Liu Xiaodan: Industry integrators prefer winter

The title picture comes from: Visual China

Liu Xiaodan has been in charge of the merger and acquisition business of United Securities since 2004. After the former was acquired by Huatai Securities, he was promoted to the president of Huatai United Securities in 2012, and then served as the chairman until leaving this morning to establish Morning One Investment.

For more than a decade, she has led the integration of Huatai Securities and United Securities Investment Banking business, conducted groundbreaking star projects in multiple markets in recent years, and promoted the acquisition of AssetMark in the United States.

Recently, Liu Xiaodan was a guest at the lakeside, and he shared with the trainees his experience in corporate mergers and acquisitions over the past two decades, which specifically mentioned the factors that need to be considered when formulating mergers and acquisitions strategies and the post-merger integration issues.

Highlights of this article:

I. Three dimensions to consider in M & A strategy

Economic and capital market cycles;

Industrial competition pattern;

Corporate governance structure;

Second, four keys to successful integration

Integration cannot be left behind after the merger;

Stabilize the expectations of both teams;

The most important thing is the integration of people and culture;

Do not expect to solve everything with incentives

Three pits often used in mergers and acquisitions

Buyer and seller should consider the worst;

Gambling is a false proposition;

Don’t think of “Big Little Boss”;

The following is an excerpt from the class:

Looking at the growth history of giants from all walks of life in the world, almost all of them are the history of corporate mergers and acquisitions. Mergers and acquisitions are often the choices that cannot be avoided for corporate growth. Everyone who listens to investment institutions will always be a success story, because no one will tell the lessons of their failure.In fact, M & A is a high-risk behavior, and the probability of failure is greater than the probability of success.

A Harvard Business Review analysis report shows that the probability of M & A failure is more than 70%. Therefore, I always think that mergers and acquisitions is a very cruel game, not everyone can play, only very powerful talents can afford to play, it is a few winners game.

01 3 dimensions to consider in M & A strategy

1. Business cycle: industry integrators prefer winter

From a macro perspective, cycles are important for mergers and acquisitions.

I just recently watched the new autobiography of Black Stone founder Su Shimin. A deep insight is: in which year Black Stone was born, it is very important, and then it goes through cycles and grows. Many people say that this is luck and cannot be understood simply. This includes accurate judgments about the market and cycle.

As mentioned in the book, judging the apex is easy, but judging the bottom is not easy. He feels that buying at the bottom is the best time to buy, especially when the bottom recovers about 10%.

So cycle is an important factor in determining success or failure. But this is easy to say, but extremely difficult to do.

If you look at the wave of mergers and acquisitions over the past century, you can see that the activity of mergers and acquisitions is strongly consistent with the economic cycle. Only in the cycle of economic prosperity will companies have relatively good growth, and good expectations for the future will stimulate and promote enterprises to become bigger and stronger through mergers and acquisitions.

The United States even uses the M & A Confidence Index of Entrepreneurs to gauge whether the economy is recovering and how entrepreneurs think about the future. If an enterprise wants to expand capital expenditures and is willing to buy others, it means that entrepreneurs have confidence in the future economic development during this time.

The capital is the same all over the world, and few people can remain rational when they are crazy, including Wall Street. Of course, there are mergers and acquisitions when the economy is down, but the number will decrease, and the purpose of mergers and acquisitions is very different from the boom cycle.

From the previous M & A situation, the number of bull market transactions is large, because the parties to the transaction have good expectations and are easy to close; but from the perspective of merger efficiency, bull market mergers and acquisitions often pay a higher premium for this, and the integration risk will increase in the future and fail The rate is high; M & As have also taken place in the bear market, but the transaction volume has decreased sharply, and the number of mid-term deaths is relatively large, but the probability of successful M & A is higher.

I always think that industry integrators prefer winter. Therefore, mergers and acquisitions are destined to be a game of struggle between humanity and humanity, and the winner can never be the majority.

2. Industry competition pattern: Technology is the most disruptive force

From a meso perspective, M & A decisions must consider the industry’s life cycle and competitive landscape. The wave of mergers and acquisitions is affected by the adjustment of the industrial structure, which has helped to reshape the industrial competition landscape.

