NATIONAL ECONOMIC UNIVERSITYBUSINESS SCHOOL ***************** PHAN ANH TUAN SETTING UP POST-MERGER INTEGRATION PROCESS FOR M&A CONSULTING SERVICE AT MEKONG SECURITIES JOINT STOCK COMPANY
Rationale
In the 21st century, the global economy has experienced an unprecedented surge in mergers and acquisitions (M&A), spanning both developed and emerging markets such as South Korea, Singapore, Russia, India, China, and the Middle East Since 2007, Vietnam’s M&A activity has grown significantly alongside the development of its stock market, with transaction values increasing annually Notably, in 2009, Vietnam’s M&A transaction value growth rate rose 2% compared to 2008, despite a decline of 22% in the USA and 38% in Southeast Asia, highlighting Vietnam’s substantial potential for M&A market expansion and opportunities for M&A consultancy firms.
Brokers and intermediaries play a crucial role in the success of M&A contracts by leveraging their in-depth knowledge and practical experience They assist companies in making informed decisions, ultimately maximizing benefits and ensuring smooth transactions in mergers and acquisitions.
There are 3 main roles of intermediaries based on consulting processes of an M&A:
Analyse and evaluate to select suitable enterprise for M&A, give assessments of business benefits that can bring the two sides.
Complete M&A implementation plan and the procedures for M&A quickly and efficiently.
Propose Post-merger plan that help business operate efficiently and create synergies.
In Vietnam, while brokers have significant advantages in developing M&A consultancy, many overlook the importance of investing in and expanding this service, which can generate steady intermediary revenues with minimal risk However, Vietnamese consultants and intermediaries typically focus primarily on initial transaction roles and neglect the crucial post-merger planning stage, leading to reduced overall effectiveness of M&A activities Emphasizing comprehensive M&A consultancy, including post-merger strategies, can enhance deal success and long-term value for clients.
Mekong Securities Joint Stock Company (MSC), established in 2002, is a renowned brokerage firm in Vietnam specializing in M&A consultancy services While MSC provides expert advice and guidance to clients throughout the merger and acquisition process, it does not typically offer post-merger integration planning or follow-up strategies Known for its extensive experience in financial consulting, MSC remains a trusted name in Vietnam’s securities market, particularly in M&A advisory, although it does not assume responsibility for post-merger planning.
To complete the M&A consulting process of MSC, the topic “Setting up
Post-merger Integration process for M&A consulting service at MekongSecurities Joint Stock Company” is chosen for my thesis.
Research objectives
In order to solve the research problem above, the thesis focuses on clarifying the objectives as bellow:
- Understanding the theory of M&A, Securities companies and Post-merger process.
- Provide general information about M&A market in Vietnam in the past few years.
- Setting up a Post–merger Integration process for MSC.
- Proposing recommendations to operate a successful Post-merger Process.
Research methodology
Data collection
In this thesis, the main method used to gather data and information is Secondary data collection method:
- Theoretical background of M&A in text books, thesis and lecture’s materials.
- Market information and opinions in Newspaper and websites
- Laws and regulations published by the government.
Research structure
Chapter 1: Theoretical background on M&A consulting service at securities company
Chapter 2: Setting up Post-merger Integration process for M&A consulting service at MSC
Chapter 3: Recommendations for launching process
THEORETICAL BACKGROUND ON M&A CONSULTING
Theoretical background on M&A
Mergers and acquisitions (M&A) are key strategies in corporate finance and management that involve the buying, selling, dividing, and combining of companies to facilitate rapid growth These activities enable businesses to expand within their sector, new markets, or geographical locations without forming subsidiaries, new entities, or joint ventures, making them essential tools for enterprise development.
M&A transactions vary widely, from multi-million dollar mergers of large corporations to smaller asset sales or liquidations involving private equity firms or competitors While many perceive mergers and acquisitions as potentially threatening to employees’ jobs, they are often driven by a company's need to refinance, restructure, and enhance shareholder value Typically, when a company is acquired, the buyer aims to improve competitiveness and cost efficiency while expanding market share.
Under Vietnam's Law on Competition 2004, a merger is defined as the transfer of all lawful assets, rights, obligations, and interests from one or more enterprises to another, leading to the termination of the merging entities' existence Conversely, an acquisition involves one enterprise purchasing all or part of another enterprise's assets to gain control or influence over its business activities These definitions are crucial for understanding compliance with competition regulations and assessing potential market impacts in Vietnam.
1.1.2.1 Classification based on approaching types
-Merger is the case when the boards of directors of two firms agree to combine and seek stockholder approval for the combination In most cases , at least
A merger agreement was reached between the 50% shareholders of the acquired company and the acquiring firm, resulting in the target company ceasing to exist and becoming part of the acquiring company An example of this type of M&A is the merger of Hanoi Building Commercial Joint Stock Bank (Habubank) into Saigon – Hanoi Commercial Joint Stock Bank (SHB), where Habubank was fully merged into SHB This process reflects a typical consolidatory merger, leading to the integration of the target company's assets and operations into the acquiring firm.
