Setting up post merger integration process for ma consulting service at mekong securities joint stock company

iệ p NATIONAL ECONOMIC UNIVERSITY BUSINESS SCHOOL ***************** tn gh PHAN ANH TUAN Tố SETTING UP POST-MERGER INTEGRATION PROCESS FOR tậ p M&A CONSULTING SERVICE AT MEKONG SECURITIES JOINT ên đề th ực STOCK COMPANY uy BACHELOR OF BUSINESS ADMINISTRATION IN ENGLISH (E-BBA) Ch THESIS HANOI, 2014 ực tậ p Tố tn gh SETTING UP POST-MERGER INTEGRATION PROCESS FOR M&A CONSULTING SERVICE AT MEKONG SECURITIES JOINT STOCK COMPANY iệ p NATIONAL ECONOMIC UNIVERSITY BUSINESS SCHOOL uy ên đề THESIS th BACHELOR OF BUSINESS ADMINISTRATION IN ENGLISH (E-BBA) Ch Student : Phan Anh Tuan Class : E – BBA 2A Supervisor : MBA Pham Sy Long HANOI, 2014 ACKNOWLEDGEMENTS My research and dissertation would not be productively completed without the generous assistance and patience received from many people Taking this opportunity, I would like to express my gratitude to all of you First of all, I would like to extend my special thanks to my supervisor, MBA iệ p Pham Sy Long, who provided me with useful advice, guidance and insights Secondly, I would like to express my deeply thanks to my school, the gh Business School of National Economics University (NEU), where I have a good tn chance to study in EBBA program, I would like to indebted to all of professors and Tố lectures in the primary committee for their comments and directed suggestions p Last but not least, the author would like to express my appreciation to my tậ dear parents who gave me enthusiastic support and this chance to have beautiful ực time with EBBA at BS – NEU Ch Phan Anh Tuan uy ên đề th Author ABBREVIATIONS English – Bachelor of Business Administration MSC Mekong Securities Joint Stock Company M&A Mergers and Acquisitions PMI Post-merger Integration WTO World Trade Organization Ch uy ên đề th ực tậ p Tố tn gh iệ p EBBA TABLE OF CONTENTS ACKNOWLEDGEMENTS .1 EXECUTIVE SUMMARY INTRODUCTION I Rationale iệ p II Research objectives gh III Research methodology: tn IV Data collection .5 Tố V Research structure p CHAPTER - THEORETICAL BACKGROUND ON M&A CONSULTING SERVICE AT SECURITIES COMPANY tậ 1.1 Theoretical background on M&A Definition of M&A ực 1.1.1 th 1.1.2 Classification of M&A đề 1.1.3 Motivation in M&A .11 ên 1.2 Theoretical background on Post-merger: 15 1.2.1 Definition of Post-merger: .15 uy 1.2.2 Role of Post-merger Integration in M&A: .16 Ch 1.2.3 Post-merger Integration tasks 17 1.2.4 Feature contributing to a successful M&A 23 1.3 Theoretical background on Securities companies 24 1.3.1 Theoretical background on Securities company 24 CHAPTER – SETTING UP POST-MERGER INTEGRATION PROCESS FOR M&A CONSULTING SERVICE AT MSC 26 2.1 Introduction of of Mekong Securities Joint Stock Company 26 2.1.1 Overview of Mekong Securities Joint Stock Company: 26 2.2.2 MSC’s organization structure: .26 2.1.3 Professional service and key accounts: 29 2.2 Overview of M&A activities in Vietnam: 33 2.2.1 History of M&A in Vietnam: 33 2.2.2 Current situation of M&A activities in the last few years: .34 2.3 Setting up Post-merger process for M&A consulting service at MSC: 40 2.3.1 Legal requirements for providing Post-merger consulting service: 40 2.3.2 Situations Post-merger Integration service provided: 40 2.3.3 Current M&A process at MSC: .40 Setting up Post-merger process for M&A consulting service at MSC 43 iệ p 2.3.4 gh CHAPTER - RECOMMEMDATIONS FOR LAUNCHING SERVICE .49 tn 3.1 General comment: .49 Tố 3.1.1 Advantages of MSC: 49 3.1.2 Challenges of MSC: .49 tậ p 3.2 Recommendations for launching service: 50 ực CONCLUSION .51 th LIST OF REFERENCES 52 APPENDIXES 53 đề APPENDIX A: LETTER TO CUSTOMERS SAMPLE 53 ên APPENDIX B: POST-MERGER INTEGRATION TIMELINE SAMPLE 55 Ch uy APPENDIX C: POST-MERGER INTEGRATION CHECKLIST 56 LIST OF TABLES Table 1.1: Post-merger Integration tasks 17 Table 2.1: MSC’s customers 30 Table 2.2: MSC’s customers 31 Table 2.3: MSC’s customers 32 Ch uy ên đề th ực tậ p Tố tn gh iệ p Table 2.4: MSC’s customers 33 LIST OF FIGURES Firgure 1: Research process .5 Figure 1.1: Classification of M&A base on approaching types Figure 2.1: MSC’ organization structure 27 Figure 2.2: M&A Total Deal Size and Number of Deals in Vietnam .34 iệ p Figure 2.3: Number of M&A deals in 2011 35 gh Figure 2.4: Percentage types of M&A 36 tn Figure 2.5: M&A consulting process at MSC 41 Tố Figure 2.6: Post-merger Integration process proposed 43 Figure 2.7: Degree of Integration 44 Ch uy ên đề th ực tậ p Figure 2.8: MSC supporting team 45 ên uy Ch đề ực th p tậ iệ p gh tn Tố EXECUTIVE SUMMARY M&A becomes more and more popular in Vietnam business environment nowadays The increase in the number of M&A deals in recent years raises the need for consulting service in this field Financial consulting institutions usually find M&A consulting service very attractive with high consulting fee (about 1.5 % value of the M&A deal) However, they often underestimate the importance of postmerger integration in M&A which lead to many failure deals in the past and their iệ p reputation got damages gh Due to the lack in M&A process of securities companies which results low tn quality of M&A consulting service, the author will collect the theoretical Tố background from lecture, information on the Internet and financial journals to propose Post-merger Integration process to build the competitive advantage for tậ p Mekong Securities Joint Stock Company ực In the first part, the thesis will provide theoretical background on M&A and th Securities companies such as đề  Definitions of M&A, Post-merger integration and Securities ên companies Ch  Motives of M&A uy  Classification of M&A and Securities companies  Features for a successful M&A  Tasks in Post merger integration In the second part, the thesis provides a broad view about the M&A environment and market in Vietnam Current situations in many sections of the economy are updated to the readers Generally, along with the economic recession, the number of M&A deals and total value of the deals has decreased in the last two years In addition, MSC has been introduced briefly with basis information like iệ p gh tn Tố p tậ ực th đề uy ên Figure 2.8: MSC supporting team (Source: PWC) Ch  Develop communication plan and execute early communications: This communication plan will help the company keep in touch with their customers, employees and stakeholders It will reduce the damage of losing customers or suppliers For example: Welcoming letter/message 46 Immediately after closing, a welcoming letter or individualized e-mail is to be sent to the employee of the acquired entity Ideally the message is translated into local language, including:  Welcoming words from the CEO or top manager  Employment terms  New location (ensure that every transferring employee is assigned a work New boss/supervisor  Who to contact for questions/answers etc gh  iệ p place and is aware of it) The buyer’s corporate communications function should arrange for all Tố  tn Letter to customers p customers to be sent a letter informing them about the acquisition and Key customers should also be individually contacted by sales individuals ực  tậ anticipated changes from their point of view đề Letter to vendors /suppliers th and management, where appropriate Identify all important vendors and partners that need to be informed  Prepare a letter informing about the acquisition and anticipated changes  Co-ordinate with corporate communications function for a unified message Ch uy ên  b, Plan for “Day one”:  Identify and execute Day One requirements across all functions: Day one is first day after change of ownership All functions need to get together, form their work as well as personnel with the help from Integration Team  Develop 100 Day Plan including quick wins: Based on the design of Future State, 100 Day Plan with specific actions will be built and makes sure that the future wanted will become true and satisfy the owner 47 Ch uy ên đề th ực tậ p Tố tn gh iệ p  Secure resources and implement retention programs 48 c, Design the future state:  Design functional and operational “to be” states: Based on the desire of the owner and the resource, situation of the company, the expectation and goals will be built and satisfy the owner of the company  Identify, value, and prioritize key integration initiatives and synergies: The integration initiatives and synergies will have to be addressed clearly Then, they will keep track and propose actions to achieve those initiatives and iệ p synergies gh  Develop leadership and organization structure: To have a strong tn organization, a clear, effective and suitable organization structure is needed the Tố priority for every corporation The company needs to build the organization structure quickly and assign the right person to key positions This will make the tậ p company move forward sustainably ực  Assess cultural