vietnam national university, HANOI school of business Vu Thi Thu Minh A STUDY ON Merger and acquisition IN VIETNAM - THE CASE OF ho guom AND CHIEN THANG garment COMPANIES master of business administration thesis Hanoi - 2007 TABLE OF CONTENTS ACKNOWLEDGEMENTS i ABSTRACT iii TÓM TẮT .v TABLE OF CONTENTS . vii LIST OF TABLES AND FIFURES .x INTRODUCTION .1 Background Problem discussion Objectives and Aims Research questions .5 Scope of work Methodology Data sources and processing Significance .6 Limitations .6 10 Expected results .7 11 Thesis structure CHAPTER 1: LITERATURE REVIEW 1.1 Rationales of Merger and Acquisition .9 1.1.1 Definition and classification of M&A 1.1.2 Business valuation 10 1.1.3 Financing M&A 11 1.1.4 Motives behind M&A .13 1.2 Guidelines for successful acquisitions .15 1.2.1 Pitfalls of acquisitions .15 1.2.2 Execution of acquisitions 17 1.3 Managing acquired companies .19 vii 1.3.1 Restructuring poorly-run enterprises 21 1.3.2 Transferring competencies 21 1.3.3 Realizing economies of scope .22 1.4 Conceptualization and emerged frame of reference .23 1.4.1 Conceptualization .23 1.4.2 Emerged frame of reference 25 CHAPTER 2: METHODOLOGY 27 2.1 Research purpose 27 2.2 Research approach 28 2.3 Research strategy 29 2.4 Data collection method .30 2.5 Sample selection .32 2.6 Data analysis .33 2.7 Reliability and validity .34 CHAPTER 3: DATA PRESENTATION AND ANALYSIS .36 3.1 Company presentation 36 3.1.1 Ho Guom Garment JSC 36 3.1.2 Chien Thang Garment JSC .39 3.2 The situation leading to the acquisition .41 3.2.1 Post-integration change of Vietnam garment and textile industry .41 3.2.2 HOGARSCO – Expansion for development 43 3.2.3 CHIGAMEX – A poorly-managed and loss-making company 46 3.3 Execution of the acquisition of CHIGAMEX by HOGARSCO 50 3.4 Managing the acquired company - CHIGAMEX 52 3.4.1 Restructuring CHIGAMEX 52 3.4.2 Transferring competencies and realizing economies of scope .58 3.4.3 Post-acquisition performance of CHIGAMEX .60 3.5 A summary on main findings from the case study .61 CONCLUSIONS AND IMPLICATIONS 64 viii 1. Conclusions 64 2. Implications .68 References .71 Appendix – Interview Guide (English version) .73 Appendix – Interview Guide (Vietnamese version) 74 ix LIST OF TABLES AND FIFURES Table 2.1: Three different research purposes .27 Table 2.2: Relevant situations for different research strategies .29 Table 2.3: Six sources of evidence, strengths and weaknesses .30 Table 2.4: Case study tactics for four design tests 34 Table 3.1: Information on HOGARSCO’s factories .37 Table 3.2: HOGARSCO’s performance from 2002-2006 (VND billion) 38 Figure 1.1: Emerged frame of reference .26 Figure 2.1: An overview of the methodology chapter 27 Figure 3.1: Sales percentage by main export markets of HOGARSCO 38 Figure 3.2: Sales percentage by categories of products 38 Figure 3.3: HOGARSCO’s performance from 2002-2006 (VND billion) .39 Figure 3.4: Major export markets of Chigamex 41 Figure 3.5: Pre-acquisition organizational structure of CHIGAMEX 47 Figure 3.6: Overview of holding rate among companies 52 Figure 3.7: Post-acquisition organizational structure of CHIGAMEX 54 x LIST OF ABBREVIATIONS M&A Merger and Acquisition HOGARSCO Ho Guom Garment Joint Stock Company CHIGAMEX Chien Thang Garment Joint Stock Company VINATEX Vietnam National Textile and Garment Corporation JSC Joint Stock Company xi Introduction INTRODUCTION This first part is intended to give an introduction to the area of research. First a brief background discussion regarding merger and acquisition (M&A) will be provided, followed by the problem discussion, leading to the objectives and aims, then research questions, scope of work, significance, and the limitations of the study will be presented and finally the outline of the thesis. Background In today’s business world, mergers and acquisitions play an important and undisputable role in creating a sustainable competitive advantage. Although there have always been historical merger and acquisition waves often in the periods of high economic growth rates, decline in interest rates and rise in stock markets, M&A gained its importance in recent years. For the last 30 years, M&A activities have increased constantly in both number and average size [DePamphilis, 2005]. In a very competitive and global environment various reasons can account for companies undertaking these deals, often involving extremely high financial payments. Market-, cost-, competitive- or government drivers [Child et al., 2001] can all influence a company’s decision to opt for M&A as the primary mean to quickly increase revenues [Galpin and Herndon, 1999]. More specifically, operating synergies are often mentioned as drivers for merging. By combining complementary skills and resources both partners’ economies of scale and scope can benefit, by spreading fixed costs for instance. Moreover, financial synergies, diversification aims, tax advantages, pursue of market power as well as empire building can represent reasons to engage in such costly ventures [DePamphilis, 2005]. Generally, the justification for acquisitions lies in the potential value they are anticipated to create in the future [Child et al., 2001]. Consequently, the combined value of both merged companies should be higher than the sum of the individual companies. Theoretically, this value creation through Introduction mergers can be reached by using both companies’ assets more effectively by the combined firms than by the target and bidder separated [Child et al., 2001]. Although M&As almost seem to represent a part of everyday business life and the majority of multinational enterprises undertake more than one during their development, the risks associated are still comparably high. Even though there have been examples of extremely successful mergers there are findings that 50-80% underperform their industry peers and fail to earn the expected financial returns [DePamphilis, D., 2005]. Reasons for acquisition failure can range from overoptimistic estimates of the target company’s value which result in extensive overpaying; over slow integration of all operational levels in the post-acquisition phase; poor, clashing business strategies impossible to merge [DePamphilis, D., 2005]. Furthermore, the degree of relatedness of businesses, as well as the distance in business or corporate culture is crucial factors to take into consideration [Child et al., 2001; Gancel et al., 2002]. Vietnamese enterprises have been integrating into the global trend of rise in M&A activities, especially when Vietnam is in the context of high economic growth rates, low interest rates, strong and rapid equitisation and “hot” stock markets. Similarly, market, cost, competitiveness, government and synergies are often mentioned as drivers for merger and acquisitions in Vietnam. The presence of conglomerate and group of companies in Vietnam has indicated a condensed strength and has shown the willingness for integration into globally competitive economies. Problem discussion Due to the competitive environment of rapid change and aligned constant need for growth and development, companies have to exploit organic sources of expansion as well as external ones in order to compete. The options range according to the degree of integration that is established among individual enterprises. Mergers and acquisitions are two common and prevailing means for company growth in today’s Introduction business world. More precisely they represent options that aim at a very high degree of integration, as opposed to cooperative agreements and joint ventures. Generally speaking, acquisitions refer to a shift in the controlling ownership of a company that is taken over by another company. This can occur both through share purchases or other forms of the target’s equity as well as asset purchases. The acquired firm can still exist as a legally-owned subsidiary of the acquiring company, as is the case of CHIGAMEX acquisition. Mergers, by contrast, aim at “total integration of two or more partners into a new unified corporation” [Child, 2001]. They are usually coined by a consensual environment, where beneficial outcomes are ensured for both parties. Acquisitions, however, can also take place in a hostile setting, where the target’s management is passed over and the shares are purchased against the wishes of the target company [DePamphilis, 2005]. Generally, acquisitions offer a certain degree of choice concerning the magnitude of integration, which mergers not permit. Moreover, acquisitions are mostly known to be unequal partnerships [Child et. al., 2001]. Although the terms mergers and acquisitions are often used interchangeably, they entail very different concepts. Horizontal acquisition takes place where the acquiring and acquired companies produce similar product in the same industry. There is a long-standing debate in the economics and finance literature on the motives for horizontal acquisition. Firm management usually cites expected improvements in productive efficiencies or synergies like scale economies and elimination of overlapping facilities as the key reasons for undertaking horizontal acquisitions. On the other hand, some economists express concern that by reducing the number of firms in an industry, horizontal acquisition increase market power of customers and suppliers of the acquiring firm’s industry. Thus, horizontal acquisitions may be undertaken primarily to exploit the increased market power and gain at the expense of customers and/or suppliers. Introduction In the context of global rise in M&A activities and the necessity of M&A in the development of Vietnamese companies, the study would provide international knowledge of M&A and analyze a practical acquisition case of HOGARSCO and CHIGAMEX in order to draw some successful lessons for other companies in Vietnam, therefore, the title of the thesis would be finalized as “A study on merger and acquisition in Vietnam – The case of Ho Guom and Chien Thang garment companies”. Companies such as HOGARSCO have been choosing a strategy of horizontal acquisition to consolidate their competitive advantage. Vietnam National Textile and Garment Corporation (VINATEX) arranged the horizontal acquisition of Chien Thang Garment JSC by Ho Guom Garment JSC in order to help CHIGAMEX overcome the edge of bankruptcy. By