VPS | The Business Merger and Acquisition Process

The main stages of the process

Determining the completion point of a merger and acquisition cycle is often unclear. Some businesses identify the completion point of a merger and acquisition as the moment when the project no longer requires separate resources, including manpower and budget.

1. Initiation and Feasibility Study Stage

The initiation stage typically involves initial ideas put forward by senior personnel. This stage is followed by a feasibility study, which involves examining financial data, synergy potential, and timeline. The feasibility stage concludes with management commitment to project execution. This commitment is articulated through resource allocation and budgeting necessary to proceed with the project.

2. Negotiation and Contract Signing Stage

Following management commitment, the negotiation stage commences. Management from both businesses negotiate prices as well as the organizational and operational model of the new entity. Negotiations often involve independent consulting experts and lawyers. Consulting experts may represent the business in directing negotiations.

Successful negotiation results are formalized through documentation via signing of the merger or acquisition agreement. These agreements specify the rights and responsibilities of the parties involved in the signed transaction. These agreements can be extensive and detailed and are often drafted by consulting experts in conjunction with the business's lawyers.

3. Regulatory Approval Stage

Mergers and acquisitions activities often involve various legal issues. One of the related issues is Competition Law. The merger of two large businesses with significant market shares may lead to monopolistic situations, affecting consumer interests. Therefore, large transactions need approval from regulatory authorities responsible for fair trade practices under Competition Law.

In reality, many merger and acquisition transactions fail to materialize due to lack of regulatory approval. In 1998, Ernst & Young and KPMG negotiated a global merger to become the world's largest company, after their competitors Price Waterhouse and Coopers Lybrand merged into PWC in 1997. However, the European Union (EU) did not approve this transaction, stating that it would create too much dominance by the remaining three major auditing firms.

4. Implementation Stage

Following the signing of the merger or acquisition agreement, implementation takes place. Implementation can be carried out by internal staff or hired external consulting experts.

5. Business Registration Changes Stage

To legalize and complete the merger or acquisition, the purchasing party needs to register with the business authority. The purchasing party may change business registration details with the Department of Planning and Investment, such as changing members, industries, or registered capital.

6. Post-Merger & Acquisition Handling

After the merger or acquisition, handling business issues such as personnel, development plans, corporate culture, operational systems, and business management is crucial for stable business operation.

In summary:

Business merger and acquisition is the process of integrating two businesses into one. Therefore, M&A activities need careful consideration and ensure legal compliance and balance the interests of both parties. Each stage is important, and the M&A team needs thorough preparation for the best execution of the merger.