differences and create cultural integration plan: In every th mergers, cultural conflict is the common issue to the new company Employees đề have different working habit and they are afraid to the new The company needs to balance the managerial personnel with both companies’ employees holding uy Phase II: Ch of two companies ên managing positions This will reduce the conflict and slowly integrate the culture a, Create detailed Integration plan: In this phase II, companies have to build a possible, executable plan which is consolidated from all integration initiatives Besides, the plan needs to fit with core business and prioritize with other initiatives However, the resource of the company can afford it The detailed plan includes timeline, checklist and so on Those things help the company to keep track where they are and they stick to the plan The 49 sample of detail timeline and checklist of post-merger integration have been added in the Appendixes b, Execute 100 day plan: In 100 first days after merging, the company will execute according to the integration plan designed in previous step The plan needs to be executed promptly to avoid risks of uncertainty This step will be conducted by the company with consultancy of experts iệ p of MSC gh Phase III: Implement, track, and monitor integration execution to ensure deal value Tố  tn Maximize value through Future State Implementation p capture: In this step, the company will observe and monitor the process of tậ implementing the strategy They will have some adjust if the expected synergy is Ch uy ên đề th ực not going to be captured fully 50 CHAPTER - RECOMMEMDATIONS FOR LAUNCHING SERVICE 3.1 General comment: M&A becomes more and more popular in Vietnam business environment nowadays The increase in the number of M&A deals raises the need for consulting service in this field MSC is one of the financial institutions providing M&A consulting service After implementing the Post-merger Integration iệ p process for M&A consulting service of the company, MSC will get advantage gh compare to other rivals However, other financial institutions have noticed about this lack in their M&A consulting process and they will fulfill it soon, bring tn many challenges to MSC p Tố 3.1.1 Advantages of MSC: tậ - MSC has large, experienced financial consulting team which has ực contributed to many successful M&A deals in the past They help building the th reputation and the image of MSC This makes MSC different to other financial đề companies providing M&A consulting service with poor consulting team ên - MSC provides the service with more competitive price (about 1.3 % uy value of M&A deals) This pricing strategy make customers concern more Ch because the value of M&A deals are usually very high With a 10 million USD M&A deal, MSC’s M&A consulting service is cheaper than usual 10 thousand USD This feature is also an advantage of MSC - MSC has a wide network relation with big companies from successful deals in the past These relations bring benefit to MSC by introducing MSC to other customers They also give positive comments which make other customers more believe in the company 3.1.2 Challenges of MSC: 51 - Other financial consulting companies are completing their service process to compete with each other This can eliminate the advantage of having better M&A consulting process of MSC Furthermore, many securities companies are joining the M&A consulting market - In last few years, the number of M&A deals reduces significantly If this trend continues, M&A consulting market will be more competitive and not profitable anymore iệ p 3.2 Recommendations for launching service: - Different industries have different characteristic, therefore, MSC should gh not use exactly the same model, tactics for every deals Depending on the tn particular feature the industry as well as situations of the companies and the Tố desire of the owner, MSC should build a suitable tactics and using appropriate p techniques base on the process proposed above This will help the process tậ become most effective to integrate separate firms ực - MSC should update frequently to get the most up-to-date process This th will maintain the advantage of MSC and help provide customers with the best đề service The more number of successful M&A deals consulted, the more reputation of MSC is raised ên - The speed in integration is very important There is no value in delay It uy is critical to focus on obtaining