Consolidation is a form of M&A where the acquired and acquiring companies merge to form a new legal entity, typically requiring at least 50% shareholder approval from both parties A notable example is the Sony and Ericsson merger, where Sony, a leader in music players, and Ericsson, a mobile phone manufacturer, combined to create Sony Ericsson, resulting in mobile phones with advanced music features that stand out in the market.
A Tender Offer occurs when a company seeks to acquire shares of another firm to obtain a controlling interest in its board of directors This strategy involves proposing to purchase a significant number of shares at a high price, enticing shareholders of the target company to sell their stakes Since this method bypasses the target company's board approval, it is often considered a hostile takeover.
As long as the acquiring firm collects enough amounts of shares of the target then it could turn out to be a merger
Asset acquisition is a form of M&A where the acquiring firm purchases all assets of the target company, leading to the eventual dissolution of the target This approach is typically used for companies with substantial tangible fixed assets, such as factories and machinery systems For example, Kinh Do Corporation’s purchase of Unilever’s Wall ice cream machinery system exemplifies an asset acquisition.
-Individual buyout is the separated type of M&A compared to other 4 types.
An individual buyout occurs when a single investor or a group of investors, often members of the board of directors, aim to gain control of a target company through a tender offer When management members are involved in the buyout process, it is referred to as a management buyout (MBO) Conversely, if the acquisition is financed mainly through borrowed funds, it is called a leveraged buyout (LBO), where the company’s cash flow from operations is used to service the debt These buyout strategies are key methods for investors seeking control and value creation in target firms.
Figure 1.1: Classification of M&A base on approaching types.
(Source: Takeovers, Restructuring and Corporate Governance)
1.1.2.2 Classification based on the relation between products
A horizontal merger involves the consolidation of companies operating within the same industry, often as direct competitors offering similar goods or services This type of merger is common in industries with fewer firms, where heightened competition makes the potential for increased market share and synergistic benefits particularly significant Horizontal mergers can enhance competitiveness, streamline operations, and enable the combined entity to better serve the market, making them a strategic move for firms aiming to strengthen their position in the industry.
A vertical merger involves the combination of two companies operating at different levels within the same industry's supply chain, typically producing different goods or services for a shared final product This type of merger aims to increase operational efficiencies and create synergies by integrating processes and resources The primary motivation behind vertical mergers is to enhance productivity, reduce costs, and gain better control over the supply chain, ultimately boosting the combined company's competitive advantage in the market.
-Market-extension merger: Two companies that sell the same products in different markets
-Product-extension merger: Two companies selling different but related products in the same market
A conglomerate is a corporation composed of multiple diverse businesses, often seemingly unrelated In such structures, one parent company holds a controlling interest in various smaller subsidiaries that operate independently While each subsidiary functions separately, their management reports directly to the senior leadership of the parent organization, enabling coordinated oversight across the conglomerate’s diverse portfolio.
1.1.2.3 Classification based on geographical location
-Domestic merger: A merger occurs between firms inside a country
-Cross-border merger: A merger occurs between firms in different countries, usually used as one of the most effective investment approach of companies into new markets
1.1.2.4 Classification based on the attitude of target firms toward the merger
A friendly takeover occurs when a target company's management and board of directors agree to a merger or acquisition with another company In such transactions, the acquiring firm makes a public offer of stock or cash to buy the target company The target company's board publicly approves the buyout terms, though the deal may still require approval from shareholders and regulatory authorities This process ensures a cooperative and mutually agreed-upon acquisition, facilitating smoother integration and strategic growth.
A hostile takeover occurs when one company (the acquirer) seeks to acquire another company (the target) without the approval of the target’s management Instead, the acquirer directly approaches the target's shareholders or attempts to replace the company's management to secure approval for the acquisition This aggressive strategy can be executed through methods such as a tender offer or a proxy fight, making it a challenging and confrontational approach to corporate acquisitions.
Undervalued firms identified by financial markets present attractive acquisition opportunities for savvy buyers seeking to capitalize on market mispricing By acquiring these undervalued companies, acquirers can capture the surplus value—the difference between the firm's true worth and its purchase price—thus generating potential profits For this strategic approach to succeed, three essential components must align: accurate identification of undervalued firms, a suitable acquisition strategy, and the ability to realize the hidden value post-acquisition.
1 A capacity to find firms that trade at less than their true value : This capacity would require either access to better information than is available to other investors in the market, or a better analytical tool than those used by other market participants.
Theoretical background on Post-merger
Post-merger integration is the essential process of aligning two companies through inter-firm coordination, system control, and integration activities that enable them to operate seamlessly as a single entity This comprehensive process includes procedural, physical, managerial, and socio-cultural integration efforts resulting from a merger or acquisition Effective post-merger integration is crucial for realizing the full value of the merger and ensuring organizational success.
Post-acquisition integration is a long-term, ongoing process that begins at the signing of the agreement and continues for several years It involves managing organizational activities and resources effectively to achieve combined organizational goals This evolving process includes key management initiatives such as determining the level of integration, the degree of autonomy granted to the acquired company, and the speed at which integration occurs.
