M&A refers to the full or partial acquisition of one business by another, resulting in the formation of a new combined entity. M&A is usually a more formal and legally binding process in which the acquiring company takes control and ownership of the assets, operations, and employees of the acquired company. M&A is frequently used as a strategy for gaining access to new markets, goods, or technologies, as well as for achieving economies of scale or other competitive advantages.

An alliance is a strategy in which two or more businesses agree to pool their resources to create a combined force in the marketplace. Each alliance participant maintains their entity but decides to compete as a unified business force. As a result, alliances are less risky than acquisitions because they are negotiable, cooperative, and simpler to exit. They put two firms with mutual goals but different strengths together to work on specific projects that benefit both.

When should alliances be preferred over mergers and acquisitions?

Alliances play a key role in a corporate growth strategy. They are an alternative to the organic option of building a new business from the ground up, or the inorganic option of making an acquisition. Consistent with previous years, PwC’s 22nd annual CEO survey results show that 40% of US CEOs plan to pursue a new strategic alliance or joint venture in order to drive corporate growth or profitability in the coming year.

According to Statista, the global number of M&A transactions has increased from 38,176 in 2010 to 51,389 in 2020. Additionally, according to a survey by McKinsey & Company, successful alliances have a higher return on investment compared to M&A deals.

For companies wanting short to medium-term relationships, strategic alliances may be preferable to M&A. Besides, Alliances can help businesses chase growth opportunities without committing too many resources in uncertain situations. Sharing risk is one of the primary reasons for forming an alliance, as it allows businesses to spread costs and benefit from economies of scale. Alliances can also assist businesses in risk management in emerging geographic markets or industries experiencing technological or business changes.

Finally, companies in industries going through a major technological or business discontinuity are increasingly turning to alliances to manage the risks associated with uncertainty. In situations in which the future evolution of an industry is highly uncertain, alliances can be a way to combine capabilities and explore new market opportunities—without committing too many resources before the future shape of the industry becomes clear.

Alliances and M&A in Vietnam

M&A activities in Vietnam are primarily governed by the 2020 Enterprise Law, the 2020 Investment Law, and the 20 Securities Law, all of which recently came into effect as of  -january 2020, and general legal principles set out in the 2015 Civil Code and the 2005 Commercial Law. International treaties to which Vietnam is a party are also relevant for any M&A transaction related to Vietnam, including, most notably, Vietnam’s commitments for accession to the WTO in 2007 (WTO Commitments).

The complicated nature of Vietnam’s law and tax regimes remains the major challenge. In relation to the seller’s and buyer’s expectations, the valuation of assets represents another issue, as sellers tend to be overoptimistic about their companies, hence overcharge without thoroughly taking into consideration all potential post-completion risks of an M&A transaction. Furthermore, investors may be confronted with issues related to management and accounting standards upon entering the M&A market in Vietnam. On the other hand, the rapidly expanding market of Vietnam offers a number of assets, such as a progressing integration into the global economy through participation in numerous free trade agreements, or affordable labor supply, which has made foreign investment in the country worthwhile. Moreover, the government carried out divestments in a number of owned enterprises, providing a valuable opportunity for foreign investors looking to acquire shares in locally well-known brands, such as Petrolimex, Viglacera, Vinatex, etc.

Key drivers of M&A and Alliances in 2023:

Starting an alliance or M&A

The decision to form an alliance or pursue an M&A can be a game-changer for a company. For example, in 2016, Microsoft acquired LinkedIn in a $26.2 billion deal, making it one of the largest M&As in tech history. The acquisition was expected to help Microsoft expand its presence in the social networking space and provide it with access to LinkedIn’s vast professional network of over 500 million members.