pursuing horizontal acquisition, both HOGARSCO and CHIGAMEX can obtain economies of scale or secure export market for their products. After acquisition, the two companies will be able to improve their competitiveness and market visibility. Objectives and Aims The objectives of the thesis are as below: ¾ Firstly, to provide a better understanding of M&A, its rationales and international guidelines for M&A. ¾ Secondly, to review the recent upward trend in M&A activities and the context of Vietnam garment and textile industry in 2007 to raise the demand of M&A. ¾ Thirdly, to apply theory into case study of Ho Guom and Chien Thang garment companies to show advantages, disadvantages, successes, limitations of the acquisition that help these two companies get inside picture of this acquisition. ¾ Fourthly, to draw out some conclusions and suggestions for M&A activities in Vietnam. Data Presentation & Analysis efficiency, a remarkably high growth rate with many export orders, a diversified business strategy and a good financial status. All above competencies could be transferred to CHIGAMEX in order to create more value and make CHIGAMEX become an efficient organization. CHIGAMEX with their own advantages and transferred competencies from HOGARSCO can improve its competitive position and overcome current difficulties. So what make CHIGAMEX wake up after a winter sleep? When two garment companies share resources such as materials and accessories, manufacturing facilities and machines, client database and so on, each company has to invest less in the shared activities. Such strategy can utilize the capacity of each company better, for instance, HOGARSCO and CHIGAMEX, each company is strong at specific type of products and they can choose to implement orders of products they are good at, or when it is a case of a big order at short delivery, two companies can produce together. Sharing export orders, good personnel, financial resources, management experience have been some of the first things Ms. Ty has done to “save” CHIGAMEX from the edge of bankruptcy. HOGARSCO has provided CHIGAMEX loans with interest rates even lower than bank-saving interest rate. HOGARSCO has used its credibility to persuade commercial banks to support CHIGAMEX’s loans with the same interest like HOGARSCO’s. Other HOGARSCO’s supports relating input resources have been free of charge to CHIGAMEX. There has been exchange of personnel between two companies for a more suitable arrangement. Ms. Ty has brought to CHIGAMEX her helpful management experience. She had been successful in organizing a modern and lean management model in HOGARSCO and now she applied best practices of this core model to CHIGAMEX, once again, she has attained the set goal and objectives which VINATEX believed to delegate to her. 59 Data Presentation & Analysis 3.4.3 Post-acquisition performance of CHIGAMEX Until now, it can be defined that the acquisition of CHIGAMEX by HOGARSCO is rather successful. Pre-acquisition performance was bad and CHIGAMEX seemed to be nearly bankrupt with total loss reached up to VND 54 billion. For eight months before acquisition, monthly arising loss was USD 100 thousand leading to total loss of VND 12 billion in this period. Post-acquisition performance has experienced a big change. Production and business operation has gained recovery. After one month, in December 2006, monthly loss reduced to VND 100 million, equivalently to 1/16 of previous month’s loss. The first quarter of 2007, CHIGAMEX attained break-even point, the second quarter, CHIGAMEX got profit of VND 500 million. The next two quarters, CHIGAMEX continued to get profit. After downsizing the whole company, empty offices and compliances have been for lease. Turnover from leasing, about USD 80 thousand per month, has been compensated for previous loss – VND 54 billion including liabilities and inventory. It is estimated by Ms. Ty that CHIGAMEX will clear off debts and balance its financial status at the middle of 2009. On the other hand, employees’ living standard in CHIGAMEX has made some remarkable improvement, quoted as Ms. Ty’s saying “human resource in CHIGAMEX are not bad, they are quite good but need motivation by real leaders, give them opportunities to change, the face of CHIGAMEX has changed day by day, accordingly.” After acquisition, average salary of employees has increased by 25% and has been 40% of export processing price, for example, average salary of workers in Hanoi factories is VND 2.1 million per month, and in Thai Nguyen factories 1.6 VND million. Employees’ living standard is much better and happier compared to the difficult time in 2006. Fortunately, it will be a very good picture for both CHIGAMEX and HOGARSCO. From now to 2012, HOGARSCO has planned to become a Vietnamese economic conglomerate with the expansion of core businesses and diversification of new businesses. HOGARSCO has intended to diversify their business into the other 60 Data Presentation & Analysis fields such as real estate, travel and entertainment businesses. The expansion would be implemented through buying out some loss-making companies in the same sector or industry. The successful acquisition of CHIGAMEX could become a typical and standardized case applied to save poorly-managed and inefficientlyoperated companies from consecutive loss and the threat of bankruptcy in garment and textile industry. 