1.2.2 Role of Post-merger Integration in M&A:
Post-merger integration is the phase that occurs after the merger agreement is finalized, involving the unification of assets, personnel, and business activities of the merging companies This process is crucial for ensuring a seamless transition and achieving the desired synergies The duration of post-merger integration can vary significantly, typically ranging from a few months to several years depending on the complexity of the merger Effective integration is essential for realizing the full benefits of the merger and fostering long-term success.
Following a merger, management faces strict time constraints to define strategic integration priorities and identify synergies The post-merger integration (PMI) process is critical, raising key questions about how to effectively align operations, maximize value creation, and ensure smooth organizational transition Successfully navigating these challenges is essential for achieving the desired benefits of the merger and driving long-term business growth.
• How do we ensure we are incorporating the key success factors for PMI?
• What functions must be integrated quickly, and how do we focus on realizing synergies?
• How can we best integrate two different cultures and deal with conflicts between them?
• How do we keep employees focused on business and customers during the integration process?
Resolution Procedural Design accounting systems and procedures
Eliminate contradictory rules and procedures
Physical Encourage sharing of resources
Measure and manage the productivity of resources
Design compensation and reward systems
Table 1.1: Post-merger Integration tasks
(Source: Journal of Business Strategy)
Integration is essential for large organizations with functionally specialized departments like production, marketing, accounting, and finance It involves coordinating activities across departments to achieve overall organizational goals, ensuring that each department’s efforts are aligned and complementary Effective integration also requires monitoring and controlling individual department performance to maintain high quality and output levels Additionally, resolving conflicts among fragmented individuals and their conflicting subgoals is crucial to fostering a cohesive and efficient organizational environment.
Merging firms must integrate distinct systems and procedures, which necessitates abandoning outdated practices, transferring assets and systems seamlessly, and establishing new management leadership to ensure a successful unification.
Successful post-merger integration requires understanding its three key types: Procedural Integration, which involves aligning processes and workflows; Physical Integration, focused on consolidating facilities and tangible assets; and Managerial and Sociocultural Integration, emphasizing the unification of leadership styles and corporate cultures to ensure smooth collaboration and long-term success.
Procedural Integration is essential for combining the systems and procedures of merged companies across operating, management control, and strategic planning levels Its primary goal is to standardize and homogenize work processes, which enhances communication between the acquiring and acquired organizations Additionally, standardizing procedures boosts productivity, streamlines workflows, and reduces processing costs, ultimately leading to more efficient and cohesive corporate operations.
The core procedural step in a merger involves integrating legal entities by transferring ownership titles and consolidating the companies’ accounting systems Two primary methods for integrating financial statements are available: the pooling method and the purchase method, each suitable for different merger objectives The selection of the appropriate procedure depends on factors such as the merger’s purpose, terms, nature of purchasing arrangements, and strategic goals like enhancing the balance sheet structure through effective use of price-earning multiples and leverage.
Transfer of management control systems, including accounting and other functional procedures, is common during mergers When one firm has highly developed, effective, and transferable systems—for tasks such as inventory control, production scheduling, material requirements planning, sales analysis, order processing, and costing—these systems can be seamlessly integrated into the partner firm, enhancing operational efficiency and consistency across the merged entities.
Transferring systems at the functional level can be disruptive, often requiring the collection of new data, modifications to report formats, redesign of work procedures, structural adjustments, and potential changes in personnel to ensure a smooth transition.
Strategic Business Unit (SBU) Integration involves treating the acquired business as an autonomous profit center while aligning it with the corporate strategic planning system This process includes providing clear guidelines for the SBU's role within the overall portfolio and establishing long-term goals The new SBU is responsible for developing strategic plans and proposing specific programs to achieve these objectives, which are then approved by corporate management along with resource allocation Importantly, SBU integration typically does not require changes at the operational level, allowing most production and marketing activities to continue seamlessly as before the merger.
Physical integration of resources and assets typically partners with procedural integration, focusing on consolidating product lines, plants, equipment, and real estate assets This process is essential for streamlining operations and enhancing efficiency However, physical asset integration is often laborious and time-consuming, requiring careful planning and coordination to succeed Properly executed, it can lead to significant operational synergies and long-term business benefits.
Post-merger integration often involves redeploying assets through resource-sharing, which can present significant challenges Mergers typically occur between firms with asset continuity, meaning they share some common assets while also having mutually exclusive assets This asset continuity enables the merging partners to leverage each other’s resources effectively Additionally, mutually exclusive assets can create opportunities for synergistic operations when used jointly, enhancing the overall value of the combined firm.
Redundant assets such as physical assets—including product lines, production systems, R&D facilities, and raw material inventories—must be redeployed to ensure optimal resource utilization Non-material financial assets, such as tax credits, cash flows, reserves, and human assets like skilled workers, management personnel, and technical staff, also require strategic redeployment Effective asset redeployment demands careful management of three core integration elements—coordination, control, and conflict resolution—while simultaneously aligning with the overall objectives of the merger.
Theoretical background on Securities companies
1.3.1 Theoretical background on Securities company
A securities company is a licensed financial institution authorized by the State Securities Commission to operate within the securities market As a legal entity, it maintains its own capital and financial accounting system, enabling it to engage in various professional activities These activities may include securities brokerage, securities underwriting, securities trading, and asset management, among others, depending on its specific licensing and business scope.
