Mergers and acquisitions between companies have a different focus on value creation than mergers and acquisitions by investment funds or investment companies.
Advantages of overseas mergers & acquisitions
Enterprises take their own growth as the ultimate goal, and M&A Negotiation overseas can directly increase the scale, market share, profitability, and valuation of enterprises. Value creation goals include horizontal mergers and acquisitions that pursue economies of scale, vertical mergers that control their upstream and downstream supply chains, and hybrid mergers that pursue economies of scope and risk diversification.
Regardless of the method of cross-border mergers and acquisitions by Chinese-funded enterprises to overseas enterprises, the core lies in the cross-border synergy, that is, using the target of overseas mergers & acquisitions to expand the scale of global production and operation to reduce the average cost;
Improve the supply chain to ensure supply while controlling or reducing purchase-side costs and inventory costs;
Use the technology and patents of the target company to improve the quality of its own products, reduce costs or duplicate products;
Assist the target company to expand production and sales in China to enhance value;
Let the target company assist in the export of domestic products.
Enterprises that realize capital transfer by investment are not included in this list, and their best goal is stable asset value and strong liquidity.
Investment funds and investment company mergers and acquisitions take excess financial returns as their core goals. Favored targets include companies with strong cash flow, low valuations, divested assets, problematic or troubled companies with greater room for integration and improvement.
Its value creation means include several aspects: first, integration, including merger, spin-off and sale of target enterprises; second, production, sales, finance, operation, management improvement, etc.; third, increase leverage to increase income; fourth, seek favorable exit timing and conditions.
Compared with overseas mergers & acquisitions between enterprises, investment fund or investment company mergers and acquisitions generally have no synergistic benefits, nor economies of scale, scope, and industrial chain, so there is no advantage in creating value in this regard.
However, they are often able to buy giant companies by raising funds and adding leverage, and they are good at achieving value-enhancing goals within a given holding period through various integrations, overseas company reorganization, spin-offs, performance and value enhancements, transfers or listings.
Because of the different goals of value creation, overseas mergers & acquisitions often occur between excellent companies with good synergy and integration benefits, or between competitors. Investment funds or investment company mergers and acquisitions often target poorly managed targets with problems in management, finance, operations, and governance. Therefore, the enterprise may undertake the raised target that the investment fund or the investment company has withdrawn, and can create further value.
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