3.5 A summary on main findings from the case study In summary, main findings from case study to answer research questions are clearly illustrated in the table below in comparison with the emerged framework of reference. The acquisition of CHIGAMEX by HOGARSCO Rationales of Mergers and Acquisitions RQ 1: Why such company as HOGARSCO conduct the acquisition of CHIGAMEX? Economies of scale through reducing duplication and lowering costs Increase revenue or market share due to absorbing major competitors ¾ Yes, in long term when HOGARSCO become an economic conglomerate ¾ No, CHIGAMEX was not a major competitor of HOGARSCO „ Cross selling „ Synergy to better use of complementary resources. „ Reduction of tax liability due to buying loss makers Geographical or other diversification to smooth a company’s earnings and stock price Resource transfer to create value ¾ No, CHIGAMEX does not hold any part of HOGARSCO’s total equity ¾ Yes, two companies maintain a long-term synergy in sharing resources ¾ No, two companies use separate system of accounting ¾ Yes, but in long term when two companies are in the higher level of integration ¾ Yes, resources of two companies are effectively transferred to create value for both „ „ „ „ 61 Data Presentation & Analysis „ ¾ Yes, but in long term will have a clear picture Increased market share can increase market power Guidelines for successful acquisitions Æ RQ 2: How the acquisition of a garment company such as CHIGAMEX happened? Avoiding pitfalls of acquisitions „ difficulties with integration „ „ overestimating benefits expensive acquisitions „ inadequate screening ¾ Yes, there’s some difficulties when restructuring CHIGAMEX but they are settled down ¾ No, as the real value of CHIGAMEX is more than times of its charter capital (Decision 2400/QĐ-TCKT of Ministry of Industry) ¾ Yes, but following the decision of Vinatex and the leader is much experienced in similar case Execution of acquisitions „ pre-acquisition screening bidding strategy „ integration „ ¾ Yes, but unofficial ways ¾ No, instead of bid, Vinatex delegated Ms. Ty in HOGARSCO as the representative of Stateowned equity in CHIGAMEX and then let HOGARSCO buy more equity of CHIGAMEX for take-over ¾ Yes, but in low level, mainly sharing resources and transferring competencies *** 62 Data Presentation & Analysis Management of acquired companies „ RQ 3: How to manage an acquired firm such as CHIGAMEX? Restructuring of acquired companies: - replacement of top management team, sales off unproductive assets, reduction of staffing level ¾ Rearrange top management team, reduce number of numbers of departments, managers and staff, sell of cars, redundant machines and equipments, downsizing to gain empty office for lease - improvement in efficiency, quality, customer responsiveness and innovativeness ¾ Specialization of products and customers for each factory, clear off stock by any ways, reorganize purchasing and input management, outsource simple and small orders, meet requirements of quality control and standards of big export market ¾ Increase in pay for office staff and worker, pay more attention to living standard of workers, recognize employees’ effort and rewarding ¾ Transfer job competent, skills of leadership and management ¾ Sharing export orders, good personnel, financial resources, management experience ¾ Share resources of materials and accessories, manufacturing facilities and machines, client database - motivation through increases in pay linked to increases in performance „ „ Transferring competencies between acquiring and acquired companies Realising economies of scope Source: Author own construction based on case study, 2007 63 Conclusions & Suggestions CONCLUSIONS AND IMPLICATIONS In the previous chapter, analysis of the case was conducted. In this chapter, the main findings and conclusions of the study will be brought up based on theories, interviews with representatives of HOGARSCO and CHIGAMEX as well as analysis. As only two companies have been investigated, it will be impossible to draw any generalized conclusions. Thus, conclusions are applicable only to the two companies of investigation. The findings and conclusions for each research question will be presented first, and then some general conclusions will be drawn where the research questions were answered. Finally, some suggestions for companies, theory and further research will be provided. 