Risks in the process of business mergers and acquisitions (m&a)

In today’s business world, M&A deals have become an indispensable part of companies’ development strategies. From acquiring a small company to expand the scale of operations, to merging two large companies to create a new strength, M&A deals are increasingly becoming an important tool in achieving success and sustainable growth in a fiercely competitive market.

So what is M&A? 

M&A is the abbreviation of the phrase Mergers and Acquisitions. M&A are business activities in which a company or corporation makes acquisitions or mergers with another company or corporation to create a new entity that is larger in scale and can bring economic benefits to related parties. M&A is often used as a strategic tool to scale a business, enhance market position, grow rapidly or achieve other benefits.

M – Mergers  (merger): is the process by which two or more separate companies combine to form a new company or a company that will continue to operate but will be owned or controlled by the same company. company buys back. The purpose of mergers can be to increase the company’s size, competition, coverage, or to take advantage of various economic benefits such as increased profits, cost savings and increased shareholder value. There are many types of mergers, including horizontal mergers, vertical mergers, and conglomerate mergers.

A – Acquisitions: is the process by which one company acquires another company by purchasing all or part of that company’s shares. An acquisition may be made with the intention of gaining control or management of the target company, or to take advantage of the target company’s assets, manufacturing capabilities or technology. The acquiring company often has to pay a sum of money or exchange shares to buy back shares of the target company. Acquisitions are often used as a tool to increase the scale of operations, company coverage, or to expand the field of operations and increase sales.

The benefits of mergers and acquisitions (M&A)

1. Expanding business scale: M&A allows companies and corporations to expand their business scale by merging or acquiring companies others, enhance their competitive power and enhance their market position.
2. Rapid growth: M&A can help companies and corporations grow more quickly by merging or acquiring other companies that already have market share and customers.
3. Cost savings: M&A can help reduce production and management costs by sharing resources and systems of companies companies merge or acquire.

Risks in the process of business mergers and acquisitions (M&A)

1. Legal risks:

Legal risks include: risks during operations such as the business being suspended, owing taxes or not complying with legal regulations during the business process (not having a sublicense when doing business). Risks related to litigation and disputes regarding civil and labor contracts. Depending on each case, each actual transaction, the specific industry of the business or depending on the agreement of the buyer and seller, the seller must provide the following legal documents:

– Establishment and operation records (Business registration certificate, sub-licenses and other documents related to the Company’s establishment and operation process);

– Capital records of business owners/members/contributing shareholders (minutes/agreements/capital contribution contracts of company owners/members/founding shareholders/existing shareholders. Agreements/purchases-transfers between company members/shareholders. Loan contracts, bonds. Capital contribution certificates/share certificates, capital contribution asset valuation certificates, certificates from proving transfer transactions related to capital contributions, transfers, and loan-related transactions arising at any time.

– Records of personnel and organizational structure of the Company (Meeting minutes, resolutions/decisions of the Board of Management/Board of Members/General Meeting of Shareholders/company owners related to all issues of appointment, dismissal, and disciplinary handling of positions Key features of the Enterprise.

– Labor records (Labor contracts – personnel in the company, labor regulations, salary scale, collective labor agreement…;

– Contracts and transactions of the Enterprise including Contracts for providing and using services;

– Records of assets of the enterprise: List of assets owned by the enterprise. ownership of the business/lease or lease. Documents proving ownership, use, protection certificates for intellectual property assets;

– Tax, accounting, and banking records: Annual financial statements, accounting records, bank confirmations, transaction statements…

After receiving the above documents, the buyer can appraise them themselves or hire a party. Third, appraisal, based on which a specific report on the seller’s legal situation is obtained.

2. Financial risks:

This is the risk that the buyer is particularly concerned about, these risks may be related to the enterprise not contributing enough capital, the source of business capital is not transparent, and asset risks include asset valuation not true to actual value. Risks in debts to state agencies and partners. Normally, to check and review financial-related content, the buyer will hire independent auditing units to review financial risks. For assets, they will hire an appraiser to revalue the business.

The above are the risks related to buying and selling businesses. In this article, we only give basic notes for buying and selling businesses, in order to limit the risks in the process of buying and selling businesses. If you need consulting support, please contact us for answers.