In fact, in the past, there were many opportunity buyers in China’s M & A, especially in the capital market. Buyers often come to me in a hurry, saying that there are companies to sell to him, and that many people are competing, or that local governments are willing to sell companies to them. As soon as I heard this, I would advise him to calm down and think about his strategy.

Should grasp the timing of selling things and be afraid to miss them. Some companies should sell at the best time. If you miss the timing of selling, you will really regret it.

For all those who do mergers and acquisitions, they should strategically analyze their industry competition landscape and their advantages and disadvantages, decide whether they choose an outbound M & A strategy, and then search for targets that meet their strategic intentions.

Sometimes, you may stare at a company for ten years, and the other party just refuses to sell and insists on developing on their own, that is also normal.

People who make mergers and acquisitions should be well prepared so that they can catch the prey when it suddenly comes out, instead of relying on luck to go out. Others will give you a good chance to buy.

Wildflowers on the road sometimes look beautiful, and they may die when they pick them home.

In the United States, it is basically difficult to find a company controlled by the founder as a major shareholder. This has something to do with its hundreds of years of evolution. There is no active market for control and no mature professional manager market.

A long time ago, the corporate governance structure in the United States required the maximization of shareholder value, which pushed up its active M & A market to a certain extent. The CEO responsibility system under the board of directors decision has made the professional manager system in the United States very mature. The sale has become an important means to improve efficiency and survive the fittest.

And the governance structure of Chinese private enterprises will change a lot with the dilution of equity and the age of founders. These changes will gradually promote the development of China’s M & A market, and will also lead to more and more transactions of control transfer.

Meanwhile, M & A is the ultimate test of corporate governance and entrepreneurial wisdom. The integrator must not only have sound corporate governance, but also be able to quickly integrate the target company after the completion of the merger and acquisition to establish a new and complete governance structure.

During the economic downturn, the company’s operating capacity has become a key element of the competition in the stock market. Increasingly, M & A transactions can also help the company survive, and in fact, it will also promote the reform and progress of corporate governance in China.

02 Four Keys to Successful Integration

M & A is often described as a marriage, and the wedding is very grand, but the key is whether you can live together in the rice-salt sauce, vinegar and tea, especially if you have a lifetime.

I found an interesting phenomenon. In mergers and acquisitions, everyone is easy to applaud the transaction, but it is not that much to worry about integration, or pay little attention to.

In fact, integration is key. There is a saying abroad that reaching a transaction can only be considered as the completion of 20% of the merger and acquisition, and the remaining 80% depends on the success of the integration. If the integration is not successful, the acquired company may become a burden for the acquirer, rather than a value-added.

There are many such failure cases, both abroad and at home. Here are four keys that affect the success of your integration:

1, integration can not be left until the end of mergers and acquisitions

Many people think that it is a wrong idea to wait for the completion of the acquisition and then start the integration of the two companies.

In fact, the consideration of integration should start at the moment you decide to make an M & A, and should always run through the entire process of M & A, especially about the aspects of integration and coordination in M & A, to achieve such What obstacles will collaboration encounter and how will the management layer arrange it in the future? Should these be considered together with the payment method and payment rhythm of the transaction plan?

In addition to the financial and legal issues, you must also pay attention to business operations. You cannot wait until the completion of the merger and acquisition to think about these issues. You must think ahead, understand the plan, and reflect it in the plan.

Even if a detailed plan is made at the beginning, there will still be many new difficulties in the integration process.

In practice, more entrepreneurs only pay attention to the transaction or the price itself, and do not consider the company’s operating situation after mergers and acquisitions. The phenomenon of focusing on transactions and light integration is more common, but when doing overseas mergers and acquisitions measurement, positive synergy is still inverse. Collaboration, adding or removing a few more people must be considered.

2. Stabilize everyone’s expectations

In simple terms, post-merger integration is expected management, and capital markets are also expected management. It is impossible to complete the integration in 90 days, but 90 days is possible to make everyone’s expectations in place, including who you want to use most, who you want to use during the transition period, and who you want to use immediately Give up.

