Investments in a business are most profitable only in the case of an objective assessment of its value and efforts to grow it. This task requires the use of approaches of a new management concept - business value management (Value based management, VBM) .

This concept appeared in the 1980s. in the USA. It involves the evaluation of all decisions of the company's management in terms of their impact on its market value. This is necessary for investors and owners who need to know the value of their business in order to understand whether it is worth investing in it.

Cost management practices have changed significantly in recent years. In the early 1980s it consisted of defining various indicators (“economic profit” and “residual profit”), including the “price” of capital of each business. These indicators reflected unprofitable areas of capital investment within the company.

The value-based measures were objective, but it was not possible to provide sufficient information for future investments to launch new products or enter new markets where profits and required capital are unknown. To solve these problems, they needed more than these indicators, they needed an approach that would link a long-term strategy with capital investment planning.

This became possible in the late 1980s. with the emergence of the discipline of VBM - value-based management. VBM brought together corporate finance and business strategy to form the economic basis for evaluating business investments. It allows you to understand what drives financial results and substantiate financial forecasts.

In the 1990s this concept of management began to be applied in Europe and Asia, and then by large Russian companies that sought to meet the requirements of a foreign investor.

VBM is a new concept of management, the increased interest in which is due to several reasons. The first group of reasons is associated with an increase in business dynamism and a sharp increase in the role of intellectual resources as an advantage in the competitive struggle. The second is related to increased competition and the need to satisfy the interests of all stakeholders (consumers, suppliers, government agencies and company personnel). This is the foundation for long term planning. The third group of reasons is based on the relationship between owners and managers, the imbalance of their heterogeneous interests, the shift in actual control over the business from the owner to the managers. Interest in VBM is explained by the possibility of analyzing and evaluating the results of an enterprise's activities, taking into account changes in the business environment.

The main provisions of VBM can be represented as follows:

The main goal of strategic management is to maximize the value of the business;

Value is most closely related to the cash flows that a business generates;

The main criterion for the effectiveness of management is the increase in the value of the business.

In its classical form, the VBM model is described in the works of T. Copeland, T. Koller, D. Murrin and is shown in fig. 3.1.

Figure 3.1 - Classical VBM Model

Actual cost - valuation using the discounted cash flow method.

Potential value taking into account internal improvements - financial analysis of the company, identification of value drivers, formation and implementation of a value increase strategy.

Potential value, taking into account internal and external improvements - the application of external restructuring (purchase of a company, merger, sale or liquidation of divisions, creation of joint ventures).

Optimal restructured cost - financial restructuring (decision making regarding debt management, equity increase, debt to equity conversion).

The actual value of the discounted cash flows is equal to the current market value of the enterprise. The discrepancy between these values ​​requires certain measures.

If the current market value is less than the actual value of the cash flows, then it is advisable to improve the interaction with the market to increase the market value or buy back the shares. Otherwise, the discrepancy may mean that the company needs to improve asset management.

Eliminating the negative gap between values ​​is possible through internal improvements, for example, increasing the rate of return from the main activity, accelerating the growth of sales, reducing the required working capital. With favorable strategic and operational opportunities, an enterprise can realize its potential value in the form of a portfolio of assets. This stage of cost management is carried out after the analysis and identification of cost factors based on internal audit and analysis of financial and economic activities.

So, the main goal of value-oriented management is to minimize the gap between the restructured and current value in the interests of owners in a competitive market.

Cost management is a long and complex process that requires managers at all levels of the organization to change management approaches. Managers study cost management tools and value drivers, then explore new approaches in more detail. Once there is an understanding of the results of applying cost management tools, the management team can switch to cost-based motivation systems.

LLC "Istraprodukt" strives for high results. The management carefully sums up the results of the company's performance, comparing them with the performance of competitors, as well as with its own results for different years to assess progress.

However, the company's decision-making process is not based on value. The company is focused on meeting the target indicators of its core business. The company's management successfully increases profits to the detriment of the company's long-term market position (due to the necessary expenses). Understanding the hindsight of such a position for the near future, the managers of LLC "Istraprodukt" must implement cost management and take the value of the business as the main indicator of the results of their activities. At the same time, it should be understood that cost management must take into account the evaluation of results and cover all aspects of activity, including the lowest level of decision-making.

It is possible to identify the key factors for the successful implementation of a cost management system in Istraprodukt LLC:

Assisting managers in accepting the value of the business as the main indicator of the company's performance;

Strengthening the links between lower and upper levels of management by introducing a system of cost factors for each of the levels;

Retraining of personnel, teaching them the principles of business value management;

Integration of approaches and principles of cost management into the planning process;

Linking the motivation system of the company's personnel with the creation of enterprise value;

Providing the necessary information (balance sheets of business units, comparable external data);

Availability of uniform and easy-to-use reporting forms and valuation models that facilitate the work of managers;

Implementation of the cost approach in strategic decisions and the use of financial and strategic information to form a greater value of the company;

Assessment of capital and personnel needs based on the value of the enterprise;

Application of an early warning system for negative, destructive processes at different stages of management from the standpoint of a business value criterion.

