Process of Buying a Business

1. Basic process of company mergers and acquisitions

1 M&A decision-making stage

Through cooperation with financial consultants, enterprises determine their own positioning according to the company’s industry status, own assets, operating conditions and development strategies, and form M&A strategies. That is to analyze the needs of enterprise mergers and acquisitions, the characteristic mode of mergers and acquisitions targets, and the selection and arrangement of mergers and acquisitions.

2 M&A target selection

Qualitative selection model: Combining the asset quality, scale, product brand, economic location of the target company, and comparison with the company in terms of market, region and production level, etc. Falling into the M&A trap.

Quantitative selection model: Through the full collection of enterprise information data, static analysis, ROI analysis, and logit, probit and BC (binary classification) are used to finally determine the target enterprise.

3 M&A timing

Through the continuous development and information accumulation of the target enterprise, the timing of the target enterprise’s merger and acquisition is predicted, and the qualitative and quantitative models are used to conduct preliminary feasibility analysis, and finally determine the appropriate enterprise and the appropriate time.

4 Initial work of mergers and acquisitions

According to the characteristics of the capital structure and political system of Chinese enterprises, it is very important to communicate with and obtain support from the local government of the enterprise, which is very important for a successful and low-cost acquisition. Of course, if it is a private enterprise, the influence of the government will be much smaller. An in-depth review of the enterprise should be carried out, including investigation and research on production and operation, finance, taxation, guarantee, and litigation.

5 Stages of M&A implementation

Negotiate with the target company to determine the acquisition method, pricing model, payment method (cash, liabilities, assets, equity, etc.), legal document production, post-merger management personnel arrangements, solutions for existing employees, etc. Related issues, until the equity transfer, payment, and completion of the transaction.

6 Post-merger integration

For enterprises, it is far from enough to just realize the merger and acquisition of the enterprise. Finally, the resources of the target enterprise are successfully integrated and fully mobilized to produce the expected benefits.

2. Merger and acquisition integration process

1 Develop an M&A plan

1. Sources of information on M&A plans

• The board of directors and senior executives put forward merger and acquisition proposals;
• Propose M&A opportunities after industry and market research;
• requirements of the target company.

2. The target company selected by the target company search and research
should meet the following conditions:

• meet the requirements of the strategic plan;
• The possibility of complementary advantages is high;
• good investment environment;
• The use value is high.

3. The M&A plan should have the following main contents:

• The reasons and main basis for the merger;
• The area, size, timing, capital investment (or other investment) plan of the merger.

2 Set up a project team

The company should set up a project team and clarify the responsible person. The members of the project team are composed of strategy department, finance department, technical staff, legal advisers, etc.

3 Feasibility analysis and report

1. The Strategy Department is responsible for conducting feasibility analysis and submitting reports

2. The feasibility analysis should include the following main contents:

• External environment analysis (business environment, policy environment, competitive environment)
• Internal capability analysis;
• The strengths and weaknesses of both parties to the merger;
• Analysis of economic benefits; analysis of policies and regulations;
• Analysis of the attitude of the competent authorities of the target enterprise and the local government;
• Risk prevention and forecasting.

3. The benefit analysis is carried out by the financial personnel, and the legal consultant is responsible for the analysis of policies, regulations and laws, and makes suggestions.

4 The President reviews the feasibility study report

5. Initially sign a letter of intent for cooperation with the target company

1. Both parties negotiate and initialize a letter of intent for cooperation;

2. The relevant personnel of both parties shall jointly establish a merger and acquisition working group, formulate a work plan, and clarify the responsible person;

3. The letter of intent for cooperation has the following main contents:

• cooperation method;
• The corporate governance structure of the new company;
• Employee placement, social security, salary;
• The company’s development prospects.

6Asset assessment and related data collection and analysis

1. Asset appraisal. The M&A working group will focus on participating;
2. Collect and analyze the information of the target company. Legal counsel develops legal opinions to remove legal obstacles and disadvantages.

7 Develop M&A plans and integration plans

M&A plans and integration plans formulated by the Strategy Department

7.1 The merger plan shall consist of the following main contents:

• M&A price and method;
• Financial simulation and benefit analysis.

7.2 The integration plan has the following main contents:

• integration of business activities;
• Organizational integration;
• Management system and corporate culture integration;
• Integrated Effectiveness Assessment

8 M&A negotiation and signing

• The legal counsel is responsible for drafting the formal master contract text.
• Both parties to the merger and acquisition negotiate and negotiate the text of the main contract, and after reaching an agreement, approve it according to the company’s approval authority;
• After the approval of the president, the two parties sign the main contract text;
• Transfer relevant materials and information of mergers and acquisitions to relevant personnel and departments;

9 Asset handover and takeover

• The M&A working group will formulate the asset handover plan and carry out the handover;
• Both parties confirm and sign the handover sub-contract under the main contract;
• Formally take over the target enterprise and start operation;
• M&A summary and evaluation;
• Incorporated into core competency management.