According to the business formulation which is regulated in the Law on Enterprise 2005, a securities company can be: a joint stock company, a limited liability company or a partnership company.
A partnership is a business structure involving at least two partners who are joint owners operating under a common name It includes a general partner, who is an individual fully liable for all partnership obligations with their entire property, and may also have limited partners, who are liable only up to the amount of their contributed capital Partnerships are not allowed to issue securities of any kind, making them a straightforward and flexible business arrangement for joint business ventures.
A limited liability company (LLC) is a business entity with up to fifty members, which can be organizations or individuals Members are only liable for the company's debts and obligations up to the amount of their committed capital contribution Unlike corporations, LLCs are not authorized to issue shares, making them a flexible and protected form of business ownership.
A joint stock company is an enterprise with a charter capital divided into equal shares, allowing shareholders to own portions of the company Shareholders can be individuals or organizations, with a minimum of three shareholders and no maximum limit They are responsible for the company's debts and liabilities only up to the amount of their contributed capital Additionally, a joint stock company has the right to issue securities to raise capital and facilitate business growth.
Joint stock companies and limited liability companies offer significant advantages over partnerships, making them the preferred choice for securities firms Consequently, all securities companies are established as either joint stock companies or limited liability companies to maximize benefits and ensure legal and financial stability.
1.3.1.3 The roles of Securities Company
Securities companies play a crucial role in developing effective fund mobilization mechanisms for issuers Currently, most public issuances are carried out through consulting firms that are securities companies This approach is mandatory for initial public offerings (IPOs) and other public offers, ensuring compliance with regulatory requirements and facilitating successful capital raising.
Securities companies play a vital role in improving investor efficiency by providing expert consultation, saving time, and minimizing risks They also help increase the liquidity of financial products and offer essential market information to administrative authorities for effective market management.
SETTING UP POST-MERGER INTEGRATION PROCESS
Introduction of of Mekong Securities Joint Stock Company
2.1.1 Overview of Mekong Securities Joint Stock Company:
Mekong Securities Joint Stock Company (MSC), founded in 2002 and officially certified with Business No 103001480 in October 2012, is a licensed securities broker-dealer authorized by Vietnam’s State Securities Commission (License No 10/GPHDKD issued on February 18, 2003) Specializing in institutional clients, MSC offers tailored securities trading services focused on the Vietnamese equities markets, providing expert solutions for institutional investors seeking strategic and customized trading experiences.
Mekong Securities operates from its offices in Hanoi and Ho Chi Minh City, providing clients with access to Vietnam’s opaque listed and OTC markets through its sophisticated trading operations and comprehensive company research The company holds seats on both the Ho Chi Minh City Stock Exchange and the Hanoi Securities Trading Center, enabling it to effectively serve the needs of institutional clients Led by a top-tier management team of expatriates and Vietnamese nationals with extensive experience in both foreign and Vietnamese securities markets, Mekong Securities offers expert guidance and tailored investment solutions.
Ms Phan Thi Tuyet Nhung, Chairwoman
Master of Finance, having over 10 years of experience throughout various positions: Chief Accountant, CFO… and deep knowledge of the financial sector.
Ms Tran Thi Hue Chi – Member of Board of Management
Master of Banking and Finance, having 20 years of experience in the financial sector and enrolled in the ECC Securities Corporation and Vietnam Development Bank (VDB)
Mr Vu Van Hung – Member of Board of Management
A highly respected businessman with over 20 years of experience in investment and corporate governance in Vietnam, establishing strong relationships with key partners in the sector.
Mr Pham Sy Long – Director of the Investment Banking Services Sector
MBA graduate from California State University – Fullerton, USA, with a Bachelor's degree in Finance from RMIT University Australia, bringing over 10 years of experience as a lecturer at the Business School, National Economics University in Hanoi.
8 years as the expert in the financial consulting services sector.
Mr Pham Tri Thanh – CFO
Graduated from the National Economics University, I bring over 8 years of experience as a senior auditor for leading corporations, specializing in corporate finance and firm valuation across diverse sectors.
Ms Trinh Quynh Giao – Specialist of the Investment Banking Services Sector
Hold a Master of Finance and Banking degree from the University of Paris Dauphine and the European School of Management, along with a Bachelor's degree from the University of New South Wales, Australia With over 7 years of professional experience, he has worked in finance and banking across international and Vietnamese enterprises, including prestigious organizations such as PricewaterhouseCoopers, Bank of Investment and Development Vietnam (BIDV), Securities Corporation, and Indochina Capital Company.
2.1.3 Professional service and key accounts:
Evaluate the value of VTB and hold the first auction to sell VTB’s shares.
Consult exclusively Equitization process of VIPESCO in 2005.
