Port communicationToday, Hong Kong Xintong - Let's popularize science on why corporate mergers and acquisitions require structural design? Let’s learn together! Corporate mergers and acquisitions are different from commodity sales or capital placements，The latter generally have standardized properties。i.e. trading activity，Buyers and sellers only need to agree on a few points such as specifications、quantity、price or amount、interest rate、You can negotiate the deadline, etc.。
The whole process of corporate mergers and acquisitions usually includes six major links：set goals、market search、Survey and evaluation、structural design、Negotiation, signing and delivery takeover。If we regard corporate mergers and acquisitions as a system，Then structural design is the core link，is a key procedure，Investment banks represent both buyers and sellers in corporate mergers and acquisitions，All must carry out structural design for customers to facilitate the success of the transaction.，and safeguard the interests of customers to the greatest extent。
one、Comprehensive benefit principle of structural design for enterprises to carry out merger and acquisition activities，Although the direct motivations vary，But the basic purpose is the same，through capital integration，Achieve business integration，To maximize comprehensive benefits，including economies of scale、financial tax、acquire technology、brand、development capabilities、Management experience、Marketing network etc.，The success of an M&A is more than just the realization of the deal，It lies more in the overall strength of the enterprise、Is profitability improved?。
so，When designing an M&A structure for a business，Not only the receipt of capital must be considered，It is also necessary to consider whether the business integration goals can be achieved after capital integration.。
There are three common ways of business integration:：vertical integration：That is, through mergers and acquisitions of upstream and downstream enterprises，Form a production system from primary raw materials to final products；horizontal integration：It is to quickly expand production capacity by acquiring similar companies.，to gain market dominance for a certain product；hybrid integration：Also known as diversified business strategy，That is, by acquiring companies in different industries，Avoid the risk of over-concentration of assets in one industry，to obtain stable profits。
There is also market integration、Technology integration、network integration、Talent integration, etc.。
two、Systematic principle structural design usually involves six major aspects：First，law：Including the legal environment (commercial law) of the country where the acquiring company is located、company law、accounting law、tax law、Antitrust laws, etc.)、Legal conditions for different acquisition methods、Internal corporate laws (such as company articles of association, etc.)；second，finance：Includes corporate finance (assets、Liabilities、taxes、cash flow, etc.) and the finance of the acquisition activity itself (price、Payment method，Financing method、scale、cost, etc.)；third，personnel：Including senior managers of the company、Senior technical staff、Skilled staff etc.；fourth，market network：Marketing network、information network、Customer base etc.；fifth，special resources：Includes proprietary technology，unique natural resources、Government support etc.；sixth，environment：That is, the relationship network in which the enterprise is located：shareholder、creditor、Affiliated enterprises、bank、Industry unions, etc.。
Among these six aspects，Legal and financial are often at the heart of structuring。in fact，In some acquisitions，personnel、Market or proprietary technology may also become the most critical content of structural design。three、Principle of soundness M&A activities are usually strategic behaviors in the business development of enterprises.，Its success or failure will have a significant impact on both parties to the transaction.，Even determine the survival of the company。
therefore，Investment banks act as brokers or financial advisors to businesses，When helping companies design merger and acquisition structure plans，We must adhere to the principle of stability，Keep risks to a minimum。Generally speaking，Strategic M&A activities are deliberate actions，Always handle with caution，Thoughtful，Strive for complete success。And opportunistic M&A activity，Often due to some kind of interest inducement (financial、technology, etc. is profitable) and ignores potential risks。
Usually in M&A activities，When the true situation of the target company is not fully understood (some aspects are difficult to understand in the short term) or it may be difficult for both parties to reach a consensus on future business strategies.，Structural design generally considers the plan of segmented purchase or purchase option.，To effectively control transaction risks。The financial evaluation link of mergers and acquisitions includes the internal rate of return method，There is also the net present value method。
Compared with these links，The methods used in the structural design process usually cannot be summarized by one or several known methods.，Although some methods in operations research and econometrics such as optimization methods，Linear and nonlinear programming，Probability theory, etc. are essential knowledge for structural designers in terms of methodology.，but not enough。
If the purpose of acquisition is a diversified strategic behavior，then it is usually necessary to borrow econometric models、multivariate nonlinear programming，Game theory to solve the basic framework design problem of merger and acquisition structure。However，Regardless of whether there are many or few structural design constraints，Usually it cannot be accomplished simply by relying on general mathematical tools or models.，It relies more on human intelligence and experience，rather than established norms and procedures。
Four、Several main forms 1、 Buying a business and buying business property Although business mergers and acquisitions are usually understood as the sale and purchase of businesses，but in reality，There are two different situations，One kind of final delivery is the enterprise，One kind of final delivery is corporate assets，Acquiring a business and purchasing assets are not only two different concepts legally，in finance、tax，There are also big differences in the operating procedures。