bottom-line results as quickly as possible to Ch maximize shareholder value Prolonged transitions slow growth, diminish profits, destroy morale and productivity, and lead to missed opportunities and loss of market share On the other hand, accelerated transitions result in more rapid return on deal investment, better capitalization on post-deal opportunities, and reduced organizational uncertainty - MSC needs to communicate actively with all stakeholders Communicate early and often with all stakeholders, including customers, employees, investors, suppliers/vendors, and the general public—providing information that addresses their special concerns yet is consistent in overall theme and tone Communication should articulate the reasons behind the deal, reveal timing for key actions, and 52 be candid about both what is known and what is unknown Feedback mechanisms should be included to ensure the dialogue is two-way CONCLUSION This thesis has achieved the objectives proposed above The author has provided fully the needed theoretical background about M&A, post-merger integration and securities companies with definitions, classifications and roles of each term Although the number of M&A deals and the total value of M&A deals iệ p decrease slightly, M&A market in Vietnam is still considered a profitable market gh MSC should develop their service with post-merger integration process as the tn author proposed to have competitive advantage to other competitors The Tố improvement in the consulting process could bring better results to MSC’s customers On the other hand, it would rise the reputation of MSC and could tậ p bring more orders to MSC ực MSC has many advantages in this field because of possessing strong th human resource with lots of experience They also have good relationship with đề firms in the market which bring them contracts However MSC have to notice to keep their advantage by customize the post-merger integration model properly uy Ch advantage in this business ên Besides, they should keep updating new and effective process to maintain their 53 LIST OF REFERENCES  Vietnamese Law on Enterprise 2005 Ministry of Finance (2013), Circular No.210: Guidance on the Establishment and Operation of Securities Company Mekong Securities Joint Stock Company’s Profile, Reports iệ p StoxPlus (2012), Vietnam M&A Research and Report 2011-2012 gh  English tn Gaughan, P.A., 1999, Mergers, Acquisitions and Corporate Restructurings, Tố John Wiley & Sons tậ p PwC (2012), The seven fundamental tenets of successful Integration ực Shrivastava, P., 1986, "POSTMERGER INTEGRATION", Journal of th Business Strategy đề Weston, J.F., K.S Chung and J.A Siu, 1998, Takeovers, Restructuring and Ch uy ên Corporate Governance, Simon and Schuster 54 APPENDIXES APPENDIX A: LETTER TO CUSTOMERS SAMPLE Dear [client]:   We are pleased to announce our forthcoming merger with XYZ & Co It is scheduled to take place officially on May 1, 2009 Our combined firm will iệ p operate as ABC & Co gh Our firm began its professional practice in 1972 Its growth over that time has been predominantly internal, stemming from the referrals of our client base tn and those of other professionals The growth and development of our Tố professional staff has evolved in a similar manner We have attracted high- p quality, committed professionals and invested in their training, development and tậ growth As a result of those efforts, we have experienced tremendous growth ực over the past several years This has been in no small way also directly related to th the success our clients have had in their business and personal pursuits đề We decided to seek to grow our practice through a merger because we believe that a larger organization will allow us to provide a wider array of ên services and more depth As you know, in our area of the country finding and uy retaining excellent people is a constant challenge A larger organization will also opportunities Ch mean our associates will benefit from even more and stronger career XYZ & Co shares the same values we We conducted an extensive search within our region looking for an opportunity like this XYZ & Co exceeded our hopes for a firm we can combine with and continue the tradition we have for excellent service, deep expertise, and an environment our clients and associates want to be a part of There are many new services and areas of expertise we will be able to provide you in the future We look forward to discussing