Clear goals are also important so that everyoneCooperation and coordination are more difficult. Many people think that this is because the interests are not well divided. In fact, according to my observations, the interests are secondary. The core issue is trust. I don’t believe that cooperation can create and share a larger cake. Stocks, or think that cooperation will actually hurt stocks. The collaboration between two companies is even more difficult.

Therefore, the revision of the system after the integration, especially the revision of the incentive system and the evaluation system, is a one-off event that aims to achieve mutual trust between the teams and encourage everyone to work together to create a larger Increase cake.

There is no absolutely fair management system, but procedural justice is very important. There must be a transparent and smooth communication mechanism within the company, and problems can be corrected in time. For companies after mergers and acquisitions, there will be a crisis of trust at the beginning. Therefore, from the perspective of management and system design, it is even more important to achieve mutual trust, and sometimes even overkill measures are adopted.

In order to change the battle mode at the investment bank and encourage cooperation between professional groups, special arrangements have been made for the income generated by cooperative projects to be multiplied by a factor of 1.5 before being distributed, so that people who do not cooperate every day will feel that At a loss, slowly everyone cooperates to become a habit, and develops mutual trust, this coefficient decreases.

03 3 pits often used in mergers and acquisitions

1. Buyers and sellers should consider the worst consideration

For start-ups, the problem it often considers is whether to sell or not; and the companies that grow to the back end must consider whether to buy or not. Regardless of the founder of the buyer or the founder of the seller, there must be bottom-line thinking in the process of mergers and acquisitions, and do their own stress test with the most pessimistic considerations.

The buyer ’s consideration is that if the integration failure of this single transaction returns to zero, he can still survive. If the merger fails, it just hurts yourself, and it wo n’t hurt you, then you can buy it; if the merger fails to drag yourself to death, then the transaction is beyond your own ability.

The seller ’s consideration is that no matter how good the buyer ’s promise is and how many big cakes they draw, once the control is sold, they must be prepared to go out completely, whether they can afford it, and how they can arrange their interests. satisfaction. If you can’t accept the worst result, it means that you are not ready to sell the business.

2, betting is a false proposition

In mergers and acquisitions, do n’t be superstitious about gambling. Gambling is a false proposition. It ’s like taking a vow. If he does n’t have this ability, it ’s useless to take a vow. This is the easiest mistake that Chinese CEOs make when they are involved in mergers and acquisitions in the first place. Especially with high-stakes bets to win high premiums, there are endless problems.

In fact, in transaction valuation, the process and assumptions of profit forecasting are more important than the results. Acquisitions in the same industry can often clearly know whether the various assumptions of profit forecasting are reliable, and do not blindly believe that the target company gives Optimistic earnings forecast.

Based on your own understanding of the industry and the evaluation of the target company, rational bidding, rather than believing that a simple and crude gambling, is a natural choice for a mature integrator.

If it is a diversified acquisition, there is a certain logic in gambling, because the other party still operates independently. After the merger, it is completely unconsolidated, and it can only achieve the purpose of gambling. If the two companies want to integrate However, gambling cannot be achieved. It is difficult for the acquirer to intervene in the strategy, management, and operation of the acquiree during the agreement period after the merger, which is equivalent to hindering the integration between the enterprises.

3, don’t always think of “Big Little Big”

If you look closely at each merger and acquisition in the growth process of the giants, you will find an obvious feature. The scale of mergers and acquisitions is related to the size of the enterprise. This can ensure the success of mergers and acquisitions to the greatest extent.

Researching the case of mature markets, we can find that the scale of corporate mergers and acquisitions is indeed proportional to its volume. The larger the corporate volume, the larger the scale of mergers and acquisitions, and the volume of both parties of the transaction still has a certain contrast; the same scale The acquisition of even a small and large one is a bit like gambling. It is successful, but the probability is relatively low, and it depends largely on whether the acquirer has strong integration capabilities.

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1. Both the buyer and the seller must have a bottom-line thinking and do the worst consideration;

2. Don’t be superstitious about gambling. Gambling is a false proposition and it will also affect the integration between enterprises;

3. The size of mergers and acquisitions is related to the size of the enterprise. The larger the volume of the enterprise, the larger the scale of mergers and acquisitions.

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