10 main text files

• M&A plan
• Feasibility Study Report
• M&A and Integration Solutions
• Master contract document

3. Detailed description of the operation steps of corporate mergers and acquisitions

The company conducts M&A business in accordance with the annual strategic plan. When implementing the company’s M&A, it can generally operate according to the above operation flow chart. In terms of operation details, the operation steps can be changed according to different types. The details and steps of the merger and acquisition are described as follows:

1 Gather information to formulate M&A plans

1. Sources of information collected by the strategy department or public relations department for M&A plans include:

• The company’s strategic planning objectives and details;
• The board of directors and senior executives put forward M&A proposals and meeting minutes;
• Propose M&A opportunities after researching different industries and markets;
• Specific requirements for the target company.

2. The target companies selected by the intelligence department in the search and research of target companies should meet the following conditions:

• In line with the overall requirements of the company’s strategic planning;
• The possibility of complementary resource advantages is high;
• The investment operation environment is good;
• The personnel and technology of the acquired company are of high value;
• Potential or high utilization value.

3. The M&A plan shall include the following main contents:

• Analysis of the reasons for mergers and acquisitions and the main basis for the annex;
• M&A region selection, economies of scale, time arrangement, personnel support and capital investment, etc.

2 Form a M&A project team

The company has established an M&A project team to clarify the authority and responsibilities of the responsible persons. The members of the project team should include: the public relations department, the strategy department, the internal audit department, the finance department, technical personnel, legal consultants, etc., with combined offices and complementary resources.

3Propose the feasibility analysis report of the project merger and acquisition

1. The Strategy Department is responsible for conducting feasibility analysis and submitting reports.

2. The feasibility analysis should include the following main contents:

• The external environment analysis includes: business environment, policy environment, and competition environment.
• Internal capability analysis includes: strengths and weaknesses of both parties in mergers and acquisitions; economic benefit analysis; policy and regulation analysis; attitude analysis of the target company’s authorities and local government; risk prevention and forecasting

3. The benefit analysis is carried out by the financial personnel, and the
legal consultant is responsible for the analysis of policies, regulations and laws, and makes suggestions.

4 The president reviews and approves the feasibility study report (omitted)

5 Sign a letter of intent for cooperation with the M&A company

1. Both parties negotiate and initialize a letter of intent for cooperation.

2. Relevant personnel of both parties shall jointly set up an M&A working group, formulate a work plan, and clarify the responsible persons.

3. The letter of intent for cooperation has the following main contents:

• cooperation method;
• The corporate governance structure of the new company;
• Employee placement, social security, salary;
• The company’s development prospects.

6. Asset evaluation and data collection and analysis of M&A companies

1. Assets evaluation, the joint accounting firm will evaluate the target company. At this time, the M&A working group should focus on participating to ensure the authenticity and existence of the relevant data, and carefully check and implement the current accounts and unreceived accounts.

2. Collect and analyze target company information. The relevant personnel, accounts, environment, high-level relations, etc. shall be verified. Legal counsel develops legal opinions that remove legal barriers and disadvantages.

7 Carefully formulate M&A plans and integration plans

M&A plans and integration plans are formulated by the Strategy Department and the M&A Team:

1. The M&A plan should include the following main contents:

• Determine the way of mergers and acquisitions, and choose the way of mergers and acquisitions that is beneficial to the company;
• Determine the acquisition price and payment method;
• Verify financial simulation and benefit analysis.

2. The integration plan has the following main contents:

• integration of business activities;
• Organizational integration;
• Management system and corporate culture integration;
• Integrate effectiveness evaluations.

8 M&A negotiation and signing

1. The company’s legal adviser or lawyer is responsible for drafting the formal main contract text.

2. The company negotiates and negotiates the text of the main contract with both parties of the merger and acquisition, and approves it according to the company’s approval authority after reaching an agreement.

3. After the approval of the president, the two parties sign the main contract text.

4. Transfer the relevant materials and information of M&A to relevant personnel and departments.

9 Asset handover of M&A companies

1. The M&A working group will formulate the detailed handover plan and handover personnel of each resource.
2. The company personnel and the acquirer carry out the handover of various resources.
3. Both parties confirm and sign the handover sub-contract under the main contract.

10 Takeovers and Operations of M&A Companies

1. Formally take over the target enterprise, prepare to build the management, arrange the working layer, and start the production and operation of the company as soon as possible.
2. The M&A working group summarizes and evaluates M&A.
3. As soon as possible, the merger and acquisition company will be incorporated into the core competence management to achieve the development goal of the head office.
4. Set up the company’s monitoring and management system.