Starting an alliance or pursuing a merger and acquisition (M&A) requires careful planning, due diligence, and strategic decision-making. Below are the steps to consider when starting an alliance or pursuing an M&A:

• Identify the rationale for the alliance or M&A: The first step is to clearly identify the strategic rationale behind the proposed alliance or M&A. The rationale should be based on a clear business need, such as access to new markets, technologies, or resources. There should also be a clear alignment between the strategic objectives of both companies.
• Identify potential partners: Once the rationale is established, the next step is to identify potential partners. This could be done through research and analysis of the industry, competitors, and potential partners. According to McKinsey, up to 60% of M&A deals fail due to a lack of strategic fit. Therefore, conducting due diligence and market research is essential in identifying potential risks and areas of synergy.
• Conduct due diligence: Due diligence is an important step in evaluating potential partners. This involves gathering information about the company’s financial performance, market position, legal and regulatory compliance, and other factors that could impact the success of the alliance or M&A.
• Develop a plan: Based on the results of due diligence, the next step is to develop a plan that outlines the terms of the alliance or M&A, including the structure of the partnership, the financial terms, and the legal and regulatory requirements.
• Set clear goals and objectives for the partnership: A study by the Harvard Business Review found that companies that focused on a few specific objectives for their alliances were more likely to achieve success than those with multiple, often conflicting, goals. By defining the scope of the alliance or M&A and establishing performance metrics and success criteria, both parties can align their efforts towards common goals.
• Negotiate and finalize the agreement: Once the plan is developed, the next step is to negotiate and finalize the agreement. This involves working with legal and financial advisors to ensure that the terms of the agreement are fair and legally binding. Negotiating the terms of the partnership is critical in ensuring a smooth and successful partnership. This includes structuring the financial and legal arrangements, establishing governance and decision-making protocols, and aligning cultures and values. According to a survey by Deloitte, 30% of M&A deals fail due to cultural issues. Therefore, it’s crucial to consider cultural fit and develop a shared understanding of how the partnership will operate.
• Implement and integrate: The final step is to implement and integrate the alliance or M&A into the respective businesses. This may involve integrating business processes, systems, and people, and ensuring that the new partnership is working effectively and efficiently.

Overall, starting an alliance or pursuing an M&A can be a complex process, but with careful planning, due diligence, and strategic decision-making, it can result in significant benefits for both companies involved.

Managing an alliance or M&A

Managing an alliance or merger and acquisition (M&A) is important to achieve synergy, minimize risks, maintain the culture, meet legal requirements, and maximize value. Effective management of an alliance or M&A is essential for achieving the desired outcomes and ensuring the long-term success of the businesses involved. 

Those are all important aspects of effectively managing an alliance or M&A. To expand on those points:

• Regularly assess and adjust the alliance to ensure it aligns with strategic goals: This means regularly reviewing the goals and objectives of the alliance or M&A, and adjusting the partnership or acquisition as needed to ensure it continues to align with your overall business strategy.
• Monitor performance and results, and be transparent in sharing information: Regularly monitoring the performance of the alliance or M&A is crucial to ensure that it is meeting expectations. Be transparent in sharing information with stakeholders, including any challenges or concerns that arise.
• Maintain open communication and trust: Building and maintaining trust between partners is crucial to the success of the alliance or M&A. Maintain open lines of communication, and be transparent and honest in your interactions with your partners.
• Consider potential challenges and have contingency plans in place: Anticipate potential challenges that may arise during the alliance or M&A, and have contingency plans in place to address them. This may include plans to address changes in the market or unexpected changes in the partnership.

Besides, it is crucial to consider the cultural fit between the organizations, plan for integration, be mindful of legal considerations, and exhibit effective leadership and communication. Pre-deal evaluation is important to assess the potential partner’s financial, strategic, cultural, and operational aspects. Post-deal integration is critical for aligning cultures, processes, and systems. Legal considerations such as compliance with regulations and drafting detailed contracts and agreements must be addressed. 

Transitioning from an alliance to M&A

The number of transitions to M&A has been driven by several factors, including the desire for increased control, access to new markets and technologies, and the need for greater efficiency and cost savings. By acquiring another company, a business can gain control over its operations, assets, and intellectual property, allowing for greater strategic alignment and the ability to drive growth.

However, transitioning from an alliance to M&A is not always a straightforward process. M&A can be a complex and risky undertaking, with potential challenges around culture, integration, and regulatory compliance. Therefore, businesses need to carefully consider the potential benefits and risks of M&A before embarking on the transition.

Overall, the trend of transitioning from an alliance to M&A is likely to continue, as businesses look for ways to remain competitive in an increasingly complex and dynamic business environment.