1. Conclusions One size doesn't fit all. Many companies find that the best way to get ahead is to expand ownership boundaries through mergers and acquisitions. For others, separating the public ownership of a subsidiary or business segment offers more advantages. At least in theory, mergers create synergies and economies of scale, expanding operations and cutting costs. Investors can take comfort in the idea that a merger will deliver enhanced market power. By contrast, de-merged companies often enjoy improved operating performance thanks to redesigned management incentives. Additional capital can fund growth organically or through acquisition. Meanwhile, investors benefit from the improved information flow from de-merged companies. M&A comes in all shapes and sizes, and investors need to consider the complex issues involved in M&A. The most beneficial form of equity structure involves a complete analysis of the costs and benefits associated with the deals. With regards to the reasons why Vietnamese garment companies conduct acquisitions, these are some main reasons: 64 Conclusions & Suggestions ¾ Aside to typical enterprises with very high growth rate, there remains a not small part of enterprises in the industry that are still being at a loss with labor productivity lower than 30-50% compared to the average regional level. ¾ Making acquisitions prevents loss-making garment companies from bankruptcy ¾ Making acquisition helps apply available best practices of the most efficient companies in the industry to restructure poorly-managed companies ¾ Acquisitions, and then mergers can help companies in the same sector and/or industry enhance their strengths to grasp business opportunities and define their weaknesses to minimize risks in the context of globally-competitive and –integrated environment ¾ Vietnam Garment and Textile Corporation played its powerful voice in the acquisitions and take-over of the industry. Generally, execution of an acquisition in Vietnam Garment Sector has not exactly followed the practices in the world. There exist differences due to involvement and intervention of state-owned equity in the acquired and acquiring companies. These companies have been equitised and the holding rate of government after equitisation normally is more than 50% and gradually reduces in the next stages. This acquisition has not been trapped in any of the four pitfalls mentioned in the previous part. Although there did not exist any official business evaluation from relevant parties, this acquisition tend to be not expensive due to its large source of fixed assets including real estates. Through her experience of take-over and postacquisition management together with strengths of CHIGAMEX in quality and human resource, Ms. Ty did not overestimate the potential economic benefits of CHIGAMEX though there was no thorough and formal screening of CHIGAMEX before acquisition. Initial difficulties in integration of corporate culture were not easy to be found except for leadership since Ms. Ty has brought her leadership from HOGARSCO to CHIGAMEX. 65 Conclusions & Suggestions With regards to the process of an acquisition in Vietnamese garment sector, these are the main steps have been used in the case CHIGAMEX: ¾ The acquired company had experienced an informal pre-acquisition screening by relevant parities, mainly based on the common status quo of loss-making garment companies in the same period. As the acquiring company had ever in the same situation so it was easy for its top management team to have a quick but exact screening of problems of the acquired company and how to solve them. She had estimated right value of the acquired company – equivalently to times more than its charter capital (Decision 2400/QD-TCKT, Ministry of Industry). If the acquired company – CHIGAMEX – had sold off one of it fixed assets like real estate, obviously, it could compensate for their loss. But that was not the way it had been as real estates are not easy to be sold. So if the acquired company has done business well based on sources of such assets, it will out of debts at least in years. ¾ The acquisition in this study did not experience a formal bid but the “bidding” strategy here regarded as an internal transference of State-owned equity of an acquired company to the acquiring company as both acquires and acquiring companies are members of VINATEX. This transference went through two stages. First, legal representative of the acquiring company would, instead of VINATEX, hold and control State-owned equity in the acquired company to avoid the loss of control if it is forced to organize an official bid. Then VINATEX would sell one part of total equity it had owned to the acquiring company due to its achievements in “saving” the acquired company. And officially, HOGARSCO become the take-over of CHIGAMEX. ¾ Although integration should be the next step after ‘real’ take-over happened, it had not been completely like the case. After acquisition, the acquiring and acquired companies are still separate legal entities. They are common in leadership, organizational structure and management mechanism; however, they have independent systems of accounting which are consolidated at the 66 Conclusions & Suggestions end of accounting term. As the acquiring company had successfully passed the similar time of difficulties like the acquired company so its leader had known how to effectively manage this acquired company after acquisition. Although the management of CHIGAMEX after acquisition has been rather the same as practical model in the world, implementation has seen a little bit different. With regards to what the acquiring company has