Study on the Merger and Acquisition Motivations and Strategy of High-tech SME

Transcription

1 Study on the Merger and Acquisition Motivations and Strategy of High-tech SME LI Lihua, YUE Feifei School of Management, University of Jinan, Jinan, Shandong, China, Abstract: Merger and acquisition (M&A), as the fiercest way of enterprise competition, has been always focused on for long time in capital market. M&A has become one of main channels that high-tech SMEs develop quickly. In this paper,we discuss the M&A motivations in view of the high tech SMEs characteristic and analyze the insufficiency during the M&A of high-tech SMEs in our country.at last we propose some merger strategy in order to enhance the ability of the high tech SMSs. Keywords: high technological enterprise; motivation; merger and acquisition; acquiring company; small and medium-sized enterprises 1 Introduction In recent years, the small and medium-sized enterprises (SMEs) of our country are fast growing. SMEs assets scale and production capacity have been expanded fast and have formed the self- related industry chain mediating merge. With the case of merge increasing at home and abroad, merge has become the avenue to success that SMEs expand and develop. It is very important to maintain the economic rapid development of SMEs and take the technical innovation as the drive force. The SMEs have become the important force of national economic development. In order to develop and innovate quickly, merger and acquisition (M&A) of SMEs will gradually tend to the superheating. It is no doubt that M&A of high-tech SMEs has traditional acquisition motivations, such as to seek the enterprise own development, to utilize the competitive advantage mutually, to magnify the scale and so on. But along with the world economics integration, rapid development of science and technology, further loose politics and economic environment in various countries, competition between enterprises is also intense day and day, many new M&A motivations have been produced between the high tech SMEs. Merger and Acquisition (M&A) is the general designation of the annexation, the merge and the purchase in our country. 2 New M&A Motivations about High-tech SMEs 2.1 The need of technological rapid development The rapid development of SMEs is inseparable from the developing speed of this industry itself. The high-tech development speed becomes the most important and major economic target of the whole industry. Because the cycle of product s life is reduced, the new product can possibly be gotten rid in several months. Thus the long-term success is decided by the ability to develop the new product continuously. As soon as it has been obtained this ability it is very difficult to be imitated and it becomes the barrier to forbid competitors to enter this field. The transactions velocity, reaction rate to the customer lives change or speed to cater to the customer new demands become the main factor whether customers decide to buy products again.the SMEs have no time to develop the new technology and seize the new market at every step, but to fuse some technology superiority or some product superiority and even some new business scope eagerly and rapidly which other companies already had. So the more and more high tech SMEs have chosen to merge and expand. 2.2 To reduce barrier to enter the new profession 8

2 If the high-tech SMEs want to enter a new field through the internal development, they must pay the expense for overcoming the constitutive barriers, and face the revenge threat coming from existing enterprises in the market. There are many conditions (including own conditions and environmental conditions) to be needed if a company wants to obtain profit which is higher than the average level coming from this service domain. These conditions include: This industrial imbalanced condition, the low cost to enter, the ability to influence industrial structure, the tolerance of similar enterprise in exist and so on. The experience indicates that it is possible that exterior M&A can provide them more opportunities to adapt the environment effectively which are changing continuously. Moreover the high-tech SMEs may expand to new service domain through using the strategy of multiplex development, such as the enterprises internal development, the annexation, the reorganization, the cooperation development, and so on. 2.3 For the sake of financing The high-tech SMEs are different from the traditional enterprise.the industry of high tech enterprise isn t mature in the aspect of its product development and production or its profession. High-tech product generally experiences a longer developing process, then arrive the mature, decline stage, it is to say that the high tech enterprise exists a unique life cycle. The high-tech SMEs during developing process needs the massive investment funds, but the risk of high-tech SMEs is bigger than the enterprises of other professions. Because at present our country venture capital system isn t integrity and the stock market operation doesn t conform to the standard condition, at the same time the tangible asset value of high tech enterprises is low, it is difficult to borrow money from bank. In this kind of situation, M&A between high-tech SMEs become an important financing way and the important exportation of venture capital. 2.4 To attach importance to talented person value in knowledge economy time. Looking from the M&A development tendency, in the past many enterprises paid great attention to the characteristic product development and the market share having obtained, the enterprise depends them to strengthen the competitive advantage. But at present the high-tech SMEs consider the technology and the talented person as the key to obtain long-term success. The talented person is one of important factors which the high-tech SMEs depend on to develop continually. The high-tech SMEs vitality is decided by their product technical content, and the technical content is decided by talented person's innovation. The high-tech SMEs s M&A should firstly revolve the talented person and the technology but the product considering the long period effect. 2.5 To strengthen the market operation of the high-tech SMEs and to enhance the benefit. According to the connected data statistics, the high-tech SMEs also lack the certain experience in the market operation. As far as some unsuccessful experiences and lessons of high tech enterprises are concerned, it is mainly because they lack the corresponding experiences in the way of market operation. This specifically manifests that their market analysis is insufficient, they excessively pay great attention to the technology but neglect the cost and expense aspect, and they make a fault in the marketing decision. Therefore, the high-tech SMEs should merge these enterprises whose share in some markets is high and whose market operation is quite mature 2.6 The establishment of property right system that is advantageous to the developments of high-tech SMEs. Looked from the overseas advanced developed country experiences, the majority of high tech enterprises adopt stock system. But at present SMEs are majority in our country, the reform of stock system lag relatively. The state-owned enterprises are more outstanding. This is because state-owned enterprises need a bigger investment to develop high tech product and their original burdens are heavier. If they don t reform the property right system, the development of high tech enterprises will be limited. 9