those in more depth with you However, there are several things we want to point out that will not change: 55 - You will continue to work with the same people in our firm you have in the past All of our people are being retained in their current roles - Our fee structure will not change - The services we have provided you in the past will continue XYZ & Co will be moving their offices to our existing offices around May 1st Our existing phone numbers will continue to be the ones you will use to contact us If you have any questions about this exciting news and what it will mean for you, please contact any of us at any time We look forward to introducing you iệ p to some of our new partners and associates gh We are grateful to you not only for giving us the opportunity to provide you tn with accounting services but for your loyalty and friendship, which have enriched Tố our relationship We are confident that our new affiliation will serve us all well Ch uy ên đề th ực tậ p The Partners and Associates of ABC & Co 56 Ch uy ên đề th ực tậ p Tố tn gh iệ p APPENDIX B: POST-MERGER INTEGRATION TIMELINE SAMPLE 57 APPENDIX C: POST-MERGER INTEGRATION CHECKLIST Finance/Costs Get control of the bank accounts, including check signatories and authorization limits Ensure all accounts are receiving the best group interest rate now that the target is part of a larger entity Establish operating budgets including capex with authorization guidelines iệ p Establish a new management information pack timetable In the early stages gh of integration – metrics will be key tn Review balance sheets for adequacy of provisions Tố Drive through planned cost savings quickly and effectively with clear tậ p communication Demonstrate leadership ực People th Establish a reporting structure to ensure continuing trading is seamless đề Review reward structures to ensure continuity of management especially if ên an earn-out excludes some key people uy Anomalies between acquirer and target sales commissions will require Ch urgent action as sales teams talk Do a quick and dirty review of problem employment contracts and put resolutions in place to minimize exposure Organize immediate training related to closing sales and keeping customers happy Establish a key meetings schedule to allow free and timely flow of information 58 Establish a clear understanding of the authority levels of the target’s leadership team Systems Deal with exposures revealed by due diligence, prioritizing those related to keeping the trains running! Articulate an operational plan for merging disparate systems or at least to allow them to “talk” to each other iệ p Lock down the security around customer databases to ensure recent gh departed staff can’t access vital information tn Sales & Customers p Tố Ensure live deals under negotiation are not disrupted by the acquisition tậ Cleanse all sales forecasts ASAP and integrate the revised version into the ực group cash forecasting system th Review cross selling opportunities between key customers of buyer and đề seller ên PR Ch especially key customers uy Communicate often and clearly with staff and key stakeholders externally, Visit key customers to articulate the strategy of the merged group and why it’s good news for that customer (hopefully a “Lite” version of this would have been done during due diligence.) The sellers will have signed off on the joint press release on the deal This is a great opportunity to motivate staff and impress existing customers with the correct tone of message Marketing 59 Set a timetable for all web site changes and allocate a webmaster to drive the project Collateral may need to change to reflect the new products of the merged entity Don’t miss the opportunity to articulate the enhanced business result that will be achieved for your customers due to the increased resources of the merged group Legal Draw up a detailed checklist of leases, obligations, trade contracts, iệ p employment contracts, IPR, change of control provisions and articulate any gh commercial issues that require decisions by the leadership team tn Note if an earn-out formed part of the deal, there may be quite onerous Tố conditions regarding managing the newly acquired company These will need to p be factored into the integration plan ực tậ Insurance and risk exposure reviews should be conducted as a high priority th Tax and accounting matters related to regulatory compliance may require Ch uy ên đề urgent action 60