4. Do a good job of due diligence

An equity buyout is actually buying a long-standing company, which is far more complicated than building a new one. In order to reduce the risk of company acquisition, it is necessary to hire a well-known intermediary agency and a capable team to conduct due diligence work. As an intermediary agency, it mainly checks from three aspects:

• Lawyers take care of the law. The legal team reviewed the legality and fairness of the contracts that the company has executed and unexecuted contracts in the past three years, as well as the contracts to be signed, to prevent malicious collusion accidents such as temporary modification and replacement of contracts.
• Accountants take care of the financial aspects. The accountant team can audit the financial status and business performance of the past three years, issue audit reports, determine the financial status and business results, and disclose and disclose contingencies, non-performing assets, related transactions and other matters, especially the cooperation between accountants and lawyers , Judging the actual situation of some major transactions will reduce the acquisition risk to a great extent.
• The appraiser provides reference in terms of company value. A capable team of appraisers can reasonably confirm the actual value of the acquired unit as an important reference for confirming the acquisition cost.

Pay attention to the acquisition risk presented by various issues raised by intermediaries. During the due diligence process, lawyers, accountants and appraisers will present their opinions on matters such as abnormal transactions, asset quality, and property rights of the company. discussed and finally reached a consensus.

5. Be familiar with the industry to be acquired

When an enterprise acquires an enterprise, it needs to have an understanding of the supply, sales and production and internal management of the enterprise and the industry in which the enterprise operates. Before conducting due diligence, the acquiring company should set up a special organization for the supply, sales, production and internal management of the acquired company. This body consists of personnel responsible for supply, sales and production as well as internal management, contract negotiation specialists. It is best for them to enter the acquired company with the due diligence intermediary agency to understand the relevant situation at the same time. In this way, you will know what you have in mind, which will be more conducive to the acquisition work and reduce the acquisition risk.

6. Pay attention to the fact that the acquired company has not fulfilled the contract

During the due diligence process of the acquired company, the unfulfilled contracts of the acquired company should be carefully reviewed. Many acquisition disputes are caused by these contracts, and these contracts should be highly valued by the acquiring company. In order to avoid the acquisition risk caused by the unfinished contract, it is recommended to start the review from the following aspects: First, review the content of the original contract. Confirm whether the contract is complete and whether the responsibilities, rights and interests are fair. If any abnormal situation is found, it is necessary to communicate with the relevant departments of the acquired company in time and take timely measures.

For contracts with mandatory contract texts stipulated by the state, it is necessary to confirm whether they violate the relevant regulations of the state. For contracts or clauses that violate the mandatory provisions of the state, the acquiree must re-agreed on the relevant rights and obligations.

For supplementary contracts, the re-signed contract should be focused**. For various ulterior motives, the acquired company often adopts various means to sign some new or supplementary contracts when there is a certain possibility in the negotiation of the acquiring company, and conduct accounting processing based on this. , by the acquiring company to conduct due diligence. Therefore, during due diligence, special attention should be paid to the signing and execution of such contracts.

Conduct an external investigation into the signing of the contract. It is to go to the other party who signed the contract to understand and master the signing and implementation of the contract. If some contracts need to be filed with the government department, you must go to the government filing department to check the filing contract with the original contract to confirm that the content of the contract is legal, Reasonable and fair.

7. Sign a meticulous equity purchase contract

After the due diligence is completed and the negotiated price is determined, the work that needs to be done is to sign the acquisition contract and go through the procedures for the transfer of asset property rights. This link is very critical. When signing the equity acquisition contract, for the problems that cannot be solved during the due diligence process and belong to the acquired company, the responsibilities and rights must be indicated in the contract to avoid sloppy signing and the formation of acquisition risks. In the equity purchase contract, detailed agreements should be made on the contents and matters of the transfer, so that both parties can abide by it during the transfer.

8. Go through strict procedures for the transfer of assets and property rights

When accepting the acquired enterprise, the acquiring enterprise shall go through the procedures for the transfer of assets and property rights in strict accordance with the content stipulated in the acquisition contract. Due to the complexity of the equity acquisition business, it often takes a relatively long time from the completion of due diligence to the actual transfer of assets and property rights. During this period, the acquired company still operates and manages the company. In order to prevent the acquisition risk and ensure that the assets of the acquired company are completely transferred to the acquiring company, the acquiring company shall audit the changes in its financial status and operating results during this period, and then, on this basis, in accordance with the acquisition contract, deal with the property rights of the assets. handover procedure.