Here are the steps to follow:

• Evaluate the benefits and risks of a merger or acquisition: Before you start the process, it’s important to determine whether an M&A makes sense for your business. Evaluate the potential benefits, such as increased market share, access to new technologies or products, and cost savings. Consider the risks as well, such as the potential for cultural clashes or integration difficulties.
• Conduct due diligence on the potential target company: Once you’ve decided to move forward, conduct a thorough due diligence on the potential target company. This should include a review of their financials, legal and regulatory compliance, intellectual property, customer base, and employee relations. This will help you identify any potential issues or liabilities that could impact the success of the M&A.
• Determine the appropriate financing structure: There are several financing options to consider, including debt financing, equity financing, and a combination of both. Evaluate the potential benefits and risks of each option and determine the best financing structure for your business.
• Negotiate terms and create a formal agreement: Once you’ve completed due diligence and determined the financing structure, it’s time to negotiate the terms of the M&A with the target company. This may include the purchase price, payment terms, and post-acquisition management structure. Work with legal counsel to create a formal agreement that outlines the terms of the M&A and protects both parties.
• Integrate the businesses: After the M&A is complete, it’s important to integrate the businesses. This may involve combining systems, processes, and staff. Develop a detailed integration plan to ensure a smooth transition and minimize disruption to the business.

Overall, transitioning from an alliance to an M&A can be a complex process. It’s important to take the time to evaluate the potential benefits and risks, conduct due diligence, determine the financing structure, negotiate terms, and integrate the businesses. With careful planning and execution, an M&A can help your business achieve its strategic goals and drive growth.

V. Exiting an alliance or M&A

It’s important to have a clear understanding of the potential risks and benefits of the alliance or M&A at the outset of the agreement. This includes identifying potential triggers for an exit, such as changes in market conditions, performance issues, or disagreements between the parties. Having a well-defined exit strategy in place from the beginning can help ensure a smoother transition if an exit becomes necessary. Develop an exit strategy at the outset of the alliance or M&A:

• Determine the triggers and criteria for an exit: This may involve setting specific performance metrics or timelines that must be met or identifying specific events or conditions that would warrant an exit. The criteria should be based on objective data and should be clearly communicated to all parties involved.
• Communicate openly with all parties involved: Effective communication is critical throughout the exit process. This includes regular updates on performance metrics and progress toward the exit criteria, as well as clear communication of any concerns or issues that arise. It’s also important to ensure that all parties involved understand the reasons for the exit and the steps that will be taken to minimize any negative impacts.
• Follow legal and contractual obligations: It’s important to ensure that all legal and contractual obligations are met during the exit process. This may include providing notice to the other parties, complying with any termination provisions in the agreement, and resolving any outstanding issues or disputes. Failure to meet these obligations can result in legal or financial penalties, so it’s important to work closely with legal and financial advisors to ensure a smooth and compliant exit.

In summary, developing and implementing an effective exit strategy for an alliance or M&A requires careful planning, clear communication, and a focus on meeting legal and contractual obligations. By following these key steps and using data and analysis to inform decisions, companies can help ensure a successful exit that minimizes negative impacts and preserves relationships with other parties involved.

Conclusion

In conclusion, forming alliances and engaging in mergers and acquisitions are complex business strategies that require careful consideration and planning. Key points to keep in mind include conducting thorough due diligence, ensuring alignment of strategic objectives and cultures, and establishing clear communication and governance structures.

While alliances can offer benefits such as risk-sharing and knowledge-sharing, they also require ongoing investment and management. Mergers and acquisitions can provide opportunities for growth and synergy but also pose significant risks and challenges in terms of integration and cultural fit.

Ultimately, the decision to pursue an alliance or M&A should be based on a company’s strategic objectives and its ability to effectively execute the transaction. It is also important to seek advice from experienced professionals in legal, financial, and other areas.

For those considering alliances or M&A, it is recommended to start with smaller-scale partnerships or acquisitions to gain experience and build capabilities. It is also crucial to remain flexible and adaptable throughout the process, and to prioritize the interests of all stakeholders involved. By following these recommendations, companies can increase their chances of success in forming and exiting from alliances and M&A transactions.

REFERENCE

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