The most important and general indicator that characterizes the efficiency of the company is the value of the business, or rather its dynamics. The choice of a concept, the definition of goals, objectives and targets for increasing the value of the company involves the choice of one of two concepts:

Defensive, aimed at reducing the operating and investment activity of the company and expressed in cutting off everything "extra" (production units, investment projects, assets).

Offensive, aimed at increasing operating and investment activities and expressed in an attempt to reach a new and higher level of development

The essential features of increasing the value of the company are the factors of limited time and available resources. In this regard, it is better to use a defensive orientation. This allows, on the one hand, to position the sequence of actions of the manager, on the other hand, to predict the time frame for the enterprise to reach the milestone of increasing financial performance.

The essence of the cost approach lies in the fact that by managing cost factors, the financial manager achieves the strategic goals of business development, and the dynamics of value change is an indicator of the company's well-being. At each specific point in time, the value of a business is described by the amount of equity capital (discrete model of business growth). But such a view does not allow us to say how much the company will cost tomorrow. A more important approach to determining the value of a company and its development prospects is cash flow analysis (continuous business growth model). The value determined by discounting cash flows makes it possible to evaluate the economic utility of the business as a benefit and reveal the prospects for the company's development.

In terms of continuous growth, the stabilization process aims to overcome the decline and restore sustainable growth in value through the impact on the company's cash flow and cost of capital. This situation is most representatively described by the net present value indicator (the negative dynamics of which indicates a deteriorating financial position).

Table 1 Methods and tasks of financial stabilization of the enterprise

From the point of view of discrete growth in value, the deterioration of the financial condition is characterized by an outstripping increase in borrowed capital compared to the growth of the liquid, current part of the company's property, which is considered as a source of financing for the company's obligations. In this regard, it is better to indicate the financial condition by the coverage ratio, which is the ratio of the liquid part of the company's property to short-term liabilities:

where: OA - current assets;

KO - short-term liabilities.

In some situations, additional adjustment of the indicator is appropriate. First, unrealizable stocks and overdue (bad) receivables are deducted from the amount of current assets. Secondly, the amount of liabilities is reduced by the amount of liabilities for accrued dividends, interest and settlements with subsidiaries and affiliates (ie liabilities that can be deferred). If the value of the coefficient is less than one, then this indicates that the company is not able to cover short-term liabilities. If the coefficient is equal to one, then this means that the company is able to cover short-term obligations, but then it will “lose” working capital, which actually means a halt in production activities. The situation when the coefficient is equal to two means that the enterprise, having covered its obligations, is able to conduct the production process without damage.

Thus, the solution to the problem of increasing value should be aimed at managing the factors of discrete (assets and liabilities) and continuous (distribution of cash flows and cost of capital) growth models.

The methodological apparatus of the cost increase plan can be represented as a two-level system: a subsystem of internal financial stabilization and external financial stabilization.

The main role should be assigned to internal methods of financial stabilization, since emerging financial problems are generated by internal causes and the neutralization of their consequences is in the field of internal mechanisms. The use of some form of external stabilization may not be available in most cases. In this regard, external financial stabilization mechanisms are better viewed rather as extreme forms, appropriate in situations where internal methods do not give an appropriate return, or there is a possibility of reaching a higher level as a result of such measures.

Financial stabilization and value appreciation as an internal method begins with the restoration of its solvency. In this regard, the situation of insolvency can be described in terms of discounted net cash flow calculated for the short term and the coverage ratio. Overcoming the situation of insolvency should be considered through the management of factors of growth models. For a continuous model, this means a healing effect on cash flow (by increasing its positive part (inflows) and reducing its negative one) and the cost of capital, which is equivalent to an increase in the value of the current part of property as a source of repayment of obligations, while reducing short-term borrowings - for a discrete model.

In this regard, ensuring the growth of business value during the period of restoration of the enterprise's solvency suggests the following (Figure 2).

Figure 2. Scheme of measures to restore solvency

To this end, it is necessary to release additional funds by accelerating the turnover of current assets, including: markdowns to the level of demand and the sale of hard-to-sell and unused stocks; acceleration of collection of receivables; reducing the terms for providing commercial loans to buyers; liquidation of a portfolio of financial investments and / or settlements with their help for the obligations of the company; increase in the price discount when paying for products.

In some situations (which can be described by KP<1, ЧДП<0), меры по ускорению оборачиваемости текущих активов могут быть недостаточными для формирования достаточного положительного денежного потока. В такой ситуации, дополнительное увеличение потока денежных средств достигается доинвестированием долгосрочных активов, включающим следующие мероприятия: ускоренную распродажу (или аренду) неиспользуемой части основных средств; ликвидацию части ликвидных долгосрочных финансовых вложений; сокращения направлений и объемов инвестиционной деятельности.

