Benefits and risks when business mergers

Business mergers are becoming a trend in the Vietnamese market. This process brings opportunities to expand scale, increase business efficiency and market integration. However, implementing business mergers also poses legal, financial and corporate cultural risks. This article will analyze in detail the benefits and risks when implementing a merger, providing practical information for customers.

Regulations on business mergers

What is business mergers?

Business mergers are the process of merging two or more companies (called the merged company) into another company (called the merging company). This process takes place when a company transfers all assets, rights, obligations and legal interests to another company. After the merger, the merged company ceases operations and the merged company continues to exist.

According to Vietnam Law on Enterprises, merger is considered a form of business restructuring. This process requires approval from the Board of Directors and the General Meeting of Shareholders of the companies involved. Mergers often take place between businesses in the same industry or related to each other’s value chain.

Based on the content in Clause 1, Article 201 of the Law on Enterprises 2020.

Common forms of merger

The M&A market in Vietnam records three popular forms of merger:

• Horizontal merger: Takes place between businesses in the same industry, to increase market share and scale;
• Vertical merger: Involves companies in the same supply chain, providing better control over production and distribution processes;
• Diversification merger: Occurs between businesses in different industries, to expand investment portfolio and reduce risks.

Main benefits of business mergers

Increase scale and market share

Business mergers creates opportunities to expand the scale of operations and quickly increase market share. When two companies merge, they combine resources, customers, and distribution networks. This helps the merged enterprise have a stronger competitive position in the market. Businesses can immediately reach a new customer base, expand their geographic scope or diversify their products and services. Increasing market share also provides negotiating advantages with suppliers and partners.

Improve business efficiency and income

Mergers facilitate operational process optimization and cost reduction through synergies. Businesses can eliminate duplicate departments, take advantage of economies of scale, and share resources. Combining the technology, processes and experience of the two businesses also drives innovation and improves productivity.

Post-merger businesses often have stronger financial capacity to invest in research, development and market expansion. As a result, revenue and profits grew faster than before the merger.

Creating competitive advantage in the era of integration

In the context of international economic integration, mergers help businesses enhance their competitiveness. Larger scale and greater resources allow the company to invest in advanced technology, develop new products and expand international markets. Post-merger businesses are in a better position to deal with multinational competitors.

Mergers also create opportunities to access technology, business know-how and talent of partners. This is especially important when businesses want to enter new markets or new business areas. Competitive advantage from mergers helps businesses stand firm against the challenges of a globalized economy.

Synergy of resources and technology

Business mergers create synergistic effects from combining resources and technology of businesses. The merged company can take advantage of each party’s strengths to create added value. Technological resonance drives innovation and faster new product development. Businesses can combine technology platforms, databases and R&D (Research and Development) processes to create breakthroughs in the industry.

Risks and challenges when implementing mergers

Difficulties in the process of unifying corporate culture

Differences in corporate culture are one of the biggest challenges when merging. Each company has its own values, work style and organizational structure. Blending two different cultures can cause internal conflict and tension. Employees often worry about losing their jobs, changing positions, or having to adapt to a new work environment. This can lead to decreased productivity and morale.

Legal risks during implementation

The business mergers process requires compliance with many complex legal regulations. Businesses face cumbersome administrative procedures and may encounter problems with competition law, labor law or industry regulations. Legal risks are also related to handling potential disputes and lawsuits of the merged company. The merged enterprise may incur unforeseen debts or liabilities.

Challenges in management and administration after the merger

Businesses face challenges in restructuring their organizations and management systems. Consolidating departments, divisions, and work processes requires significant time and resources. There may be overlapping functions, conflicts in decision making or difficulties in internal communication.

Financial risks and inaccurate valuation

Mistakes in business valuation are a major financial risk when implementing mergers. If the company overbids the deal, it could lead to debt and financial difficulties in the future. On the contrary, a valuation that is too low can cause shareholders to disagree or miss the merger opportunity.

Financial risks are also related to incorrect forecasts of synergies and economic benefits from mergers. Many businesses overestimate the ability to save costs or increase revenue after a merger. When these forecasts do not come true, it can seriously affect the company’s business results and stock value.

Effective business mergers process and strategy

An effective business mergers process starts with clearly defining strategic goals. The board of directors and management need to carefully evaluate the reasons for the merger and the expected benefits. Next, businesses need to perform comprehensive due diligence on potential partners, including financial, legal and operational.

The negotiation and contract signing phase requires the participation of M&A consultants. Enterprises need to develop a detailed integration plan, including a new organizational structure, human resources management strategy and a roadmap for integrating systems. Information disclosure and internal communication also play an important role in this process.

Effective monitoring and evaluation and evaluation are important. Management needs to establish key performance indicators (KPIs) to measure the success of the merger process. These KPIs can include revenue growth, cost reduction, market share, and customer satisfaction.

Businesses need to develop a clear communication plan to address concerns of employees and stakeholders. Organizing training sessions, seminars and team-building activities can help build a new corporate culture and strengthen employee engagement.

Thorough preparation in terms of information technology. Integrating IT systems, databases and business processes is a major challenge. Businesses need to have detailed plans to ensure business continuity during the transition process.

Based on the content in Article 201 of the Law on Enterprises 2020.

Business mergers consulting services in Long Phan

Long Phan provides comprehensive consulting services for the business mergers process. Our team of experts has extensive experience in the field of M&A in the Vietnamese market. We support customers in every stage of the merger process. Long Phan’s consulting services include:

• Assess the market and identify potential partners;
• Financial and legal appraisal;
• Support negotiation and transaction structure.

We also provide consulting on risk management, legal compliance and post-merger integration strategy. In particular, Long Phan has experience in handling complex issues of corporate culture and human resource management during the merger process. Our goal is to help clients maximize value from the merger process and achieve their strategic goals.

Merging businesses creates competitive advantages and increases business efficiency, but also faces risks that may occur later. Long Phan provides in-depth consulting services to support customers in the process of implementing this complex transaction. We advise on effective merger strategies, accurate asset evaluation and strict management. Contact Long Phan immediately via Hotline 0906735386 to receive support from experts on business mergers.