3 The unclear property right system has seriously restricted their development. Therefore, the domestic high-tech SMEs may merge with Chinese company limited on the market.then they plan the high tech enterprise again according to the property right system of stock system. To do so is advantageous to the high-tech as well as the correlation industry development system. M&A may speed up the pace of reformation and make the high-tech SMEs develop toward stock system. 3 The Insufficiency During the M&A of High-tech SMEs in Our Country 3.1 The M&A cases existing in the high-tech SMEs are less and lack the successful merger experience. In China, although the science and technology domain surge upward, but the M&A cases between the high-tech SMEs are actually few. On the one hand, it is because Chinese high tech enterprises are all limited in the quantity and the scale; On the other hand, the Chinese fast growth market enables the technical enterprises in different strength to obtain respective development space. Because the large-scale M&A in Chinese high tech industry just starts, the high-tech SMEs lack the effective experience about successful M&A. 3.2 The high-tech SMEs as acquiring side lacks enough funds. The M&A is the property right transaction or the transfer depending on the market.the developed capital market is the essential condition in which the enterprise may carry out effective annexation. Our country s capital market scale is excessively small and mainly depends on individual investor. The organizational investment proportion is obviously insufficient. Instrument of exchange is sole, the market is be divided, and the fluidity is insufficient. The country still mainly selects the plan method to manage the capital market. The capital market development of our country lags seriously and has hindered the M&A development. The capital market is not developed, so it cannot provide effective financing method for the enterprises.because they have the special characteristic such as high risk, high investment and so on, the high-tech SMEs finance from the capital market is more difficult. Many high-tech SMEs are compelled to give up the goal because they could not promptly raise the fund which the M&A needs. 3.3 It is subjective and difficult to determine the value of target company. The precondition in which the enterprise can realize the successful M&A is that both sides achieve the reasonable acquisition price. Similar limited company s price is the extremely good reference to locate the acquisition price in the capital market. The high-tech SMEs need to understand an enterprise s information from exterior before estimating the value of target company. It is not only impossible to avoid the subjective prejudice to estimate the objective, but also inevitable to undertake the risk which the information is distorted. The high-tech SMEs ' property structure is different to that of traditional industry. When the target company is high tech enterprise, the difficulty to estimate the high tech enterprise s value is very bigger than the traditional enterprise because the knowledge may not be stored and the innovation benefit has the overflowing effect.the high tech enterprise perhaps has a far higher anticipated income rate than the traditional industry enterprise, but the uncertainty of income also increase along with it. The proportion of intangible asset such as technology, patent and so on containing in the product is higher than the tangible asset by far in the high tech enterprise. Enterprise's technical development ability and the essential staff who possesses these abilities are the enterprise s long-term successful key, but these invisible properties are very difficult to make the accurate judgment when selecting the target company.the enterprise can t make the accurate appraisal to such kind related questions: 3.4The loss of management and technical talent person is heavy. 10