done to mange the acquired company after acquisition, these are some main ways: ¾ The acquired company has been restructured following the successful model of the acquiring company. Cutting cost and increasing revenue have been two objectives of restructuring the acquired company. Downsizing the company, selling off redundant assets, increasing employees’ pay, improving manufacturing and operation procedures have been useful ways to achieve these objectives. ¾ There has been transference of competencies between two companies such leadership, management skills and job competence. ¾ The two companies have realized economies of scale when sharing common resources such as human and financial resources, input resources, database of clients, and source of export orders. The acquired company have applied the same model of product specialization as the acquiring company and, initially, achieved efficiency in production. In conclusion, about theory, M&A is a corporate strategy to improve efficiency and create comparative advantage. Well-defined strategy & detailed plan for acquisition from preparation to implementation are necessary. Pre-acquisition screening & post-acquisition integration are all important. Successful acquisitions are made through (i) adequate pre-acquisition screening; (ii) reasonable expense of acquisition; and (iii) effective post-acquisition integration. About the case of Ho Guom & Chien Thang, this case of acquisition can be considered as a successful 67 Conclusions & Suggestions and friendly acquisition. About business evaluation, Chien Thang was evaluated through asset value & potential earnings. This acquisition has led to the synergy and increase of market share of both acquiring and acquired companies. On implementing the acquisition, the acquirer has avoided some pitfalls leading to failure of acquisitions. Effective integration leads to a successful acquisition and leadership of the acquirer played a key role in the integration process. 2. Implications Implications for theory This thesis will contribute to the existing research concerning M&A, by highlighting its rationales and execution. Further it is believed that the study will contribute to create a better understanding of M&A, why and how companies should conduct M&A. Implications for further research M&A is an immense field of research. My study has only investigated a small part of this area of research and while working with this study I have found interesting issues that can be connected to this study but due to time constraints I could not incorporate it in the research, and therefore these issues are proposed for further research. My study is limited to companies in garment sector but it would be interesting to look at other companies in other lines of business to see the result and how acquisition is carried out there. There may be other rationales of M&A and ways of managing an acquired company. It would be interesting to see a survey investigation carried out with a large sample selection of acquiring and acquired companies within garment sector to be able to draw some kind of generalized conclusions on the subject of M&A. Since this study only focused on leaders within 68 Conclusions & Suggestions the companies it would be interesting to see companies’ other members’ and relevant parties’ opinion on this issue since it might differ from those. Studying both smaller as well as larger organizations is interesting since it might differ a lot how the acquisition occur in comparison with companies studied in this study. Furthermore, studying companies that are based outside of Vietnam could be interested since there are other business ethics and other practices than in companies located in Vietnam. Implications for management From the case of Ho Guom and Chien Thang Garment companies can draw some suggestions for other companies which are in favor of M&A. The findings in the research give evidence that within the area of M&A, the role of leaders and companies involved are very important. What is important though is that the companies should have a well defined plan on what and how they will make acquisitions. Since different companies have different backgrounds, but there are common things that should be followed in an acquisition. If there are clear guidelines on how to execute an acquisition and what to after that, companies are supposed to act wisely when dealing with the ‘target’ company and there is a greater likelihood that the acquisition will be successful and create values. However, any guidelines could become unsuitable for a specific case, thus, careful research of M&A in specific context is crucial for a successful acquisition. In the case of CHIGAMEX, government, industry, company and individual contexts should be taken into consideration for an appropriate decision. There is all too often a problem when companies expand and diversify rapidly to keep up with the national economic growth. All members of both acquiring and acquired companies have to act in a consensus manner for effective integration. It is believed that in garment sector productivity and product quality is the base for the business