When an enterprise acquires the equity of a private enterprise, if it can do the above points, it can greatly reduce the acquisition risk and reduce unnecessary trouble.

9. Design of M&A Financing Methods for Small and Medium-sized Enterprises in my country

1 Composition of financing channels

(1) Equity capital financing.

The main source of equity financing is the internal capital or shareholder input of the dominant enterprise, and the basic requirement of its quantity is to achieve absolute or relative holding of the target enterprise, which is the fundamental requirement for the dominant enterprise to carry out M&A activities. Other sources of equity capital financing include stock options, venture capital, the management of the target company and other investors inside or outside the company.

Stock option financing is a new type of financing tool. The financing object can be the management or employees of the advantageous enterprises and target enterprises, or investors outside the enterprise. Stock option financing has been applied in some small and medium-sized enterprises in our country, especially some small and medium-sized high-tech enterprises. It is characterized by a long-term option. Giving the warrant holder the right to buy a set number of shares at a certain price during a certain period of time can also be said to be a kind of stock option to realize profits when the company goes public in the future.

Investors’ motivation comes from the expectation of the company’s listing and the expectation of profit. When the warrants are exercised, the debts originally issued by the company have not been recovered, and the new shares issued mean new financing and an increase in the company’s capital.

(2) Debt capital financing.

Debt capital mainly refers to bank loans. As both parties to the merger and acquisition, they can find some means of guarantee and pledge as much as possible to obtain bank loans. Since bank loans are more difficult to obtain, this part of the funds is subordinate to the overall debt capital.

The above are the basic considerations about the composition of financing channels when my country’s small and medium-sized enterprises conduct mergers and acquisitions. On this basis, there may be other financing channels, but it must be premised on the appropriate scale of the financing amount and the controlling position of the advantageous enterprise over the target enterprise.

2 Financing method design

(1) Use the SME M&A fund to finance.

In view of the fact that my country’s small and medium-sized enterprise M&A financing channels are narrow, government departments should finance or lead the establishment of small and medium-sized enterprises M&A funds. The fund takes the property rights trading market as its main investment area, and provides financing and related services for corporate capital expansion or restructuring. According to the relationship between the fund and the invested enterprise, M&A funds can be divided into participating M&A funds and non-participating M&A funds. Small and medium-sized enterprises with development prospects should be supported by the government when implementing mergers and acquisitions, because the mergers and acquisitions of small and medium-sized enterprises are conducive to the adjustment of local enterprise structure and industrial structure, and are conducive to regional economic development.

(2) Utilize unsecured loan financing.

Unsecured small loan is a form of loan specially aimed at small and medium-sized enterprises. It is a credit loan product provided by financial institutions for ordinary small enterprises. Financial institutions provide loan support to the capital demander, without the need for mortgages or guarantees such as fixed assets and bills of lading required for normal commercial loans. Since unsecured loans have high risks, the threshold for loan companies is relatively high.

(3) Seller financing.

Seller’s credit is called “Seller Financing” in the United States, which refers to the seller’s commitment to obtain a fixed buyer’s future repayment obligations. In the United States, this kind of payment method is often beneficial to the acquirer when the company or business unit is not profitable and the seller is eager to sell. For the seller’s credit under the fixed price of the company’s acquisition, the operation process is relatively simple. There is a clear creditor-debt relationship between the two parties in the merger and acquisition according to the provisions of the merger and payment terms. How the target company operates after the merger and whether the merger succeeds or fails are the responsibilities of the merger and acquisition company. It is impossible to dissolve or change this creditor-debt relationship for no reason.

(4) Management financing.

The capital from the management of the target company is an important part in the financing structure of the acquisition of the target company by the advantageous company. The financing to the management of the target company is diversified. Debt capital financing can give the management stable debt interest income, and equity capital financing can give the management a relatively generous distribution of profits. For the management of the target company, if they own equity, they have the voting rights and the distribution rights of profits, which is a great incentive for them. Giving the management a certain share of equity also gives them a certain right of control and profit distribution over the company. Once the management obtains the equity of the enterprise, the interests of the enterprise are the interests of the management. It can be seen that the importance of management financing is not in the financing itself, but in the establishment of an equity-based incentive mechanism.

3 Financing Strategies

In the process of SME M&A financing, the choice of strategy is also very important. The specific strategies are as follows:

(1) To tap the internal potential and make full use of the non-financial tangible assets that the enterprise does not need.

The acquirer uses the non-financial assets such as machinery and equipment, factories, land, production lines, and departments as payment methods to realize the acquisition of the target company.

(2) A successful continuous mortgage strategy.

In view of the fact that small and medium-sized enterprises in my country have few assets and are generally difficult to obtain loans, we can first use the assets of the advantageous enterprises as collateral in the financing process, and obtain an appropriate amount of loans from the bank. Apply for new payment.

