiency of the companies before the merger. Such saving of the company's resources will lead to an increase in profits, and, most importantly for shareholders, to an increase in the value of shares. In the above example, a horizontal merge makes sense, because both companies have benefited - costs have been reduced and profits have risen.

vertical merging.

A vertical merger occurs when companies in the same industry are merged, but they specialize in different processes. For example, two oil companies merge. One of them is engaged in the extraction and processing of oil, and the other specializes in the transportation and sale of petroleum products. The merger will result in a vertically integrated company with a full cycle of production and sale of petroleum products. As a result, the efficiency of the new company will increase - the marketing and production of petroleum products is now controlled by one company, so now there will be no failures in the marketing and supply of petroleum products. And this guarantees the success of the new company and the price of its shares will only increase from this.

formation of a conglomerate.

The formation of a conglomerate leads to the merger of companies in different industries. For example, a steel company buys a banking business. Such a merger is capable of diversifying the risks of a metallurgical company, since if demand for metal falls, the demand for banking services will not be affected and the company will be able to receive cash flow from its banking business.

What are the reasons for mergers and acquisitions? main reason mergers is getting the so-called "synergy effect". The effectiveness of mergers and acquisitions can be understood with a simple example: Company A merges with Company B; as a result, the new company AB, due to increased efficiency, is now worth more than the total cost of companies A and B. Simply put, in this case, 1 + 1 = 3, not 2.

How is the synergistic effect achieved? If two companies decide to merge, then most likely they plan to increase their efficiency by:

• reduction of operating costs;
• greater purchasing power (known fact - than larger size contract, the greater the discount provided by the supplier);
• tax incentives (especially if one of the companies has such a resource);
• lower rates when attracting loans (for example, one of the companies has a good credit history);
• a stronger trademark (one of the companies paid great attention to brand development);
• creating a full cycle of production and sale of a product or service, which will reduce costs and increase the turnover rate of manufactured goods (you must admit that you can sell gasoline faster and cheaper at your own gas stations than at someone else's).

Of course, not all acquired companies and their management benefit from takeovers. To prevent a takeover of a company, the management of the acquired companies takes a number of defensive actions, most of which are aimed at a sharp increase in the value of the target company, which can make the transaction itself unprofitable, especially if it is a takeover for borrowed funds.

The main benefit for the state and owners is brought only by large, international companies and projects. How more company, the more profitable it is, which means that the expansion of a successful company is part of the standard development process. If you are an ambitious leader of the company, then you need to be ready to enter into M&A deals.

What is M&A and what are their features?

An M&A deal is one of the most popular types of business deals. The abbreviation stands for "mergers and acquisitions", which means merger and acquisition.

M&A is a set of tasks that are aimed at smoothly merging one company with another or several enterprises into one. Such transactions can be signed for a wide variety of purposes - in order to increase an existing company, open new branches in other cities or countries, it is better to optimize production. Most often, this helps to solve such a problem as a poor system for delivering the product to the consumer, for example, when increasing the volume of production of goods.

M&A are of several types:

• Horizontal. These types of mergers and acquisitions occur between businesses that produce the same products. This task is carried out in order to increase the volume of production and sale of goods in new territories. Often this task will be performed in order to “force out” regional competitors in the market, which may eventually develop into a larger firm. For example, a large chain of stores operates in several regions of Kyiv. They sell sporting goods, but to expand their business they buy a large store from another company. After that, the company changes the sign, introduces new work standards, rebrands and launches the same store with the same product (or supplements the range with its own products). Thus, the company does not have to open from scratch, search for clients and search for its niche in the market.
• vertical. The process of acquisition and merger, in which firms with a similar field of activity, but not the same, participate. For example, a dairy company decides to buy a milk packaging plant. This will be beneficial for the firm, because it will not have to depend on deliveries and suppliers. In addition, it will be possible to reduce the cost of the final product, because the cost of goods will be less.
• Parallel. Absorption occurs between firms that are engaged in the same process in different places. For example, a coal mining company, as well as a related enterprise for its enrichment. This will also simplify the procedure as much as possible and will reduce the cost of the goods.
• conglomerates is a network of companies that deal with a wide variety of goods and services. Most of the time they are completely unrelated. Examples would be the organizations of Elon Musk or Richard Branson. In one firm, under the leadership of one person, there are several companies - charitable centers, marketing agencies, jet aircraft factories, and more. This is very convenient, because in the event of the closure of one enterprise, the main company will not suffer significant losses, but will remain on the market.

How to avoid mistakes during M&A transactions?

If you execute an M&A transaction without proper preparation or insufficient control over the process, then the merger can bring you a huge number of problems. To get the most benefit, small mistakes must be avoided.