Reducing the amount of negative cash flow, reducing the cost of capital (continuous model), can be achieved using the following methods: reducing the amount of insurance balances of inventories; reducing costs not related to the provision of the production process (social costs, advertising costs, etc.); restructuring part of the debts by transferring from the group of short-term to long-term; issuance of bills of exchange for certain obligations requiring repayment in the current period; increasing the period of commercial credit provided by suppliers and contractors; deferment of settlements for certain types of internal obligations of the company.

In order to reduce the cost of capital, the following measures can be proposed: changing the structure of borrowed funds (for example, replacing unprofitable commercial loans with bank ones). At the same time, it is necessary to be aware that a decrease in the cost of capital requires a change in the structure of financing the activities of an enterprise, and the time interval for restoring solvency is greatly compressed. In this regard, the possibility of reducing the cost in the short term is significantly limited. On the other hand, the elimination of the current insolvency is urgent and does not eliminate the causes of financial problems. In this regard, a sustainable development model is needed, which has the form:

PDP C \u003d ODP C (1)

where: RAP c - own positive cash flow (volume of generated own financial resources); ODP c - own negative cash flow (volume of consumption of own financial resources).

I.A. Blank, expanding each part of the equality, offers the following interpretation of the model:

PE O + AO + ∆AK + ∆SFR I = ∆I SK + DF + PUP + SP + ∆K + ∆RF (2)

where: PE O - net operating profit;

JSC - the amount of depreciation;

∆AK - the amount of increase in equity (share) capital in case of additional issue of shares (increase in the size of share contributions to the authorized fund);

∆SFR p - increase in own financial resources of financing from other sources;

∆I SK - increase in the volume of investments financed from own sources;

DF - the amount of the dividend fund;

PUP - the volume of the program for the participation of employees in profits;

SP - the volume of social, environmental and other external programs financed from profits;

∆K is the difference between the amount of the principal debt to be paid in the current period and the amount of the loan available for the same period;

∆RF - increase in the amount of the reserve (insurance) fund of the enterprise.

Thus, for companies that show signs of financial problems, the model of financial recovery and value appreciation is based on the following inequality:

MAP C > RDP C (3)

The growth of positive cash flow (continuous model) is achieved by affecting the components of the left side of equality (2), which is equivalent to an increase in the value of the liquid part of the property (discrete model), and can be achieved using the following methods: optimization of pricing policy, providing an additional amount of operating profit; reducing the level of fixed costs; reducing the level of variable costs per unit of output; increase in depreciation receipts, including through accelerated depreciation; carrying out an emission policy aimed at additional attraction of own funds; sale of worn or unused property

The decrease in the negative is achieved through the following methods of financial stabilization: a decrease in investment activity in all areas (as a rule, only low-risk and fast-payback projects remain); reduction in dividend payments; cutbacks in employee-sharing programs; cutbacks in profit-funded programs; reducing the volume of attracted borrowed sources or switching to "cheaper" sources; reducing the size of reserve and insurance funds formed from profits.

The goal is considered achieved if the net cash flow has become non-negative in the long term, which indicates that the company has reached the line of financial equilibrium. This, in turn, provides an opportunity to repay existing current liabilities without prejudice to the production process and indicates the long-term prospects for the development of the company and the growth of its value.

In the final stage of financial stabilization, which is a system of measures to maintain the parameters of the development of financial equilibrium, the growth of own capital is determined.

K ∆SK = (4)

Using the methods of factor analysis, the expression can be represented as follows:

K ∆SK = (5)

where: K ∆SK – equity capital growth rate;

Ккп - profit capitalization ratio, which is the ratio of the part of net profit aimed at increasing (invested) equity, (∆SK) and the amount of net profit (NP);

K pr - profitability ratio of sales (sales), which is the ratio of net profit (BP) to sales proceeds (NP);

KOA - asset turnover ratio as the ratio of sales proceeds (BP) to the amount of the company's assets (A);

К fl is the financial leverage ratio, which is the ratio of the amount of the company's assets (A) to the amount of equity capital (SK).

The proposed model shows that the possibility of growth in the value of a business is determined by four indicators: 1) the profit capitalization ratio, which characterizes the management policy in the field of using the obtained financial results and investments of the company; 2) the profitability ratio of sales, which characterizes the effectiveness of management in promoting the company's products to the market and its implementation; 3) the turnover ratio, reflecting the management policy in the field of forming the composition of the company's property and the efficiency of its use; 4) financial leverage ratio, reflecting the company's policy in the field of formation of the capital structure.

It can be seen from the models that the underlying rate of business value growth remains unchanged in the coming period if all of its components remain unchanged. The period of crisis-free development, with the achieved level of financial equilibrium, will be determined by the period of growth rates of value. It should be taken into account that all parameters of equality are rigidly determined and changeable in time, therefore, periodic adjustment is necessary, taking into account the changing internal and external conditions of business development.