(3) The portfolio strategy of venture capital.

This combination strategy includes a combination of venture capital sources and a combination of debt capital and equity capital. The source combination is obtained from multiple venture capital companies. This combination can not only reduce the financing amount of a single venture capital company and reduce the difficulty of financing, but also may bring various help and support to the enterprise due to the different focus and advantages of venture capital companies. . The combination of debt capital and equity capital means that not only debt capital mainly comes from venture capital, but equity capital can also be partially derived from venture capital, so that a large amount of risk can be obtained by utilizing the different degrees of participation of venture capital in debt capital and equity capital. At the same time, you can get the guidance of venture capital in enterprise management, operation, market and technology, improve the management level, and realize the value of mergers and acquisitions.

(4) Installment payment strategy.

The general practice is that when the dominant enterprise obtains the controlling position of the target enterprise, it pays the payment in installments within a certain period of time, which can reduce the scale and difficulty of financing to a certain extent and realize the merger as soon as possible.

(5) “Sweetness plus time difference”.

When obtaining debt capital, creditors can be given greater concessions in terms of interest rates, etc., but in exchange for repayment within a longer period of time, which can reduce the subsequent debt repayment burden after mergers and acquisitions.

(6) International financing.

Advantageous small and medium-sized enterprises can obtain capital by introducing foreign capital, and abundant foreign capital can ensure the rapid development of M&A enterprises. For example, Suntech Group successfully listed on the Nasdaq market in New York on December 14, 2005, raising nearly 400 million US dollars.

(7) Strategic partners.

In the process of mergers and acquisitions, SMEs can raise funds by introducing strategic partners. A strategic partner who is optimistic about the company’s prospects can not only provide financial support to the target company, but also provide management experience and market information to ensure the integration of companies that complete the merger.

Of course, in actual operation, different strategies should be adopted according to the specific situation of the enterprise. However, the goals of these strategies should be based on reducing the amount of financing and financing costs, reducing debt repayment pressure, and ensuring the realization of the effect of mergers and acquisitions.

10. The choice of payment methods for SME M&A

In the case of corporate mergers and acquisitions, mergers and acquisitions can be completed through cash payment, stock exchange payment, debt commitment (zero-cost acquisition), and debt payment.

1 Analysis of Payment Types

(1) Cash payment is the simplest payment method in M&A transactions.

Once the shareholders of the target company receive cash for their interests, they no longer have ownership of the target company and all other rights derived therefrom. The advantage of cash payment is that the transaction is simple and fast. However, cash payment will cause a large amount of cash expenditures in the short term for advantageous companies. Once the necessary financial support cannot be obtained through other channels, it will cause greater financial pressure on the company, and may even cause operational difficulties due to too much cash outflow. At the same time, after the target company receives cash, a large amount of investment income will appear on the book, thereby increasing the corporate tax burden.

(2) Share-exchange merger, that is, the owner of the target company comprehensively considers its share conversion ratio based on its net assets, goodwill, operating conditions and development prospects, and invests it as stock capital, thereby becoming a new company shareholder after the merger. .

Share-exchange mergers and acquisitions can enable two companies to hold each other’s shares and form a community of interests. At the same time, mergers and acquisitions do not involve a large amount of cash and avoid income tax expenses. However, the method of share-swap mergers and acquisitions will lead to the dispersion of the shareholding structure, which may be detrimental to the unified operation and management of the enterprise. It is worth noting that more and more developed countries conduct M&A transactions in the form of share swaps, and their proportion in the total has increased significantly.

(3) Zero-cost acquisition is also known as debt commitment, that is, under the condition that assets and debts are equivalent, the dominant enterprise accepts its assets on the condition of assuming the debt of the target company, and realizes zero-cost acquisition.

The target of zero-cost acquisitions is generally low net assets and poor operating conditions. Advantageous enterprises do not have to pay the acquisition price, but they often promise to undertake all the debts of the enterprise and resettle all the employees of the enterprise. This situation is particularly common in corporate mergers and acquisitions in my country. The advantage of zero-cost acquisition is that it provides an opportunity for low-cost expansion for advantageous enterprises. Advantageous enterprises can revitalize a low-efficiency enterprise by injecting capital, technology and new management methods. At the same time, local governments at all levels often formulate some preferential measures to encourage advantageous enterprises to accept loss-making enterprises and resettle their employees. Therefore, zero-cost purchases can also enjoy some additional preferential policies to promote the operation and development of advantageous enterprises. However, zero-cost acquisitions also have their drawbacks:

• First, the target company often has more debt than its assets, which is actually not zero cost, but is accepting an insolvent enterprise;
• Second, one-sided emphasis on the placement of employees has resulted in overstaffing and dragged down advantageous enterprises.