300 billion VND Nha Be Garment
Hanoi Liquor joint stock company
Evaluate the value of HALICO, consult Equitization process and hold the auction to sell HALICO’s shares
Hold the IPO of Vinacoal
Total value is about 150 billion VND
Issue 6 million share of VIPESCO with total value of
Analyze and consult portfolio investment such as bonds and shares
Viet Long Plaza Consult debt restructuring, propose Sales plan, raising fund and find strategic partners
COTEC Group Consult bond issuances, corporation activities
Consult in negotiating M&A contract with Lhoist
Sell 10% share of FPT to Intel Capital and Texas Pacific Growth
Exclusively consult in penetrating the market and cooperate with Vinamilk
Overview of M&A activities in Vietnam
Merger and Acquisition (M&A) has gained popularity globally, but it remains a relatively new and emerging activity in Vietnam The first M&A transactions in Vietnam appeared after the Law on Enterprise was published in 1999, initially involving small-scale deals Over the past five years, M&A activity in Vietnam has experienced significant growth and development This increase can be attributed to several factors, including recent legal reforms, economic growth, and increased investor confidence in the Vietnamese market.
Vietnamese economy growing quickly leads to a numbers of opportunities generated for investors.
Several fundamental laws, including the Law on Enterprises, Law on Investment, Law on Competitions, Law on Bankruptcy, and Law on Securities, have significantly contributed to the effective regulation of M&A activities, despite the absence of a unified legal framework.
Joining the WTO of Vietnam has created more favorable conditions for foreign investors to have more confidence to invest in Vietnam which makes M&A more popular.
2.2.2 Current situation of M&A activities in the last few years:
Global M&A activity has become more explosive than ever, reflecting a surge in cross-border deals In Vietnam, the M&A market is still in its early stages but shows promising growth Recent years have seen increasing transaction values and deal volumes, highlighting the country's growing attractiveness to investors This trend signals Vietnam's emerging position as a key player in the global M&A landscape.
Figure 2.2: M&A Total Deal Size and Number of Deals in Vietnam
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2012, there is a small decrease in value of M&A deals to approximately 4.9 billion US dollar.
Figure 2.3: Number of M&A deals in 2011
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Inbound is M&A deals which foreign companies acquire Vietnamese companies
Outbound is M&A deals which Vietnamese companies acquire foreign companies
Domestic is M&A deals which Vietnamese companies acquire Vietnamese companies
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2012 was the most active year for banking sector M&A in Vietnam, marked by two significant hostile acquisitions involving Sacombank and Southern Bank The year also saw major strategic investments, including DOJI's investment in Tien Phong Bank and Viettel’s investment in MB Bank, alongside Thien Thanh Group’s acquisition of TrustBank Notably, 2012 featured Vietnam’s largest M&A deal at the time, with BTMU’s investment in VietinBank, highlighting a transformative year for banking sector consolidation.
In early 2013, PVFC officially announced its merger with Western Bank following the partial implementation of the transaction, marking a significant milestone in the banking sector Additionally, in March 2013, the government authorized Saigon Commercial Bank (SCB) to sell shares to foreign investors, opening new opportunities for foreign investment in Vietnamese banks.
M&A activity in the banking sector is anticipated to remain strong throughout the upcoming year, driven by the State Bank of Vietnam's industry restructuring plan As part of this initiative, the number of commercial banks will decrease significantly, from 39 existing institutions to approximately 13-15 banks by 2017.
In Vietnam, beyond commercial banks, consumer finance services are primarily offered by eight financial companies and specialized consumer finance providers Leading companies in this sector include Prudential Finance, Société Générale Viet Finance (SGFV), and PPF, which are the largest providers of consumer finance solutions in the country.
Many commercial banks have shifted their focus from primarily corporate credit to expanding personal financial services, including consumer finance, as a strategic response to high non-performing loan rates This strategic shift involves developing and promoting a diverse range of consumer finance solutions to better serve individual customers Mergers and acquisitions between consumer finance providers with established networks, processes, and systems are considered effective strategies to strengthen market position However, the industry currently has a limited number of companies capable of supporting such integration, presenting both opportunities and challenges for growth in the consumer finance sector.
The consumer finance sector is expected to experience significant growth in M&A activity due to its low market penetration and substantial opportunities for expansion in both size and profitability Despite these promising prospects, new licensing challenges present a major obstacle to industry consolidation However, these licensing issues can be addressed through strategic acquisitions of smaller banks that hold necessary licenses but are facing difficulties, enabling larger financial institutions to expand their presence and capitalize on the sector’s growth potential.
Since 2012, foreign investors such as South Korea’s Lotte and Japan’s AEON have predominantly focused on acquiring commercial and retail center projects, while apartment projects have received relatively little attention Mergers and acquisitions in the residential segment mainly involve increasing foreign ownership, exemplified by Perdana Parkcity Malaysia, which raised its stake from 75% to 100% in a joint venture with Vinaconex Citadel prior to financial challenges and repayment deadlines.
Several office buildings and resort projects have been transferred to the bank as overdue bank loans, which are now deductible Most of these properties have established a solid capital structure, with existing operations and stable cash flows ensuring financial stability.
In 2012, Food and Beverages M&A deals are mainly small-scale business except for the $96 million that Masan Group bought 40% stake of Proconco and
$34 million that Ezaki Glico (Japan) bought 10% of Kinh Do Bakery, the remaining 15 deals valued at less than $10 million.