success. As most garment companies offer similar products and price, there is a great 69 Conclusions & Suggestions importance of management team acting more customer-oriented when they lead other members in operation and production. In pursue of profits, companies have to be careful with offers of take-over as many mergers and acquisitions failed due to carelessness. The top management team of a company in garment sector might have periodically business development plans and take specific offers of acquisition into thorough consideration. Often within garment sector, M&A are new and rather young, but they are still important for the well being of the business. It is believed that making M&A is an effective way of business development, and should be considered whenever opportunities come. In summary, some recommendations for Ho Guom are that it should apply its successful restructuring models to recover loss-making companies in garment sector and continue to take acquisitions to expand core business and diversify new business. And some main recommendations for other companies are that they should (i) follow the upward trend in M&A activities in VN; (ii) have a clear strategy and detailed plan of M&A; (iii) combine many ways in business evaluation; (iv) avoid all pitfalls leading to failure of acquisitions; (v) define important role of leader in M&A; and (vi) act in a consensus manner for effective integration. 70 References References DePamphilis, D., Mergers, Acquisitions, and other restructuring activities, 3rd edition, USA, 2005 Child, J.; Faulkner, D.; Pitkethly, R., The management of international acquisitions, New York, 2001 Galpin, T. J.; Herndon, M., The complete guide to mergers and acquisitions – process tools to support M&A integration at every level, San Francisco, USA, 2000 Gancel, C.; Rodgers, I.; Raynaud, M., Successful mergers, acquisitions and strategic alliances – How to bridge corporate cultures, England, 2002 J.Warner, J.Templeman, and R.Horn, “The case against mergers”, Business Week, 30 October 1995 J.P.Walsh, “Top management turnover following M&As,” Strategic Management Journal, 9, 1988 R.Roll, “The hubris hypothesis of corporate takeovers”, Journal of business, 59, 1986 P.Haspeslagh and D.Jemison, Managing Acquisitions, New York Free Press, 1991 G.D.Bruton, B.M.Oviatt, and M.A.White, “Performance of Acquisitions of Distressed Firms”, Academy of Management Journal, 4, 1994 L.L Fray, D.H.Gaylin and J.W.Down, “Successful Acquisition Planning”, Journal of Business Strategy, 5, 1984 D.R. Willensky, “Making it happen: How to execute an Acquisition”, Business Horisons, March-April, 1985 P.L.Anslinder and T.E.Copeland, “Growth through Acquisition: A Fresh look”, Havard Business Review, 1996 Internet Ho Guom Garment JSC Homepage http://www.hoguom.com.vn [2007, December] (2007), [on-line]. Available: References Chien Thang Garment JSC Homepage (2007). [on-line]. Available: http://www.chigamex.com.vn [2007, December] Vietnam National Texttile and Garment Corporation Homapage (2007). [on-line]. Available: http://www.vinatex.com [2007, December] “The basics of mergers and acquisitions” (2006). [on-line download in pdf file] http://www.investopedia.com/university/mergers/ Interviews Ms. Ninh Thi Ty, Gerneral Director at Ho Guom Garment JSC, Hanoi, Vietnam, November 2007 Ms. Nguyen Thi Ty, Deputy General Director at Chien Thang Garment JSC, Hanoi, Vietnam, November 2007 Appendix Appendix – Interview Guide (English version) 1. Company presentation - Years of establishment - Line of business, core products - Number of employees - Annual average turnover - Annual average profit/loss (if any) 2. Information regarding the interviewee - Name - Position - Length of employment 3. Company’s pre-acquisition performance 4. The process of acquisition - Background - Type of acquisition - Parties involved in the acquisition - Steps of the acquisition 5. Post-acquisition management of the acquired company - Restructuring of the company: Strategic changes in organizational structure, management mechanism, production and operation management, human resource management… - Transference of competencies and realization of economies of scope between the acquiring and acquired companies in the same sector - Advantage and disadvantages in post-acquisition management 6. Evaluation on successes, limitations in the acquired company’s recovery - Evaluating on successes and explaining reasons - Evaluating on limitations (if any) and indicating action plan - Opportunity and risk when taking over a company - Lessons learnt from the acquisition Appendix Appendix – Interview Guide (Vietnamese version) 1. Giới thiệu chung Công ty CP May Hồ Gươm Công ty CP May Chiến Thắng - Số năm thành lập - Ngành nghề kinh doanh, sản phẩm chủ đạo - Số lượng công nhân viên - Doanh thu trung bình hàng năm - Lợi nhuận/ Lỗ trung bình hàng năm (nếu có) 2. Thông tin người vấn: - Họ tên - Vị trí công tác - Thời gian làm việc 3. Thực trạng hoạt động sản xuất, kinh doanh công ty trước thời điểm diễn vụ mua bán công ty 4. Quá trình mua bán nắm quyền kiểm soát công ty - Hoàn cảnh diễn vụ mua bán công ty - Việc lựa chọn hình thức mua bán công ty - Các bên tham gia trình mua bán công ty - Các bước tiến hành mua bán công ty 5. Quản lý công ty sau mua lại nắm quyền kiểm soát công ty - Hoạt động tái cấu công ty: Những thay đổi cấu tổ chức, chế quản lý, điều hành, quản lý sản xuất kinh doanh, quản lý nhân sự… - Hoạt động chuyển giao lực, tận dụng lợi kinh tế theo quy mô hai công ty ngành - Những thuận lợi, khó khăn trình quản lý sau mua lại 6. Đánh giá thành công, hạn chế trình vực dậy công ty bị mua lại - Những điểm thành công nguyên nhân, yếu khắc phục - Những điểm hạn chế (nếu có) kế hoạch hành động - Đánh giá hội, rủi ro mua bán công ty học kinh nghiệm [...]