(4) The debt payment type, that is, the advantageous enterprise uses its own debt to the target company as the price of the M&A transaction.

This operation is essentially the target company offsetting its debt with assets. The advantage of the debt payment method is that it finds a good way to solve the debts and debts of both parties in the original merger and acquisition, and organically combines the merger and repayment of debts. For advantageous enterprises, the scale of enterprise assets can be expanded while recovering accounts. In addition, sometimes the profitability of the debtor’s assets may exceed the debt interest, which is more favorable to the development of the dominant enterprise.

2 Payment methods in SME mergers and acquisitions

Mergers and acquisitions of small and medium-sized enterprises can take one of the payment methods, or they can choose a combination of several methods. Due to the current limited financing channels for small and medium-sized enterprises, the funds that can be raised are limited, so the use of complete cash payment should be carefully considered, but more use should be made of methods that do not pay cash immediately, such as stock exchange payment.

Share-for-stock M&A means that investors do not use cash as a medium to acquire the target company, but increase the issuance of the company’s stock and replace the target company’s stock with newly issued stocks. Equity mergers and acquisitions actually include two forms, namely, the purchase of assets with stocks and the exchange of stocks with stocks. Share-swap payments can avoid large cash outflows from the business, which is especially important for small and medium-sized businesses that have difficulty raising capital. After the acquisition is completed, the shareholders of the acquired company will not lose their ownership, but the ownership is transferred from the acquired company to the acquired company, making them new shareholders of the enlarged company.

At present, many developing enterprises in our country hope to achieve rapid expansion through mergers and acquisitions, but the problem of mergers and acquisitions financing has become the bottleneck of their development. For these companies, if the stock exchange method is adopted, the problem of insufficient M&A funds can be effectively solved. Share-for-stock mergers are beneficial to both parties. Under the circumstance that it can bring merger and acquisition benefits to both parties and realize the effect of merger and acquisition, it will be more feasible for the two companies to adopt the method of stock exchange merger. If both parties of the merger and acquisition can focus on the long-term development of the enterprise after the merger, share the long-term benefits from the growth of the enterprise, and deal with the management issues after the merger from the perspective of enterprise development, the problems in the stock exchange merger can be avoided.

11. Several issues that should be paid attention to when acquiring state-owned equity

As an important type of state-owned property rights, state-owned equity has its particularity. In designing mergers and acquisitions of state-owned equity, there are many restrictions and requirements in relevant administrative regulations, especially the Interim Regulations on the Supervision and Administration of State-owned Assets of Enterprises and the The Interim Measures for the Administration of Transfer of State-owned Property Rights and the Interim Measures for the Administration of the Evaluation of State-owned Assets of Enterprises have made specific provisions on the procedures and methods of state-owned equity transfer.

Based on our experience in many mergers and acquisitions involving state-owned equity, here is a summary of some issues that should be paid attention to when it comes to the transfer of state-owned equity:

1 The transfer of state-owned shares must be approved by the state-owned assets management department

According to Article 8 of the “Interim Measures for the Administration of the Transfer of State-owned Property Rights of Enterprises”, “The State-owned Assets Supervision and Administration Agency shall perform the following supervisory duties on the transfer of state-owned property rights of enterprises: . The transfer of property rights shall be reported to the people’s government at the same level for approval…”, and the transfer of state-owned equity shall be approved by the state-owned assets supervision and administration agency.

2 The price of state-owned equity transfer must be determined by the evaluation of state-owned assets

The “Company Law” does not stipulate the price of equity transfer, so both parties can negotiate and determine the transfer price by themselves. However, according to the provisions of Article 12 of the “Interim Measures for the Administration of the Transfer of State-owned Property Rights of Enterprises”, “According to the approval procedures stipulated in these Measures, after the transfer of state-owned property rights of an enterprise is approved or decided, the transferor shall organize the transfer target enterprise to carry out the clearance process in accordance with relevant regulations. Asset verification and capital…”, and according to the provisions of Article 6 of the “Interim Measures for the Evaluation and Management of State-owned Assets of Enterprises”, the transfer of property rights shall evaluate the relevant assets. Moreover, according to the provisions of paragraph 1 of Article 13 of the “Interim Measures for the Administration of the Transfer of State-owned Property Rights of Enterprises”, the transferor shall entrust an asset appraisal agency with relevant qualifications to conduct asset appraisal in accordance with relevant state regulations.

However, the pricing of the transfer of state-owned property rights has been controversial, because there are various methods of equity valuation, and different valuation methods will result in a variety of different valuation prices. In practice, most state-owned assets are assessed by the asset replacement method, but for some state-owned enterprises with poor profitability, they are required to be assessed by the asset income method.