External methods of financial stabilization involve the involvement of third parties for the company: owners of the debtor's property, founders, credit institutions, government agencies, etc. The basis for evaluating the effectiveness of the external financial stabilization plan is to ensure a positive growth in the value of the business, described by the amount of the net cash flow. When undertaking stabilization measures in the form of a merger or acquisition, some sources suggest taking into account the effect of energy. I.A. Blank offers the following formula for this:

ES S - RS O - (RS 1 + RS 2) (6)

where: ES with - the sum of the synergy effect achieved in the process of merger (acquisition);

RS o - the predicted market value of a newly created enterprise in the process of merger (acquisition);

RS 1 ; PC 2 – assessment of the market value of individual companies being merged.

In practice, external stabilization is achieved in two main areas: external stabilization aimed at refinancing the company's debt; external stabilization aimed at the reorganization of the enterprise. In the first case, the status of the company does not change during the events. The second option involves reorganization procedures in order to ensure more efficient forms of management, while changing the status of the debtor enterprise.

The goal is considered achieved if, as a result of accelerating the growth of the enterprise, a corresponding increase in its market value of the business is ensured in the long term.

Literature:

1 Ivashkovskaya I.V. Company value management: challenges to Russian management.// Russian Journal of Management, 2004, No. 4.

2 Shcherbakov O.N. Methods for assessing and managing the value of a company based on the concept of economic value added / / Financial management. - 2003

3 Maslennikov V.V., Krylov V.G. Process cost management of business. - M.: INFRA - M, 2006.

4 Valdaytsev S.V. Business valuation and enterprise value management: textbook. – M.: UNITY-DANA. – 2001.

5 Kozyr Yu.V. Evaluation and management of the value of the property of an industrial enterprise: dis. … cand. economy Sciences. - M., 2003.

Chapter III. Development of measures to increase the value of the company

It is almost impossible to successfully run a business and not provide commercial loans due to objective reasons: high competition, lack of funds, etc. Nevertheless, an enterprise should strive to reduce the level of receivables and increase its turnover in order to protect itself from liquidity loss.

Accounts receivable management requires special attention.

Accounts receivable refers to highly liquid assets of the enterprise with increased risk. A large amount of overdue and bad receivables significantly increases the cost of servicing borrowed capital, increases the costs of the organization and, as a result, adversely affects the financial stability of the enterprise, increasing the risk of financial losses. At the same time, effectively organized cash flows are the most important sign of the "financial health" of the enterprise.

Often the reason for the high level of receivables is the absolute ignorance of the company of its counterparties. As a result, the enterprise, having money, cannot pay off its obligations, being on the verge of a crisis.

One of the most effective tools to maximize cash flow and reduce the risk of overdue receivables is a system of discounts and penalties. The system for accruing penalties and fines for violation of the payment terms established by the debt repayment schedule should be provided for in the contract. Discounts are provided depending on the term of payment for the goods.

We will introduce a system of discounts and fines to the enterprise. Let's assume that in case of early (or timely) payment for goods, the company will provide a discount. Let the cash receipts increase by 30%, and the cost of discounts will be 10%. Let's introduce such a policy for the enterprise from 2012 to 2013, and calculate how much the cash flow and the total cost of OAO Stroytransgaz will change.

Table No. 11. Calculation of cash flow, taking into account the proposed activities.

The calculation of the residual value is made in table No. 12:

Table number 12. Residual value calculation

Thus, with the introduction of the proposed policy, the value of the company increased by 1,028,296,489 rubles, and amounted to 11,531,331,075 rubles (= 2638544000 + 1636340000 + 1297901000 + 5958546000).

By effectively managing cash flows, we have improved the company's operations, increased its creditworthiness and strengthened the company's financial position.

Adhere to a value-maximizing approach to managing your business portfolio (without neglecting, if necessary, radical reorganization);

Make sure that the organizational structure of the company and its corporate culture are subject to the requirement of value creation;

Deep study of the key value drivers specific to each business unit;

· Establish effective management of business units by setting specific target indicators for them and strictly controlling the results of their activities;

find ways to create motivation for managers and ordinary employees to create value (you need to use both material rewards and other forms of encouragement).

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When developing various scenarios for the development of a company, it is necessary, first of all, to compare the final results with the goals and objectives that the company sets for itself, since not always, as we have already noted, mergers and acquisitions can create value and, accordingly, this option can be rejected . However, in strategic terms, without such transactions, the company simply will not be able to take a leading position in the industry, market sector. Therefore, the assessment of a particular option (or M&A transaction) must be approached carefully, taking into account both short-term tasks and long-term goals. Depending on this, it is necessary to build the entire business process, since momentary benefits can turn into failures in the long term and, conversely, overly distant plans can remain plans and nothing more. Therefore, the approach to implementation should be based on the principle of balance and efficiency.