1. Team reaction. Naturally, after buying another company, the manager may face a negative reaction from the team. They may not understand or accept the new management system or support your firm's policies. Do not ignore the problem, because employees can do their job poorly, and you will notice the result only after a few months, when the losses exceed the income. Use different ways of communicating with the team - psychological approaches, retraining of specialists, and even dismissal of those who cannot do their job.
2. Understanding business fundamentals. The leaders of large companies today will not be able to fully function in the market without a minimum understanding of the business. And if you start making deals without this knowledge, this will lead to the fact that potential partners can make the contract more profitable for themselves.
3. The question of the purchased brand after the merger. Often one firm buys another, which is more popular and has a “loud” brand. Then you have to make a decision - leave it or replace it with your own. If you are doing a horizontal merger method, then it would be better to replace the company name with your own, and vice versa in a vertical one. In the second option, you were not competitors, and the area of ​​work of another enterprise is slightly different, so most likely it already has a certain reputation and regular customers.

An M&A deal is a great opportunity to expand your company, get partners and increase the scope of your business.

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

The economic theory and regulatory framework of the 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 transfer act (clause 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, prerequisite 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, 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 objects 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% 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:

1. 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.
2. 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 the 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 acquire 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 in financial results 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;
• the purchase of working capital at a previously underestimated value is probable.

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 union carried out by this procedure, differentiate the types of mergers.

1. Horizontal merger - the 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 of the production process;
2. 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.
3. Generic association - productions working on an interconnected product merge. An example of such a merger would be when the production mobile devices connects with a software company or cell phone accessory manufacturer.
4. 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:
5. 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.
6. 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.
7. 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).

AT recent times 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 the face 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 for stock market 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. Bright to that an example is the trend towards mergers and acquisitions in America of large corporations. Conversely, in the European part of the world, target companies are most often firms organizing a small family business or small joint-stock companies of one sector of the market.

• “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.

The restructuring of 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 of securities with payment in cash or purchase of securities with payment with 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 of organizational form of a merger or acquisition;
• 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 through joint activities and, as a result, to obtain greater profits. When planning this type of restructuring, the most important tasks will be to establish the type of transaction, the ultimate goal and develop a strategy.

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 type of company restructuring 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 federal law dated July 26, 2006 No. 135-FZ “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 the strategic goals of the 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.

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

This measure and its legal execution is 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 the 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 companies being reorganized, 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.

1. 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).
2. 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 deal.

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 is manifested in the active poaching of the best personnel of a vulnerable society to their staff. Often they are guaranteed wages 30-50% above the 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: the branches of the merging companies were located in different cities‒ from St. Petersburg to Yuzhno-Sakhalinsk. An excellent solution for us was the holding of general meetings with their obligatory 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 opportunity 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:

1. A study of the sphere of unification. The first step will be the analysis of the market sphere chosen for the merger or acquisition: 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 authorities and scientific and technical research, analysis of the dynamics of demand and suggestions regarding the chosen structure. When evaluating a selected company, the first thing to do is examine its existing assets and liabilities.
2. 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.
3. 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:

1. 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.
2. Appeal to agents involved in the sale of operating companies. Intermediaries can be both brokerage companies and investment banking structures. When choosing this path to find the right company, it is important to remember that a large number of companies 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 are taken into account.

1. 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.
2. 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.
3. Valuation of the target company. When companies merge, the value of the target company is formed by the following characteristics: internal resources(calculation of cash flow in the context of a merger or acquisition) and external (average market prices, comparative assessment of such transactions). After determining the financial side of 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).
4. Checking the target company for reliability (due diligence). Information received 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 the process of merging different economic units brings with it 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 authority is 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 contingency costs 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 value not from the fact that the merger of companies had a positive impact on the business, but from the fact that the real future increase in the capital of the target company is overestimated. 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.

The 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.

Analysis of the synergistic effect and its determination numerical value‒ one of the most difficult tasks when studying the results of a union.

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 condition for the purchase 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 company being acquired.

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 in relation to 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 sale of a really good company increases the demand for it, 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 the results of their economic activities. 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 concluded that 57% of companies transformed by mergers or acquisitions perform worse than similar companies in the same field of activity. 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 an assumption of an underestimated level of costs associated with an increase in the production capacity of the acquired company or with the warranty obligations of a previously released defective product. In the event of a production merger by another acquiring company, an assessment is made of the impact that the acquired production has on the environment. It is most likely that 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 value of many organizations is directly affected by the quality of 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 the career ladder of employees, and the policy of distributing finances is changing. All this affects 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 situation can only be saved by complete satisfaction with the new position of the former owner and the teamwork 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 fact that the shareholders of the target companies receive the greatest benefits compared to the profits of the owners of the acquiring firm 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 synergy, the owners of each company will get 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 that with each new buyer, the offers to the shareholders of the companies being bought get better and better. 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.

The modern economy sometimes regards the merger of large companies (eg guilds) as a sub-optimization.

The meaning of 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 own” 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 the LHC Group by 8 joint ventures in 6 months, attracting medical institutions as partners. Guaranteed customer traffic minimized a possible 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, one that sells a well-recognized trademark or has another attractive offer) or one that operates in a dynamically developing 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.