from a legal perspective，The so-called buying a business means buying the business or company as a whole.。as a legal person，An enterprise or company not only owns certain legal person property，He is also the bearer of various contracts.，Purchasing a business is not only the transfer of property rights of a legal person，It is also about contractual rights、transfer of responsibility。The purchase of assets generally only includes the fixed assets of the company、industrial property、proprietary technology、Business license、Marketing outlets, etc.。
When buying property，The transfer of the contract must be carefully selected。If the acquisition is in progress，Legal evaluation believes that the enterprise is disadvantaged in certain contracts or covenants，may lead to legal disputes or litigation，Buyers should choose to buy property rather than a business。Registering a new company after purchasing property can effectively avoid legal proceedings related to the original company。from a tax perspective，The main difference between buying a business and buying assets is stamp duty and income tax.。
If you buy a business，In principle, you can enjoy the original accumulated losses，offset profits，Reduce current income tax expenses。in our country，If the purchased enterprise retains its legal person status，The accumulated losses will be offset by future operating profits over the years.，It cannot be offset by the profits from the acquired company.，therefore，Income tax benefits cannot be realized in the current period。
Stamp duties on business purchases and asset purchases are implemented at different rates abroad.，The former is very low，Generally for price
- 5％，The latter is as high as 5% to 6%。From the perspective of disposal of current assets，Buying a business usually includes current assets，Such as accounts receivable、accounts payable、in stock、finished product、Raw materials, etc.。
Purchases of assets do not include current assets，Since this part of the asset is inseparable from the production process，Therefore, the buyer and seller usually sign an agency agreement，The buyer handles receivable inventory on behalf of the seller、Charge a handling fee，Or process the seller’s raw materials through supplied materials processing.，Charge processing fee。
- Buying shares: Merging companies by buying shares is the most common method in developed commodity economies.，Buyers can either purchase shares from shareholders，Equity can also be obtained by purchasing newly issued shares of the company，But the two buying structures have different impacts on the buyer。Buying shares can buy controlling interest，It can also be purchased from all directions。When buying new shares, you can only buy a controlling stake but not a full acquisition.。
Judging from the funds paid by the buyer，The same is the acquisition of controlling shares，Buying new shares costs twice as much as buying shares sold by existing shareholders。But the benefit to the buyer of buying new shares is that the money invested falls in the company，Still under your control and use，and purchase the original shares，Then the funds invested by the buyer fall into the hands of shareholders。therefore，Purchasing shares from original shareholders is easily acceptable to major shareholders，Buying new shares is more popular with small shareholders and the stock market.。
Different types of shares are circulated in different ways in our country，The price difference is also huge，This makes structural design more complex，also more important。A special way of buying shares is through mergers and acquisitions。The so-called merger by absorption means that the merged enterprise invests its net assets as stock capital into the buyer.，The original company exists as a "shell" company and becomes a shareholder of the buyer。
in our country，Absorbed companies disappear，Its original administrative department or state-owned assets management department becomes a shareholder of the absorbing party，at present，In order to make full use of "expanding the scale of listing", local governments，Listing policy that limits the number of companies，Usually, companies are “packaged” through absorption and mergers。
- Companies that purchase partial shares plus options are often dissatisfied with certain aspects of the target company during the merger process.，It may be believed that there are some uncertain factors that may make it difficult to achieve post-merger business integration.，Such as the potential and cooperative attitude of managers、Market prospects for new products、The impact of regional economic environment on enterprises, etc.，Especially for companies entering a certain field (industry or region) for the first time，Their overall industry supply and demand、market cycle，Lack of ability to judge and grasp competitor situations, etc.，If you take over rashly，May lead to huge risks。
out of sound principles，Purchasing partial equity plus options (0ion) is a purchasing structure designed to solve the above problems.，This structure is actually a step-by-step acquisition scheme。The specific method is：While signing an agreement to purchase part of the shares with the seller，Enter into a contract to purchase an option (specify the quantity，price，Validity period，Implementation conditions, etc.)。Can't get control，I can’t return the equity I bought，This goes against the buyer’s original intention。
despite this，After all, this structural arrangement allows the buyer to avoid greater risks。Opposite of call option，Put option (Put Option) has the initiative to control the implementation of the option.，In other words，When the seller wants to exercise the option，The buyer can only accept。Although this arrangement is beneficial to the seller，However, if the buyer believes that the merger can achieve greater benefits, it can also adopt this purchase structure.。
in M&A transactions，When the buyer and seller are of equal strength、When status is similar，It is difficult to conclude a transaction by simply buying or selling options，At this time, a hybrid structure (Put and Call Option) can be used。Under this structure，Both parties have the right
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Implement options，When the actual conditions cannot meet the agreed conditions of both parties at the same time，Usually looking for a balance of interest in option prices。
- Buy Option Bonds Option bonds are a type of corporate bond，Its nature is that the issuer attaches certain rights to the bonds it issues.，The buyer can enjoy this right for a certain period of time。There are two forms of equity bonds：Convertible debt and equity debt。The so-called convertible bond (Convertible Loan) means that the bond holder can convert the bond within a certain period of time according to his or her own wishes.，Convert bonds into shares of the issuing company at a specified price or ratio。