3. The transfer of state-owned equity must be made publicly in the property rights exchange agency

Article 4 of the “Interim Measures for the Administration of the Transfer of State-owned Property Rights of Enterprises” stipulates that “the transfer of state-owned property rights of enterprises shall be carried out publicly in the property rights exchange institutions established according to law, and shall not be restricted by regions, industries, capital contributions or affiliations. State laws and administrative regulations provide otherwise. What is stipulated, follow its regulations.”

In addition, according to the rules of property rights transactions, the transfer of property rights must be announced within 20 working days; the transferor can set the transferee’s qualification conditions, bidding deposit, etc. to ensure the fair, fair and open conduct of state-owned property rights transactions.

4 Employee placement

According to the “Labor Contract Law”, the equity transfer does not affect the performance of the labor contract, that is, it does not involve the issue of employee placement. However, according to the “Interim Measures for the Administration of the Transfer of State-owned Property Rights of Enterprises”, if the transfer of state-owned property rights involves the legitimate rights and interests of employees, the opinions of the employee representative assembly of the target enterprise shall be heard, and matters such as employee placement shall be discussed and approved by the employee representative assembly. The property right transfer plan and transfer contract must also include an employee resettlement plan.

5 Determination of transaction price

According to the provisions of the “Interim Measures for the Administration of the Transfer of State-owned Property Rights of Enterprises”, the price determined in the appraisal report after approval or filing shall be the reference basis for the price of the transfer of state-owned property rights of enterprises. In the process of property rights transaction, when the transaction price is lower than 90% of the evaluation result, the transaction should be suspended, and the transaction can be continued after obtaining the approval of the relevant property rights transfer approval agency.

After the announcement period of property rights transfer information expires, if there are two or more qualified intended transferees, the property rights exchange agency will organize and implement public bidding according to the announced bidding method; public bidding methods include auction, bidding, online bidding and other bidding method.

6 Payment of transfer price

According to the “Interim Measures for the Administration of the Transfer of State-owned Property Rights of Enterprises”, the transfer price should be paid in one lump sum in principle. If the amount is relatively large and it is really difficult to pay in full at one time, the method of payment in installments can be adopted. If installment payment is adopted, the transferee’s first payment shall not be less than 30% of the total price, and shall be paid within 5 working days from the date of entry into force of the contract; the rest of the payment shall be provided with legal guarantee and shall be subject to bank loans in the same period. The interest rate shall be paid to the transferor during the deferred payment period, and the payment period shall not exceed 1 year.

7 Legal consequences of violating state-owned equity transfer regulations

According to the provisions of Article 32 of the “Interim Measures for the Administration of the Transfer of State-owned Property Rights of Enterprises”, “During the process of transferring state-owned property rights of enterprises, if the transferor, the transfer target enterprise and the transferee have any of the following acts, the state-owned assets supervision and management agency or the enterprise shall The relevant approval authority for the transfer of state-owned property rights shall require the transferor to terminate the transfer of property rights, and if necessary, shall file a lawsuit with the people’s court in accordance with the law to confirm that the transfer is invalid:

1. Failing to conduct transactions in property rights trading institutions in accordance with the relevant provisions of these Measures;

2. The transferor or the transfer target enterprise fails to perform the corresponding internal decision-making procedures and approval procedures, or transfers the state-owned property rights of the enterprise without authorization;

3. The transferor or the transfer target enterprise intentionally conceals the assets that should be included in the evaluation scope, or provides false accounting information to the intermediary agency, resulting in distortion of the audit and evaluation results, and without auditing and evaluation, resulting in the loss of state-owned assets;

4. The transferor colluded with the transferee to transfer state-owned property rights at a low price, resulting in the loss of state-owned assets;

5. The transferor and the transfer target enterprise fail to properly arrange employees, continue social insurance relations, handle various debts owed to employees, and fail to make up various social insurance premiums in arrears according to regulations, infringing on the legitimate rights and interests of employees;

6. The transferor fails to implement the creditor’s rights and debts of the transfer target enterprise according to the regulations, illegally transfers the creditor’s rights or evades the responsibility for debt repayment; if the state-owned property rights of the enterprise are used as guarantees, the transfer of the state-owned property rights is carried out without the consent of the guarantor.