4 The conformity of human capital originally is the most essential and subtle place after M&A.If the acquiring side overemphasizes its own operation style, the management way, it will neglect the target company s respect and value absorption and easily injure the target company's sentiment, then possibly cause the loss of management and technical talent person. Although "reasonable loss rate" is advantageous to maintain the enterprise s vigor, the enterprise still suffers from the direct loss (including the cost for leave of absence from work, replacement cost, and training cost and so on) if the loss rate is excessively high. The loss of talent person will affect the working continuity, the working quality and other personnel's stability. If the high-tech SMEs don t take measures to control the loss of management and technical talent person, the potential and the competitive ability of the enterprise will finally be reduced. 4 Conclusion 4.1 To choice the correct target company. The correct goal means half of success. Driving by different M&A motivation, the enterprise should have the stress respectively to choice the target. The high-tech SME should carry out the industrial analysis from the multi- angles, omni-direction. The high-tech SME must truly clarify which industry conforms to its own development goal, which enterprise suits its own M&A need. The high-tech SMEs success is decided by the core competitive ability which the enterprises have truly. The bigger is the relevance between various services of high-tech SMEs, the higher its efficient utilization of core competitive ability is. Therefore the M&A of high-tech SMEs must emphasis on their own superiority to the service domain and pay great attention to its own core business. Because the spread of basis technology is the process that it is from high to low, a new technology of high-tech industry is easily absorbed by other high-tech industry whose technology level is close with a new technology. 4.2 To highlight its own superior strength. The forms of M&A between high-tech SMEs are many and varied. The high-tech SMEs have special characteristics, such as more investment of intelligent capital, the quick renewal of new product and so on. To obtain economy of scale isn t the main point during M&A.Therefore the high-tech SMEs fascinate longitudinal M&A. With the rapid development of technology an enterprise is impossible to have the competitive advantage in each all domain, it is necessary that the high-tech SME concentrates on the domain in which it is expert. The high-tech SME should centralize the service domain s development of its own accumulating knowledge (including technology, market, tangible or intangible assets, and individual and organization aspect).therefore the high tech enterprise should concentrate on its own related domain to choose target goal. The high-tech SMEs M&A must emphasis on their own advantaged service domain and pay great attention to their own core business. 4.3 To formulate the perfect M&A plan. First, the enterprise should formulate united and instructive incorporative goal to coordinate all the relatively activity and guarantee the final effect. Second, the high-tech SMEs need deeply analyze the incorporative environment before the M&A takes place. The motive to analyze exterior market environment is to seek and find the opportunity, and the invention of analyzing internal resources environment is to distinguish its core ability. Third, the high-tech SMEs formulate a specific M&A plan. The plan includes the clear guiding ideology, the primary mission, the important point, and the organizational measure which are related to M&A, those are the essential step for the sake of using enterprise s resource efficiently. Fourth, the high-tech SMEs should give the target company a reasonable value estimate. At present, the net cash flow and the gauge of method based on real options have the very strong instruction significance for us to comprehend and estimate the enterprise's value. Particularly, the value estimate method of intangible asset in high tech enterprise should be scientific and rational. To make the information real and open we should improve and perfect accounting system 11

5 and accounting policy. At last, the high-tech SMEs should revolve the plan to take the effective measure to carry on the M&A. 4.4 To broaden the financing channel. If the high-tech SMEs depend on their own strength to obtain the market qualifications, it is extremely difficult. The high-tech SMEs may achieve the goal that they borrow shell to go on the market through merging listed corporation. The high-tech SMEs may directly finance through listed securities. Looking from the cases which have already succeeded; high tech enterprise specially the SMEs become an effective way through borrowing the shell to go on the market under the condition of certain condition. The high tech enterprises may grow faster depending on exterior expansion than the interior growth and also save the transaction costs directly on the market. 4.5 To pay special attention to the conformity. The conformity is the key to strengthen the core ability. The high-tech SMEs should pay great attention to the conformity of the culture that is decided by the high tech enterprise's characteristic. The both merger sides should have the multi- cultures to be tolerant. Both sides should have the good cooperation wish not the conflict. Even though the cultural risk belongs to "the conflict model", the both sides may be allowed to maintain the relative independence. 4.6 To detain the essential technical persons The effective M&A must try to detain the key technical persons. In our country, the loss phenomenon of high-tech enterprises human resources is extremely serious. Considering three years as a cycle, the loss rate of qualified scientists and technicians may reach as high as 50%-70%, what is more, it will achieve above 90%. The high tech enterprise may analyze the concrete work, test the personnel evaluation, and plan the professional career to match the personnel ability to the post after M&A. The high tech enterprise needs to create advantage conditions for staff to realize their professional goal according to enterprise's strategic development, staff s interest, goal, ability, potentiality and so on. The high tech enterprise also needs to establish the reasonable invigorative mechanism including the salary driving power, the property right driving power, the welfare driving power, the opportunity driving power, the authority and the status driving power and so on. References [1]. ZHANG Haitao, TANG Yuanhu. The Choice of Risk Control in M&A for Knowledge Based Enterprises. Studies in Science of Science,Vo.l23No.6 Dec.2005: 837~840 (in Chinese) [2]. CHENG Zhaoqian, LIU Yi. R&D M&A: Motivation, Decision-Making Procedure and risk management. Economic Theory and Economic Management,2006(8):38~41 (in Chinese) [3]. WU Xingxing, MIAO Weiya. Analysis of the Characteristics of Our Nation High Technology Industry. Studies in Science of Science.Vo.l24 Sup Aug.2006:116~119 (in Chinese) [4]. XIAO Xiawa. Research on Financial Support System of High- tech Industry. Science& technology progress and policy, 2006(9):88~90 (in Chinese) [5]. Hubert Ooghe, Elisabeth Van Laere and Tine De Langhe. Are Acquisitions Worthwhile? An Empirical Study of the Post-Acquisition Performance of Privately Held Belgian Companies. Small Business Economics, 2006(10): 2~3 Author in brief LI Lihua(1974,11), female, Lecturer, University of Jinan; Doctor, Beijing Institute of Technology; the main research direction is accounting theory and practice. Contact information: TEL: ; sm_lilh@ujn.edu.cn 12