|What is M&A? What benefits does M&A bring?
Surely many of you still remember the Grab acquisition of Uber in 2018. This can be considered one of the most complicated M&A deals recently known in Vietnam. Or the case of Central Group, a corporation from Thailand, acquiring BigC Vietnam in 2016. These transactions are called M&A. So, what is M&A and what benefits does it bring?
|What is M&A? What benefits does M&A bring?
What is M&A?
M&A stands for mergers and acquisitions, which means the merging and purchasing of businesses in the market.
|What is M&A?
The main purpose of M&A is to gain control of the business being sold. The acquiring company will own all or a majority of the shares, thereby participating in and deciding on important matters in the acquired business. Specifically:
- Mergers: This means linking businesses of the same scale to create a new business with a larger scale and a new legal entity. The merged entities will transfer all assets, shared benefits, rights, and obligations to the merged company.
- Acquisitions: This is a method in which a larger company acquires legal ownership of smaller businesses. The acquiring company retains its existing legal entity.
What are the benefits of M&A?
The transaction value of major M&A deals in the world can be astonishing. For example, in 2014, Facebook acquired WhatsApp for $19 billion USD. Therefore, many people wonder about the benefits of M&A.
According to economic experts, M&A in the world, as well as in Vietnam, brings many significant benefits, which are often known as a way to create synergy by reducing costs, expanding market share, and increasing revenue. Specifically:
Enhancing Business Scale
The merged businesses will enhance their scale, upgrade production lines, or expand distribution range. The businesses will have more branches spread across different locations. This boosts the capability of product distribution, and the business gains a larger market share.
M&A Helps Reduce Labor Costs
In the world, many companies merge with each other to reduce the need for employment, screen employees with abilities and experience to work more effectively. Ineffective or unnecessary job positions that are outdated will be eliminated.
|M&A helps reduce labor costs
Improvement of Financial Strength
After completing M&A, businesses have additional capital to use and improve financial strength and transparency, reducing risks.
Enhancement of Technology and Expertise
Thanks to M&A, businesses can leverage each other’s technologies or expertise. In fact, many M&A deals occur because large companies are interested in the technologies and expertise of smaller companies and want to legally own them.
|Facebook’s acquisition of WhatsApp is a major M&A deal
What are the forms of M&A implementation?
The merger and acquisition process can be divided into 3 types as follows:
Horizontal M&A is a form of buying or merging between businesses with the same services or similar products. Or there may be similarities in the end consumers, performing the same industry at the same stage of production. Thus, they may be direct competitors to each other.
For example, companies in the construction sector merging with each other are called Horizontal M&A. The benefit of Horizontal M&A is to eliminate competition, increase market share, revenue, and profits together.
Vertical M&A is a form of merger between businesses operating in the same production chain of a particular service or product. The difference between these businesses is the production stage.
For example, an electronic component company merging with a laptop manufacturing company to provide essential equipment and goods to each other. This form also eliminates supply chain disruptions during production, helps increase revenue and profits, and reduces intermediate costs.
Conglomerate M&A (Combination M&A)
Conglomerate M&A is a form of merger and acquisition to create conglomerates. This process occurs between companies that have the same target customers but do not provide the same product or service. Instead, their products complement and support each other.
Therefore, Conglomerate M&A has occurred to help diversify products and services, thereby increasing profits. This process also helps businesses minimize risks and save costs when entering the market.
These are explanations of what M&A is and the benefits of M&A. It can be seen that expensive M&A deals are bringing significant benefits to the owning businesses. Therefore, M&A plays an important role in modern society.