... of the choices made Finally a discussion regarding validity and reliability is provided Figure 2.1 below shows the headings brought up in this chapter and an overview of how these fit together Research Purpose Research Approach Research Strategy Data Collection Sample Collection Data Analysis QUALITY STANDARDS FOR RESEARCH (Validity/ Reliability) Figure 2.1: An overview of the methodology chapter Source:... industries, the majority) result in a net loss of value due to problems Correcting problems caused by incompatibilitywhether of technology, equipment, or corporate culture- diverts resources away from new investment, and these problems may be exacerbated by inadequate research or by concealment of losses or liabilities by one of the partners Overlapping subsidiaries or redundant staff may be allowed to... compensation is linked to profitability rather than mere profits of the company Vertical integration: Companies acquire part of a supply chain and benefit from the resources However this does not add any value because as one end of the supply chain may receive product at a cheaper cost, the other end now has lower revenue In addition, the supplier may find more difficulty in supplying to competitors of... successful acquisition in Vietnam 4 Research questions In order to reach this purpose, the following research questions have been developed Why do Vietnamese garment companies conduct acquisitions? How can an acquisition in Vietnamese garment sector happen? How can an acquiring company manage an acquired company? 5 Scope of work Mergers and Acquisitions can be studied from a variety of angles Due to time... Stable: can be reviewed repeatedly - Unobtrusive: not created as a result of the case - Exact: contains exact names, references, and details of an 30 Disadvantages - Retrievability: can be low - Biased selectivity: if collection is incomplete - Reporting bias: reflects (unknown) bias of author - Access: may be deliberately ... resemble a takeover but result in a new company name (often combining the names of the original companies) and in new branding; in some cases, terming the combination a "merger" rather than an acquisition is done purely for political or marketing reasons An acquisition, also known as a takeover, is the buying of one company (the ‘target’) by another An acquisition may be friendly or hostile In the former... of potential integration problems, and the compatibility of the corporate cultures of the acquiring and the acquired companies The company should then reduce the list of candidates to the most favored ones and evaluate them further At this stage, it should sound out third parties, such as investment bankers, whose opinions may be important and who may be able to give the list after this process should... they are spread over a wide range of products Additionally, such a strategy can utilize the capacity of certain functions better For instance, by producing the components for the assembly operations of two companies in the same industry, a component-manufacturing plant may be able to operate at greater capacity, thereby realizing economies of scale in addition to economies of scope Thus, a corporate strategy... dividend or through liquidation This type of transaction leaves the target company as an empty shell, if the buyer buys out the entire assets A buyer often structures the transaction as an asset purchase to "cherry-pick" the assets that it wants and leave out the assets and liabilities that it does not This can be particularly important where foreseeable liabilities may include future, unquantified damage... market share generally allows companies to raise prices Note that 13 Literature Review while this may be in the shareholders' interest, it often raises antitrust concerns, and may not be in the public interest However, these motives are considered not to add shareholder value: Diversification: While this may hedge a company against a downturn in an individual industry it fails to deliver value, since . vietnam national university, HANOI school of business Vu Thi Thu Minh A STUDY ON Merger and acquisition IN VIETNAM - THE CASE OF ho guom AND. acquisition 41 3.2.1 Post-integration change of Vietnam garment and textile industry 41 3.2.2 HOGARSCO – Expansion for development 43 3.2.3 CHIGAMEX – A poorly-managed and loss-making company 46. industries, the majority) result in a net loss of value due to problems. Correcting problems caused by incompatibility- whether of technology, equipment, or corporate culture- diverts resources