M&A
M&A (Mergers and Acquisitions) refers to the consolidation or acquisition of companies. In a narrow sense, it includes mergers and acquisitions specifically, while in a broader sense, it encompasses capital alliances, joint ventures, and partial investments. M&A serves various purposes, such as business succession, corporate growth strategies, capital recovery, and personal asset formation. There are various M&A schemes—such as share transfers, business transfers, company splits, mergers, and capital/business alliances—each with its own characteristics, benefits, and drawbacks. Therefore, selecting an appropriate scheme based on the goal, size, and tax considerations is essential.
Definitions of M&A
M&A stands for "Mergers and Acquisitions" and refers to the merging or acquiring of companies.
- Narrow definition: Involves transactions that result in the transfer of management rights, such as mergers or acquisitions.
- Broad definition: Includes not only mergers and acquisitions but also business or capital alliances without transferring management rights.
In short, the narrow sense of M&A focuses on the transfer of corporate control, while the broader sense encompasses various forms of inter-company collaborations.
Purpose of M&A
The purpose of M&A varies depending on each company’s situation and strategy, but typically includes the following:
- Business Succession: For small and medium-sized enterprises (SMEs) without successors, M&A allows a third party to continue the business, preserving employment and brand value.
- Corporate Growth Strategy: Acquiring another company enables entry into new markets, expansion of product lines, and synergy effects.
- Exit Strategy: Founders or investors sell shares to recover capital and realize profits.
- Personal Life Plan: Individuals buy or sell small businesses to build assets and establish stable income sources.
Process of M&A
Generally, M&A transactions proceed through the following process from initial consideration to post-merger integration:
The entire process may take around 6 months to 2 years, and managing information and stakeholder alignment is key to success.
Develop an M&A strategy
Consult with advisors
Screen M&A targets
Conduct top-level meetings
Negotiate terms
Sign a Memorandum of Understanding (MOU)
Perform due diligence (DD)
Negotiate final terms
Sign the definitive agreement
Close the deal (share transfer/payment)
Conduct Post-Merger Integration (PMI)
M&A Schemes (Methods)
There are various M&A methods, each with its own characteristics, advantages, and disadvantages.
Types and Characteristics
There are various M&A methods, each with its own characteristics, advantages, and disadvantages.
Types and Characteristics
- Share Transfer: Acquire a company’s shares to gain management control; relatively simple procedures.
- Business Transfer: Purchase a specific business unit; does not include unwanted assets or liabilities.
- Company Split: Transfer business to a newly created company; allows for tax advantages and clear business segmentation.
- Merger (absorption/new establishment): Two companies integrate into one; enables full organizational synergy.
- Capital and Business Alliance: Combines capital investment with business cooperation; allows funding and strategic partnership but involves the risk of managerial interference.
Advantages and Disadvantages
| Method | Advantages | Disadvantages |
| Share Transfer |
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| Business Transfer |
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| Company Split |
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| Merger |
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| Capital/Business Alliance |
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Key Points for Choosing the Right M&A Scheme
To choose the most appropriate scheme, consider the following:
- Purpose of the M&A: Tailor the scheme to fit goals such as succession, expansion, or alliance.
- Target company’s condition: Assess financial status, organization, employee scale, etc.
- Legal and tax implications: Understand legal and tax treatment of each scheme.
- Post-integration synergies: Evaluate potential benefits and risks after integration.
Conclusion
M&A is a powerful tool to achieve business growth, succession, and capital recovery. However, each scheme comes with its own features, tax implications, and procedural complexity. By carefully considering the purpose, scale, tax impact, and risks, companies can choose the most suitable scheme. Seeking guidance from professionals and planning for long-term post-merger integration are essential steps toward successful M&A execution.