In addition, the success of the transaction largely depends on how clear and coordinated the actions will be at the initial stage. It is during this short time that all the most important things need to be done to integrate the two companies. Unfortunately, often the quality of preparation and execution of a deal is much higher than further steps to integrate the acquisition object into a single production complex. As if everything should go like clockwork, by itself come to a common denominator, which in turn will ensure the creation of value for shareholders. I must say that it is the reorganization process that is the most important element that allows you to create value in the combined company. And this aspect needs to be given no less time and effort than the issue of planning and preparing an M&A deal. High-quality study of all issues related to the transformation of the two companies will increase the chances of a successful deal. During this period, the most important decisions are made, many of which cannot be reconsidered later. For example, decisions on the structure of the combined business, product line, appointments to key positions, both in the acquired company and in a single management structure. Decisions are made on the recruitment of brands or the sale of non-core assets, etc. It must be remembered that in the process of integration, the company is gaining strength for further development, and if it does not do this from the very first stage, then it is unlikely that anything will change later. At the same time, actions should not just be aimed at merging two companies, businesses, but should proceed strictly in accordance with the developed integration plan, which is specific to each specific transaction. This can be achieved if the integration process takes into account the features of the merging companies as much as possible.

To do this, you need to answer a number of important questions:

• What are the long-term goals of the combined company and how do they relate to the capabilities of each specific company?
• What are the potential sources of value creation in the short and long term, and how to realize this potential?
• What problems or limitations exist, and what are the possible ways to overcome them?

The answers to these questions will make it possible to most effectively integrate the acquisition objects and form the prerequisites for creating value in the company.

As practice shows, the implementation of a strategy aimed at increasing the size of a business, in terms of creating value for shareholders, is carried out in three main areas:

1. Formation of a package of investment projects that promote business diversification, reduce dependence on market conditions for one type of activity, enter new markets, etc.
2. Improving the efficiency of business functioning (internal optimization), which includes managing the company's costs and risks, developing optimal schemes for raising capital, financial and organizational control based on key performance indicators of the company, etc.
3. Building effective interaction with the external environment, which includes interaction with the market (suppliers and consumers), supervisory and regulatory authorities, investment and professional communities, etc.

Each of these areas, in its own way and to varying degrees, has an impact on the creation of additional value for shareholders. However, in aggregate, they allow the company to significantly exceed the pace of development compared to other market players and, accordingly, increase the welfare of their owners (Fig. 23).

Rice. 23. The main directions of the implementation of the strategy aimed at creating value

At the same time, of the areas under consideration, the development of investment programs, of course, plays a special role, since internal and external optimization are, firstly, of a short-term nature (it is impossible to optimize the production process indefinitely), and secondly, if the business was managed effectively, then there is nothing special to convert or this parameter will have a small value. Therefore, the greatest emphasis, in terms of value creation, should be placed on the implementation of investment projects, programs that would allow the company to develop at a faster pace than other players and the industry as a whole.

For example, at the end of 2007, AFK Sistema approved the development strategy for the Medicine business area for the next 3 years. Thus, by 2011 the company plans to create a network of 100 clinics with common standards, formats and brand. Investments in the project will amount to about $100 million annually. The network will provide a full range of paid services for the prevention, diagnosis and treatment of diseases.

At the moment, the company's assets consist of: CJSC Medsi (polyclinic for adults), OJSC Medsi II (polyclinic for children), LLC American Hospital Group (family clinic under the American Medical Centers brand for VIPs and foreigners) and CJSC Medexpress Company (23 clinics in Moscow and the regions and an ambulance service in Moscow). At the initial stage, these assets will be merged into the holding company CJSC Medsi Group of Companies, 100% owned by AFK Sistema. Thus, the holding will include 14 Moscow and 12 regional clinics. In the future, their number will be increased to 100.

In terms of improving the efficiency of business functioning, in addition to optimizing financial, production and organizational resources, it is also required to assess the feasibility and prospects of development within the company of business areas that are not characteristic of it. It is necessary to get rid of non-core business in time and without regret in order to free up additional resources and direct them to create the value of the company.

For example, OJSC Razgulay Group announced its intention to conduct a secondary public offering of ordinary shares (SPO) at the end of 2007. The selling shareholder will be Ceperlino Trading Ltd, which will use the proceeds to purchase approximately 2.5 million Razgulyai shares and finance other affiliated shareholders to acquire a total of approximately 7.5 million new shares after the SPO. The securities will be offered in Russia and to institutional investors outside the United States in accordance with the provisions of the US Securities Act of 1933. Renaissance Capital will be the global coordinator and bookrunner.

The Razgulay group was founded in 1992. It includes 39 enterprises located in the North-Western and Central Black Earth regions of Russia, the Upper and Middle Volga regions, the North Caucasus, the Southern Urals and Western Siberia. In March 2006, the company raised $144 million during an IPO. Net profit in 2006, according to the consolidated financial statements, decreased by 36% to 900 million rubles. Consolidated revenue increased by 16% to 23 billion, consolidated EBITDA - by 34% to 3.2 billion rubles. In 2006, the Razgulay group acquired 17% shares in four sugar enterprises and two agricultural farms, for which about 500 million rubles were allocated.