There is no hundreds of millions of dollars deals as in 2011 related to CP Pokphand China - CP Vietnam ( 609 million dollars ) , Carlberg - Hue Beer ( $
Setting up Post-merger process for M&A consulting service at MSC
According to Section 7, Article 60 of Circular No 120/2012/TT-BTC by the Ministry of Finance, securities companies are authorized to provide financial consulting services, including advice on restructures, mergers, consolidations, reorganizations, and business sales Therefore, MSC must operate as a recognized securities company to offer financial consulting and M&A post-merger services.
MSC is a licensed securities company established in 2002, officially certified with Business No 103001480 on October 14th, 2012 With this certification, MSC is authorized to provide comprehensive financial consulting services, including post-merger advisory in M&A transactions As a reputable financial firm, MSC offers expert guidance to clients navigating mergers and acquisitions, leveraging over two decades of industry experience.
2.3.2 Situations Post-merger Integration service provided:
There are two situations that MSC can provide Post-merger consulting service:
- Companies which MSC provide M&A consulting service from the strategy planning step.
- Companies which are provided M&A consulting service by other consulting companies without the Post-merger Integration step and come to MSC to have consultancy of the final step.
MSC's M&A consulting services are a core offering designed to support clients throughout their merger and acquisition journey Their comprehensive process is divided into three key steps: M&A Strategy, where tailored plans are developed; Target Screening, which involves identifying suitable acquisition targets; and Transaction Execution, focusing on the successful closing of deals This structured approach ensures clients receive expert guidance at every stage of the M&A process, optimizing outcomes and fostering growth.
Figure 2.5: M&A consulting process at MSC
MSC help their clients to identify their strategic opportunities and impartially assess their relative capabilities to exploit these opportunities, identifying gaps that may be filled through acquisition.
MSC provides an impartial assessment of the potential value and feasibility of acquisitions, developing criteria to identify suitable acquisition targets and potential buyers for divestments Their recommendations are based on a comprehensive understanding of the transaction environment, including market dynamics, competitive landscape, and regulatory considerations, ensuring a holistic approach to each opportunity.
With an M&A strategy firmly in place, finding the right partner is the first step in a value-based M&A process.
MSC assists companies in identifying strategic, financial, and organizational screening criteria to narrow down potential acquisition targets, enhancing the likelihood of successful, value-creating transactions They efficiently execute target screening assignments within specified timeframes, resulting in a curated shortlist of high-value acquisition candidates.
MSC has experience that driving value from acquisitions demands an overwhelming focus on understanding the sources and magnitude of merger benefits as well as the risks of achieving them.
MSC assists clients in understanding their target markets and identifying opportunities to eliminate redundant activities, improve baseline performance, and leverage economies of scale By creatively exploiting the combined resource bases of both acquiring and target companies, MSC helps to unlock additional value Recognizing and quantifying these merger benefits provides a crucial benchmark for accurate pricing, guides negotiation strategies, and lays the groundwork for accelerated value realization post-merger—ultimately driving enhanced business performance and growth.
Gaining deep insights into your target company—going beyond publicly available information like annual reports, statutory filings, and press releases—is essential for making informed decisions during the M&A process This comprehensive understanding provides a competitive advantage by revealing hidden opportunities and potential risks, ultimately leading to more successful mergers and acquisitions.
MSC undertakes rapid strategic and financial position assessments of potential targets to inform all stages of the M&A process, including pricing negotiations, deal structure and takeover defense.
All too often companies forget that winning in the M&A arena is not just about securing the right assets but the right assets at the right price.
MSC helps clients to develop the approach, negotiations and market communications strategies to achieve a win-win transaction at a win-win price.
MSC offers a value-driven and impartial approach throughout the transaction process, ensuring seamless execution They adapt strategies and tactics quickly in response to evolving market conditions, new information, competitive moves, and target behaviors, guaranteeing optimal outcomes and strategic agility.
2.3.4 Setting up Post-merger process for M&A consulting service at MSC
After studying the Post-merger Integration process of a numbers of international M&A transactions, this following Post-merger Integration process is proposed for MSC to complete their M&A consulting service:
Figure 2.6: Post-merger Integration process proposed
(Source: PWC) Phase I: a, Set the course:
Developing a clear strategy for the combined company is essential after a merger, as the new entity must establish its strategic direction to ensure sustained growth and profitability Since the merged company is created through a merger process, it does not inherit a predefined strategy; instead, crafting a well-defined strategy becomes crucial for shaping its future success A robust strategy guides decision-making, aligns resources, and drives innovation, ultimately resulting in increased business growth and long-term benefits Therefore, it is vital for the new company to articulate a strategic plan that leverages combined strengths and positions the organization for competitive advantage.
After a merger, it is essential to assess the degree of integration and identify non-negotiable elements Conducting a thorough evaluation helps determine which aspects can be effectively combined and which cannot, enabling the company to develop targeted solutions Understanding the current situation allows the organization to avoid potential damages and maximize the benefits of the merger, ensuring a smoother transition and long-term success.
Identify and protect core operations out of integration scope: This will help the company maintain their advantage and core value.