The issuing company is usually in the construction period of a major project or the period of operational adjustment.，When you expect good future returns or are worried about rising inflation in the future，To prevent financial risks。Convertible bonds combine the relative safety of bonds with the speculative nature of stocks。It is a conservative approach for companies to implement mergers and acquisitions by purchasing a large amount of convertible bonds issued by a company.。
- Profit sharing structure (Earn out sharing) Profit sharing is a purchase structure similar to "installment payment"。Due to the different status of buyers and sellers，There will be great differences in the evaluation and judgment of the current situation and future of the enterprise.。Buyers tend to be conservative，Sellers are more optimistic。As a result, the buyer and seller have very different opinions on the value of the enterprise.。At this time, it is appropriate to use a profit-sharing purchase method to resolve the differences between the two parties.。
The content of this structural arrangement is，Both parties first reach a consensus on the basic price，And pay this part of the money when the transaction is completed，Regarding the differences arising from the use of different assumptions，Adoption linked to actual operating performance、Installment payment method。certainly，The calculation basis for this part of the funds must be clearly defined in advance.，Generally speaking，It is not appropriate to use after-tax profits as the base。
This is because the capital structure of the company after the merger and acquisition transaction、capital position，Even the basis for depreciation of fixed assets、The methods have changed，Correspondingly, the after-tax profit will also change significantly.。
- Financial Capital Leasing Structure (Financial Capital Leasing Structure) The so-called capital financing leasing structure is a bank or other investor who invests in purchasing the assets of a target enterprise.，Then the investor, as the lessor, transfers the assets to the real investors，The investor is responsible for the operation as the lessee，and repay the rent in the form of rental fees。
in a legal sense，Before the rent and residual value are fully repaid，The lessee is the owner of the asset；After the rental fee is paid off，The lessee becomes the asset owner。But in fact，The lessee is the actual owner of the asset from the outset，and intends to be the ultimate owner，Even the lessor knows this clearly。
Reason for adopting leasing structure，On the one hand, it may not have the ability to pay the entire asset price in one lump sum，on the other hand，Maybe the most important，That is, they hope to obtain tax benefits from this structural arrangement.，Because the lease fee is paid before tax and can be included in the cost，This is equivalent to repaying the loan principal before taxes，Investors will undoubtedly benefit greatly from this。
certainly，In foreign countries, such arrangements generally require approval from the tax authorities.，also，This structural arrangement can also be used in government policies to encourage the development of certain industries.。7、Debt-bearing model is a purchasing structure that emerged in my country's corporate mergers。The approach is to ensure that the assets and debts of the target company are equivalent，The buyer accepts the assets of the target company on the condition that it assumes the debts of the target company，All assets of the seller are transferred to the buyer，The legal entity disappears。
This purchase structure, by its very nature, buys the business at zero price，Its original intention is to protect the interests of creditors，From reality，This structure can have huge benefits for the buyer。
If the target enterprise has sufficient capital when it is established,，Insolvency due to poor management，Then the price paid by the buyer to purchase by assuming debt may be much higher than the true value of the business.，Even if the target company has some special resources that the buyer needs，Then it must also consider paying a high price，Or look for alternative resources。
another case，The original capital of the enterprise is insufficient，Developed almost purely by relying on bank loans (this situation is very common in our country)，In this case，The company has already been operating in debt mode，When its cash flow is insufficient to pay interest，The company will go bankrupt。If evaluated based on own cost or market price method，The value of a company's assets may be much greater than the amount of its debt，Acquired by assuming debt at this time，The buyer makes a huge profit，This is exactly what is unscientific about this purchase structure。
- Debt-to-equity model Debt-to-equity corporate mergers and acquisitions，Refers to the largest creditor when the company is unable to repay its debts，Convert debt into investment，thereby gaining control of the enterprise。The advantage of this approach is that，It not only untied the debt chain but also enriched the company's own capital.，Increased management capabilities，It may put the company out of trouble。
in fact，Due to the increasing debt chain (triangular debt) between enterprises,，Debt-for-equity swap has become the most common method of mergers and acquisitions in my country at this stage.。
Especially when downstream companies or assembly companies are unable to pay large amounts of money to upstream companies or supplier companies.，Acquiring and controlling downstream enterprises through debt-for-equity swaps has become the most convenient way for vertical mergers，But this approach may be harmful to creditors，When a company is seriously insolvent，by 1：1 Convert debt into equity in proportion，You will lose a lot of profits。
Since debt-for-equity swaps are often a merger and acquisition method chosen out of necessity,，The transaction price is based on debt rather than the actual value of the enterprise after appraisal.，Therefore, both buyers and sellers may gain or suffer losses.。Both the debt assumption model and the debt-to-equity swap model belong to corporate purchasing structures under specific economic environments.，From the perspective of development trends，They will gradually give way to more standardized、More in line with market economy
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purchase structure。
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