At the same time, last summer the company sold its stakes in Kolpnyansky Sugar Plant CJSC (Oryol Region) and Azov Port Elevator LLC. The sale of the businesses is in line with the group's strategy to get rid of the least performing assets.

Interaction with the external environment, of course, is not an independent or separate work, since within the framework of internal optimization, the company still contacts the outside world (in terms of suppliers, tax services, contractors, etc.) and, accordingly, builds the most optimal options for cooperation and interactions. We singled it out in order to focus readers' attention on this aspect, to show how effective the market's influence on the cost can be. Especially within a diversified product or line of business.

For example, according to data published by the Novolipetsk Metallurgical Plant (NLMK), the company's revenue for 9 months of 2007 increased by 42% compared to the same period last year, EBITDA - by 59%, net profit - by 13%. The sharp growth in NLMK's financial performance was mainly due to the acquisition of Viz-Stal and Altai-Koks in mid-2006, as well as favorable pricing conditions and growth in the production of high-value-added products (in particular, supplies of color-coated steel increased by 28%, and electrical engineering - by 62%). This allowed the company to smooth out the indicators caused by a decrease in steel production by 48 thousand tons due to malfunctions at one of the blast furnaces. Moreover, the plant showed a further increase in profitability, becoming one of the most profitable steel companies in the world with an EBITDA margin of 44%.

Returning to the sources of value creation, I would like to note once again that the creation of value and the process of integration are not the same thing, since integration is a way to achieve this goal. Therefore, before deciding on a merger or acquisition, it is common to identify opportunities for value creation or synergies that result from such a combination. Typically, successful M&A transactions are characterized by value creation at three levels, which are achieved in stages, but the steps to achieve them should be taken from the very first moment of integration. In other words:

1. First of all, a short-term synergistic effect is achieved (due to the optimization of production and organizational structures, financial flows, taxation, the cost of servicing debt financing, etc.).
2. Secondly, the hidden potential is realized, new opportunities that appear only as a result of this transaction.
3. Thirdly, new strategic opportunities are realized, which appear as a result of combining the competitive advantages of the two companies. This can be expressed in entering new markets, developing new technologies, diversifying investments, etc.

Therefore, it is important to understand and correctly define the basis of the three components of the sources of value creation and accordingly prioritize the goals and methods of integration, which are determined by the specific opportunities for creating value in each individual M&A transaction. After all, the transition period entails an atmosphere of uncertainty, which affects the performance of the company.

Thus, according to Western experts, during the period of integration, labor productivity falls by 5-10%, while the company's income at this time falls by 8%. At the same time, in developing countries, the risk of losing financial and operational control is even higher than in developed ones.

During the integration process, it can be difficult to ensure the stable functioning of all company systems. In addition, it is necessary to meet the short-term budget, make the right investment and business incentive decisions that would allow the company to develop effectively in the long term.

So, often during integration, funds are spent uncontrollably, in connection with which, the company's income drops significantly and part of the synergistic effect is lost. Therefore it is necessary:

• have an integration budget tied to the magnitude of the effects received;
• clearly monitor the parameters of its implementation;
• determine the responsibility for the costs and resources used for the needs of integration;
• Include operational and financial performance reports in reporting on integration progress.

This will allow not only not to throw away funds for nothing, but also to get a return on them. In addition, such an approach will ensure tighter control over their spending and determine the amount of such expenses, which will make it possible to make a timely decision on the need for further funding of the planned activities in the amounts that were originally announced.

The reaction of competitors deserves special attention, since any merger gives them the opportunity to undermine the positions of the merging companies. To prevent this, you must:

• assess the risk of merger in terms of its competitive positions that arise as a result of the merger;
• outline measures aimed at neutralizing risk factors and increasing business sustainability in the process of integration;
• monitor the activities of competitors;
• pursue an active development policy and, in which case, deliver a preemptive strike.

This will protect the company from losses and loss of value during the transition period.

If we return to the formation of the prerequisites for creating value in an M&A transaction, then the synergistic effects obtained in the short term are the most predictable and obvious sources of value creation. They are achieved, as we have already said, both by reducing costs and by increasing revenue. But their main positive quality, in our opinion, is as follows:

• obtaining the expected synergies justifies the M&A transaction in the eyes of the owners, and this, in turn, reduces the pressure on management from their side;
• quick successes are positively perceived by the entire investment community, which allows the company's stock prices to grow upwards, thereby increasing the value of the company and the welfare of its shareholders;
• the positive results of the transaction give impetus to the further development of the company at a more dynamic pace;
• by quickly reducing costs, it is easier to establish a stable functioning of the company, which allows you to focus on the long term.

At the same time, despite the importance of obtaining short-term synergistic effects, it is necessary not to focus only on this aspect. Otherwise, you can miss out on synergies with much higher potential, but requiring more complex execution or additional funds.