Customize the integration structure and approach: Choose the suitable model of structure will help company receive optimal result.
To ensure successful integration, it is essential to designate leadership roles at all levels and establish a dedicated Integration Management Office Assigning clear leadership responsibilities helps maintain accountability and streamlines decision-making processes The Integration Management Office plays a crucial role in facilitating a smooth transition by addressing challenges promptly and coordinating efforts across teams This structured approach minimizes conflicts over managerial roles and accelerates the overall integration process, promoting seamless organizational alignment.
Developing and executing an early communication plan is essential for maintaining strong relationships with customers, employees, and stakeholders A well-crafted communication strategy helps the company stay connected, fostering trust and transparency By proactively sharing information, it reduces the risk of losing customers or suppliers, ultimately safeguarding the company's reputation and ensuring business continuity.
Immediately after closing, a welcoming letter or individualized e-mail is to be sent to the employee of the acquired entity Ideally the message is translated into local language, including:
Welcoming words from the CEO or top manager
New location (ensure that every transferring employee is assigned a work place and is aware of it)
Who to contact for questions/answers etc.
The buyer’s corporate communications function should arrange for all customers to be sent a letter informing them about the acquisition and anticipated changes from their point of view.
Key customers should also be individually contacted by sales individuals and management, where appropriate
Identify all important vendors and partners that need to be informed
Prepare a letter informing about the acquisition and anticipated changes
Co-ordinate with corporate communications function for a unified message b, Plan for “Day one”:
On Day One, immediately following a change of ownership, all functions must collaborate to identify and execute essential requirements This involves forming dedicated teams, establishing clear workflows, and coordinating personnel efforts with the support of the Integration Team to ensure a seamless transition.
Develop a comprehensive 100-Day Plan incorporating quick wins by outlining specific actions aligned with the designed Future State This strategic plan ensures the realization of the desired future outcomes, satisfying stakeholder expectations and driving immediate progress toward long-term goals.
Secure resources and implement retention programs c, Design the future state:
Designing functional and operational "to-be" states involves understanding the owner's vision, available resources, and the company's current situation By aligning these factors, clear expectations and goals are established to ensure the company's future state meets the owner's needs and strategic objectives.
RECOMMEMDATIONS FOR LAUNCHING SERVICE
General comment
Mergers and acquisitions (M&A) are increasingly popular in Vietnam's business environment, driving a growing demand for specialized consulting services MSC stands out as a leading financial institution offering expert M&A consulting, gaining a competitive edge through effective Post-merger Integration processes However, competitors are becoming aware of MSC's current advantages and are working to enhance their own M&A consulting practices, which may pose significant challenges to MSC's market position.
MSC boasts a large, experienced financial consulting team renowned for its successful M&A deal executions, enhancing the company's reputation and brand image This expert team sets MSC apart from other financial firms that often lack such seasoned professionals, ensuring high-quality M&A consulting services.
MSC offers highly competitive M&A consulting services, pricing their packages at approximately 1.3% of the total deal value For example, on a $10 million deal, MSC’s fee would be around $130,000, making their service more affordable compared to the typical costs exceeding $10,000 for similar deals This cost-effective pricing strategy attracts clients by providing quality advisory at a lower rate, establishing MSC as a cost-efficient choice in the M&A consulting industry.
MSC has established extensive relationships with major companies through successful collaborations, strengthening its market presence These strategic partnerships not only help MSC attract new customers but also enhance its reputation through positive testimonials The company’s strong network of industry connections contributes significantly to its growth and credibility in the market.
Many financial consulting firms are currently finalizing their service processes to strengthen their market positions This increased competition diminishes MSC’s traditional advantage of offering superior M&A consulting services Additionally, numerous securities companies are entering the M&A consulting market, intensifying the competitive landscape.
- In last few years, the number of M&A deals reduces significantly If this trend continues, M&A consulting market will be more competitive and not profitable anymore.
Research process
In this thesis, the main method used to gather data and information is Secondary data collection method:
- Theoretical background of M&A in text books, thesis and lecture’s materials.
- Market information and opinions in Newspaper and websites
- Laws and regulations published by the government.
Chapter 1: Theoretical background on M&A consulting service at securities company
Chapter 2: Setting up Post-merger Integration process for M&A consulting service at MSC
Chapter 3: Recommendations for launching process
CHAPTER 1 - THEORETICAL BACKGROUND ON M&A CONSULTING
Mergers and acquisitions (M&A) are crucial components of corporate strategy, focusing on the buying, selling, dividing, and combining of companies to facilitate rapid growth They enable enterprises to expand within their sector or enter new markets and locations without establishing subsidiaries, creating new entities, or forming joint ventures M&A strategies are essential for companies looking to enhance their market position and achieve business growth efficiently.
M&A transactions vary from multi-million dollar deals involving large corporations to smaller asset sales or liquidations by private investors or competitors While the public may perceive mergers and acquisitions as threatening to employee jobs, these deals are often driven by companies' needs to refinance, restructure, and enhance shareholder value Ultimately, acquisitions aim to improve market competitiveness, increase operational efficiency, and expand market share for the buyer.
