Benefits And Limitations When Doing Business Mergers
What is a business merger? What are the conditions, processes, and procedures for business merger registration? This is an issue that companies and businesses intending to merge are very interested in.
Overview of business mergers
In an era of vibrant economic development and an increasing trend of international integration, business mergers are no longer rare. The purpose of this work is towards the mutual benefit of both parties. Here are the basics of what a business merger is.
1. Understand what is a merger?
The business merger can be understood as a form of business reorganization. Accordingly, one or several companies (referred to as the merged company) transfer all of their assets, legal rights, and interests into another company (referred to as the merged company). At the same time, terminate all activities of the merged company.
For example: If enterprise A merges with enterprise B, then enterprise A will cease to exist. At this time, the shares of company A will be converted to shares of company B.
All business merger procedures are now governed by the Enterprise Law 2014. The merger process always requires strict legal compliance with the merging or merging enterprises.
2. Forms of business mergers
Currently, there are 5 popular forms of mergers and acquisitions, which are:
- Horizontal merger: This is a form of merger between businesses with the same product or service line. Companies, businesses, in this case, are usually direct competitors.
- Vertical merger: This type of merger takes place among businesses in the supply chain. For example, between a company and its customers or suppliers.
- Market expansion merger: A merger occurs when two businesses are engaged in the same business of the same product or service but in different markets.
- Product expansion merger: This type of merger takes place for two businesses that sell or provide different products or services. However, they are interrelated in the same market.
- Conglomerate merger: This type of merger takes place between businesses that serve the same customers in a particular industry. However, those businesses or companies are not in the same line of business. The aim is to diversify business activities.
Benefits and limitations when doing business mergers
The merger of enterprises is increasingly becoming a development trend of companies and business enterprises. So what are the benefits of a business merger and what are its drawbacks?
The benefits of mergers and acquisitions are:
a) Enterprise-scale is expanded
The merger of two or more businesses will create larger scales of capital, labor, number of branches, etc. Thereby creating the ability to provide capital for larger-scale projects. Competitive interest rates are also higher. In addition, the increase in branches after the merger will meet the increasing demands of customers.
b) Take advantage of the customer system
Every business created has its unique business characteristics. Therefore, when combined, they will have their strengths to complement each other. After the merger, the enterprise will inherit the customer system of the previous business. As a result, customers will be provided with products and services that previous businesses did not have. This helps to increase customer engagement. At the same time increase revenue for the business after the merger.
c) Enterprise value is enhanced
The merger of enterprises will promote business advantages on a large scale. It helps to reduce the implementation costs if the operation is to be scaled up. This is followed by cutting down on redundant and inefficient employees.
In addition, the merger between suitable businesses will contribute to taking advantage of strengths in products, services, and customer sources. Thereby increasing operational productivity for businesses, bringing high profits, quickly reaching a higher position in the international business market.
Besides practical benefits, business mergers also have some limitations such as:
a) Affecting the interests of small shareholders
The business merger process will greatly affect the interests of small shareholders. The opinions of small shareholders may be ignored in the General Meeting of Shareholders when approving the merger. Because their votes are not enough to veto the resolution of the General Assembly. When small shareholders do not accept the merger, they will sell their shares. Thus, they will be disadvantaged quite a lot. Since this is the phase when the merger is about to be completed, the share price will not be high.
In case these shareholders continue to hold, the ratio of their voting rights to the total number of voting shares will be smaller. Because usually, after the merger, the amount of charter capital will increase. Therefore the total number of voting rights will be higher than before.
b) Major shareholders are prone to conflicts
After the merger process, the merged enterprise will operate with a larger share of capital. Major shareholders of the acquired business may lose control of the business as before. At that time, major shareholders will find ways to link together to create their power.
The purpose is to control the business after the merger. This race will never end until the parties mutually satisfy their interests. In addition, the business owners have never cooperated, so after the merger, it is easy to lead to conflicts.
c) Corporate culture is not uniform
When conducting a merger, the corporate culture in each place will gather in a new environment and new conditions. The staff will feel confused at first. They will have to find a way to adapt to the new changes with the mindset of maintaining the old corporate culture and absorbing more culture from other businesses.
If the leadership does not find the optimal way to combine the corporate culture, it will lead to conflict among the staff. In the long run, it will make the management of corporate culture lose, lack consistency.
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