At the second level of value creation, it is necessary to identify and implement the hidden opportunities of the company combined after the transaction. This is possible due to:

• reengineering of business processes, as a result of which additional resources are released that can be effectively used;
• transition to new business models that allow you to receive increased value, reduce costs per unit of output, etc.;
• reaching a new level of efficiency as a result of the merger of two companies - often there is an opportunity to improve the efficiency of the entire business as a whole. For example, many banks and lenders have found that by integrating risk management departments and databases, they significantly improve risk assessment models and increase their accuracy, and so on.

Thus, the realization of hidden opportunities is not just an intended and desirable effect, but also the only way to fully realize the value creation potential in an M&A transaction, since through these opportunities an increase in business as capital is achieved.

In a number of cases, the merging companies created additional value by entering new markets or implementing new directions in which they were uncompetitive before the M&A transaction. This opportunity is provided by the fact that the size of the business acquires the critical mass necessary to become one of the leading market players in a sector or industry where it had not had sufficient weight before. Sometimes new strategic opportunities arise when a new technology is developed from two unrelated technologies, or when the scale of the merged companies opens the way for further mergers.

As practice shows, such prerequisites are very difficult to predict, so many companies do not pay due attention to this. However, it is they who sometimes determine the prospects for the future business and the direction of the main efforts in the course of integration, which will ensure the success of the company in the long term.

Returning to the sources of value creation, it should be noted that the implementation of a number of programs, both investment and internal transformations, requires significant financial resources, the attraction of which is not always possible in a short period. In order to effectively attract the necessary resources, a number of adjustments are required, both in the management system, reporting, and in relation to interaction with the investment community, which requires greater transparency and openness. And that takes time and expense. Therefore, it is necessary to adequately assess their capabilities and optimally approach their use.

Thus, an alternative to the development strategy through mergers and acquisitions is the development of the company through organic growth. At the same time, the expediency of such actions and the effectiveness of this direction depends on such parameters as:

• industry life cycle;
• the amount of funds needed to implement organic growth projects (compared to the M&A deal price);
• project implementation period (compared to M&A transaction).

So, for example, according to some experts, the main way for the growth of large retail chains in Russia will remain their expansion by opening new stores using their own resources or buying smaller regional operators. Mergers and acquisitions between market leaders are currently not significant, although they have growth potential. The main reason is the low level of competition between market leaders and the difficulty of evaluating such a business. The retail market is growing rapidly, and a significant part of the value of companies in it (60%) is explained by the assessment of their future potential. The growth potential, in turn, directly depends on the ability of the current management to implement new projects in the future for 3-4 years, as well as on the company's ability to withstand future competition and macroeconomic fluctuations. Another risk that can significantly affect the effectiveness of mergers and acquisitions is the risk of loss of control and speed of development of the existing business. Mergers and acquisitions often lead to a significant diversion of organizational and capital resources for the purchase and integration of another network, thereby reducing the rate of organic growth and management's focus on improving the internal processes of their company. This threatens to reduce the operational efficiency of both networks after the merger and lose the competition. Therefore, until recently, the opportunities for natural growth of leading retail chains (now its rate is 40-50% per year) outweigh the benefits that can be obtained from mergers between them.

At the same time, we have recently seen significant changes in this issue. More and more retailers are buying out regional franchisees and acquiring local independents. For these purposes, companies raise funds not only on the debt market, but also on the equity market (for example, Magnit, Pyaterochka, etc.). This trend can be regarded as the beginning of a process of larger-scale consolidation of this market sector.

The decision-making algorithm for choosing a development scenario can be represented as follows (Fig. 24).

Rice. 24. Algorithm for making a decision on the choice of business development through M&A transactions

In addition, when developing a development strategy and making a decision on its choice, it is necessary to answer the following questions:

1. How can the chosen strategy create additional value?
2. Which of the chosen strategies are the most attractive in terms of financial and economic parameters?
3. How sensitive is the chosen strategy to the influence of external and internal factors?

Answering these questions will allow you to choose the most effective way of development, taking into account the specifics of the business, the impact of the macro environment, as well as the preferences of the owners.

For example, the American cellular operator MetroPCS Communications, which has been discussing the purchase of a rival company Leap Wireless for several years, offered its owners $5 billion. It must be said that the companies occupy leading positions in the budget segment of the US cellular telephony market. In particular, the Leap Wireless company serves about 2.7 million subscribers in 22 states of the USA, its revenue for 2006 was $1.14 billion, net loss - $4.14 million. The MetroPCS Communications company serves 3.5 million subscribers . Revenue for 2006 was $1.55 billion, net profit was $53.8 million.

According to experts, the savings from the merger will be about $2.5 billion, in particular, due to the elimination of redundant functions and the need to create redundant networks in many large cities. In addition, it is advantageous for operators to unite before the auction for the sale of radio frequencies, scheduled in the US for early 2008. Its organizer - the US Federal Communications Commission announced that from the moment of submission of applications and until the end of the auction, their participants will not be entitled to carry out mergers and acquisitions.