Under Vietnam's Law on Competition 2004, a merger involves one or more enterprises transferring all their assets, rights, obligations, and interests to another enterprise, resulting in the termination of the merging entities An acquisition, on the other hand, occurs when an enterprise purchases all or part of another company's assets to gain control or influence over its activities.
1.1.2.1 Classification based on approaching types
-Merger is the case when the boards of directors of two firms agree to combine and seek stockholder approval for the combination In most cases , at least
A merger occurs when 50% or more of the shareholders of both the acquired and acquiring companies agree to combine, resulting in the target firm ceasing to exist and becoming part of the acquiring company A typical example of this type of M&A is the acquisition of Hanoi Building Commercial Joint Stock Bank (Habubank) by Saigon – Hanoi Commercial Joint Stock Bank (SHB), where Habubank was fully merged into SHB.
Consolidation is a form of mergers and acquisitions (M&A) where the acquired and acquiring companies combine to form a new legal entity Typically, at least 50% of the shareholders from both companies agree to the merger, ensuring a smooth transition A notable example of consolidation is the merger between Sony and Ericsson, resulting in Sony Ericsson This partnership allowed Sony, known for music players, and Ericsson, a mobile phone manufacturer, to join forces and produce phones with superior music features, setting them apart from competitors.
A tender offer is a strategy used by a firm to acquire shares of a target company to gain control of its board of directors This approach involves bidding a significant number of shares at a premium price to persuade shareholders to sell their stakes Since a tender offer bypasses the target company's board approval, it is often considered a hostile takeover attempt.
As long as the acquiring firm collects enough amounts of shares of the target then it could turn out to be a merger
Asset acquisition is a type of M&A where the acquiring company purchases all the assets of the target firm, leading to the eventual dissolution of the target This approach is commonly used for companies with significant tangible fixed assets like factories and machinery For example, Kinh Do Corporation’s acquisition of Unilever’s Wall ice cream machinery system exemplifies an asset acquisition deal.
-Individual buyout is the separated type of M&A compared to other 4 types.
An individual buyout occurs when a single investor or a group of investors, often a member of the board of directors, seeks control of a target company through a tender offer This type of acquisition is known as a management buyout when current management team members are involved in the purchase If the acquisition is financed primarily through borrowed funds, it is referred to as a leveraged buyout, where the company's cash flow from operations is used to service the debt These strategies enable investors to gain control while optimizing financial structures to maximize returns.
Figure 1.1: Classification of M&A base on approaching types.
(Source: Takeovers, Restructuring and Corporate Governance)
1.1.2.2 Classification based on the relation between products
A horizontal merger occurs when two companies operating in the same industry and offering similar goods or services combine This type of business consolidation is common in industries with fewer firms, where competition is higher, and the potential for increased market share and synergies is significant Horizontal mergers often aim to strengthen market position, reduce competition, and achieve operational efficiencies within the industry.
A vertical merger occurs when two companies operating at different levels within an industry’s supply chain combine their operations This type of merger typically involves firms producing different goods or services that contribute to a single finished product The primary goal of a vertical merger is to increase operational synergies and improve efficiency by integrating complementary stages of production By merging, these firms can reduce costs, streamline processes, and enhance their competitive advantage in the market.
-Market-extension merger: Two companies that sell the same products in different markets
-Product-extension merger: Two companies selling different but related products in the same market
A conglomerate is a large corporation composed of diverse, seemingly unrelated businesses, where one company owns a controlling stake in multiple subsidiaries Each subsidiary operates independently in its specific industry, ensuring autonomy in daily operations Despite their independence, the management of these subsidiaries reports directly to the senior management at the parent company, enabling coordinated oversight across the conglomerate's various business divisions.
1.1.2.3 Classification based on geographical location
-Domestic merger: A merger occurs between firms inside a country
-Cross-border merger: A merger occurs between firms in different countries, usually used as one of the most effective investment approach of companies into new markets
1.1.2.4 Classification based on the attitude of target firms toward the merger
A friendly takeover occurs when a target company's management and board of directors agree to a merger or acquisition by another firm This process involves the acquiring company making a public offer of stock or cash to purchase the target company The target's board publicly approves the buyout terms, although final approval may still depend on shareholder and regulatory consent This cooperative approach ensures a smoother transition and alignment of interests between both companies.
A hostile takeover occurs when one company (the acquirer) acquires another company (the target) without the target company's management's approval This strategy involves directly appealing to shareholders or attempting to replace management to secure approval for the acquisition Hostile takeovers can be executed through methods such as tender offers or proxy fights, making them aggressive approaches to corporate acquisitions.
Undervalued firms present attractive acquisition targets for investors who identify market mispricing, aiming to capitalize on the discrepancy between the company's true value and its market price By acquiring these undervalued companies, acquirers can profit from the significant surplus created when the assets are eventually revalued accurately For this strategy to succeed, three essential components must align: accurate identification of undervaluation, strategic acquisition execution, and the market correcting the mispricing over time.
The ability to identify undervalued firms relies on possessing superior information or advanced analytical tools This enables investors to spot opportunities where companies are trading below their true worth, providing a competitive edge in the market.