7. The transferee adopts fraud, concealment and other means to influence the transferor’s choice and the signing of the property rights transfer contract;

8. The transferee maliciously colluded to lower the price in the bidding and auction of property rights transfer, resulting in the loss of state-owned assets. “

The author believes that although the “Interim Measures for the Administration of the Transfer of State-owned Property Rights of Enterprises” is jointly issued by the State-owned Assets Supervision and Administration Commission and the Ministry of Finance, it is a departmental regulation in terms of law and cannot be applied to Article 52, paragraph 5 of the Contract Law. “In violation of the mandatory provisions of laws and administrative regulations”, the contract is invalid, but the transfer of state-owned shares without the above provisions and procedures is suspected of harming the interests of the state, and the situation in the second paragraph of Article 52 may be applied. Therefore, compliance with laws and administrative regulations on the transfer of state-owned property rights can ensure the smooth completion of the equity transfer.

Mergers and acquisitions are generally divided into vertical acquisitions (upstream and downstream of the industrial chain) and horizontal acquisitions (between different industries). During vertical acquisition, since the acquirer has a relatively full understanding of the relevant situation and operation mode of the industry, and has certain resource reserves in industry development research, human resources, management experience, technology accumulation, marketing channels, etc. Relatively speaking, it is relatively easy to control the restructuring risks during mergers and acquisitions;

Horizontal acquisitions generally belong to major adjustments in corporate strategy, and do not have the industry advantages of vertical acquisitions. Therefore, before the implementation of acquisitions, research and related resources (personnel, capital, hardware, technology, channels, systems, models, etc.) are prepared. appears to be particularly important. The purpose of these preliminary work is to reduce the risk of restructuring, so that the acquired company can make a smooth transition and realize the strategic purpose of the original acquisition as soon as possible.

12. Research before the acquisition

1 Policy environment analysis: focus on analyzing the direction of industry policy, the local government’s attitude towards the restructuring of the acquired company and the policy trend of the industry for a considerable period of time in the future;

2 Industry development analysis: focus on analyzing the current development status and future development space of the industry, market capacity and trends, international and domestic benchmarking companies and their positions in the industry;

3. Analysis of reorganization objects: focus on analyzing the advantages and disadvantages of its various operating elements, its position in the industry, what effect the reorganization parties can bring through resource integration and complementary advantages, and related operation plans;

4. The risks that the acquisition may bring to the acquirer and how to avoid it.

13. Risk control of acquisitions

After the industry analysis and the acquisition target are determined, generally speaking, either sign an intentional cooperation agreement or enter into the substantive reorganization process through entrusted management. In this process, the acquirer needs to fully investigate and understand the real situation of the acquiree, mainly including the legal validity of assets, the summary of financial claims and debts and comprehensive inventory, the status of various tangible and intangible assets, labor employment The actual situation (including claims and debts between employees and the company, labor contracts, employment agreements and social security, etc.), the degree of implementation of various uncompleted contracts and the way to deal with the aftermath, etc.

In this, the most important thing to pay attention to is those contingent debts that are not reflected in the financial statements (mainly guarantees, guarantees and other economic behaviors such as third-party agreements, if the parties deliberately conceal it, it is difficult to detect. Therefore, it is necessary to make a comprehensive judgment based on the summary of due diligence and what the restructuring working group has learned through various means, and negotiate with professional lawyers and accountants to choose an appropriate risk aversion method, and write after negotiation and approval by both parties Enter into the formal restructuring contract between the two parties (sometimes it can also be agreed in the form of a supplementary agreement).

14. Substantive Negotiations

Restructuring working groups generally work in three broad categories:

1 Administrative category: It mainly conducts thorough verification on the assets, personnel and various licenses of the acquired company;

2 Financial category: mainly to verify the financial and economic contracts of the acquired company;

3. Production technology: It mainly conducts thorough verification of the software and hardware conditions of the acquired company in terms of production.

The above three aspects are summarized with the assistance of accounting firms and law firms, which is a relatively comprehensive due diligence report. sex negotiation.

The substantive negotiation needs to be determined: the reorganization plan, the responsibilities and rights of the new and old shareholders, the consideration and the payment method of the consideration, the handling method of the aftermath of the replacement of the old and the new, or the handling of the matters and other substantive terms. After the two parties agree on these terms through negotiation, the receiving lawyer draws up the reorganization contract, and the two parties go through relevant confirmation procedures to make it legal and effective.

15. Reorganization Implementation

After the merger and acquisition parties reach an agreement and sign a cooperation agreement, they will enter the substantive restructuring stage. Generally, the reorganization working group is advanced to the reorganized unit to preside over the relevant work, straighten out the relationship between all parties, and set up a new management team at the same time. This period is usually called the transition period. Then the new management team comes in to understand the situation, formulate work plans, improve relevant systems and procedures, and gradually carry out substantive work with the help of the reorganization team. This period is usually called the run-in period. After the break-in period, the reorganization working group gradually withdraws from the daily management of the acquired company, goes through the relevant handover procedures, and completes the reorganization.