In addition, it is necessary to evaluate the contribution to the creation of value of each division of the company, since the overall negative result (in terms of value creation) for the company is not always a bad result of the work of all its divisions. To do this, you need to define the following parameters:

1. Which departments contribute the most to adding value?
2. Which departments have limited ability to add value?

Based on this, it is possible to determine the most optimal option for the participation of structural units in the implementation of the strategy, as well as to determine the main points of growth and, in which case, optimize its functional and financial parameters. Table 19 presents the process of creating value through mergers and acquisitions and the risks that accompany them.

Let us give an example of evaluating the effectiveness of a strategy based on the creation of additional value for owners.

For example, there is a chain of 20 hypermarket type grocery stores. The head of this network decides to re-equip part of the stores for grocery stores in the first year, which will be positioned as high-class stores with quality products and an appropriate level of service. In case of success in implementation, a project related to the complete refurbishment of these stores is being considered.

The analysis carried out based on the SVA indicator shows that the project is successful and will bring profits 20% more than in the current state. However, when considering a different business opportunity, which is to completely transfer all stores to the rank of deli, the analysis carried out by SVA shows that over time the difference between operating revenue will decrease, the costs of maintaining hypermarkets will increase, and as a result in 5 years SVA from hypermarkets will be $6 million lower, i.e. the proposed initial option will be less profitable.

It is clear that throughout the entire life cycle of a company there are periods when a further path of development either leads to the creation of value or destroys it. Therefore, when developing a strategy aimed at creating business value, it is necessary to identify control points when the path and method of development of the company should be reviewed in order to restructure in a timely manner and thereby reduce the risk of loss of value from inefficient steps.

The head of the Interros company, Vladimir Potanin, speaking in an interview with Vedomosti about the fate of the Polyus Gold company, noted that the company has two options for development: one is related to its purchase by the state, in particular by Alrosa, or someone else ; the other is to remain a private company and repeat Norilsk Nickel's strategy, that is, to become one of the world leaders in its field. Potanin believes that the first way is possible, but the second way is more effective. “Gold is specifically singled out from many mining companies because the ratios at which such companies trade are higher. If Polyus Gold is driven into a company that produces other goods, part of its value will be lost.”

At the same time, control points can be both time periods and production and financial indicators of the company, when, upon reaching the specified parameters (production volume, debt load, market share, etc.), a revision of the strategy is required for its adjustment. In order for business development to be accompanied by value creation, it is necessary to implement an M&A strategy, taking into account such parameters as:

• the amount of possible synergy;
• the cost of the acquisition object;
• investment horizon;
• the time required to integrate the acquisition object into a single production center.

For example, over the past two years, the tea market in Russia has been stagnating in quantitative terms, being at the level of 170.0 thousand tons. The increase occurs only in value terms. Thus, according to the results of 2006, the market turnover amounted to about $1 billion, an increase of 20% compared to the previous year. The high level of competition with other drinks suggests that the tea market will not grow in quantitative terms in the future, so M&A transactions in this market sector are obvious from the point of view of value creation, since there are no prerequisites for organic growth, which in turn does not allow you to scale up your business. An increase in market share is possible only through consolidation between players. Accordingly, the investment horizon in such transactions should take into account the peculiarities and specifics of the business.

In this case, shareholders will be able to get maximum efficiency from M&A transactions.

For example, OAO Gazprom is considering the idea of ​​dividing the group's existing gas chemical business into two companies - one for the production of products based on methane and light hydrocarbon feedstock. The creation of two platforms is envisaged by Gazprom's development strategy in the field of gas processing and gas chemistry.

Methanol gas chemistry is the production of ammonia, methanol, and mineral fertilizers. Gas chemistry based on light hydrocarbon raw materials is the production of polymers and synthetic rubbers.

At the same time, the cost of only those gas chemical projects announced by the company is about 400 billion rubles. The total cost of potential projects is 1 trillion 250 billion rubles. Thus, it will be a matter of principle for the company to what extent it will participate in the implementation of these projects. As V. Golubev (deputy chairman of the board of the concern) notes, it would probably not be right to take full responsibility for their implementation. Gazprom will participate in two separate companies, but attracting investments in them will not increase the debt burden on Gazprom, and this will expand the investment opportunities of the entire group. At the same time, reforming the gas chemical business will require redistribution of assets. In particular, the concern plans to enter into a number of assets in the production of mineral fertilizers. The development strategy of the gas chemical complex provides for an increase in the production of mineral fertilizers from 1.8 million tons in 2006 by 250% by 2015.

It should be noted that the implementation of the strategy will allow increasing the volume of gas processing, as well as investing in the creation of new large gas chemical facilities. The volume of ethane extraction is planned to be increased by 15 times by 2015, and the production of a wide fraction of light hydrocarbons - almost doubled, the production of ethylene is planned to increase by 3.5 times by 2015 - up to 7.66 million tons, the production of plastics - from 470 thousand tons by 360%.