How to get a synergy in the transactions of M & A

Familiar with the childhood fable of Aesop: forever quarreling among themselves the sons of the old farmer got from his father's job to break a bundle of twigs. To cope with this problem was they were not under force, although some bars they broke without any difficulty. From a systems perspective is simple: the interaction of elements (rods) within the system (bundles), there are new system properties (strength), previously absent in a separate operating elements. In systems theory the emergence of such new features in the formation of a system is called emergence. It manifests itself in any system, be it man, composed of atoms of different substances, none of whom can not think and speak, or a restaurant chain McDonald's, earning money by selling their franchises, that it is impossible for an individual enterprise catering. The principle of emergence is realized through synergies. For the first time a term coined more than a hundred years ago, English physiologist Charles Sherrington in the study of muscular systems, and management of the spinal cord. And with regard to economics the concept of "synergy" among the first used the Igor Ansoff in the 60s of last century. Ansoff has identified the economic basis of the concept: the possibility that the result of joint efforts of several business units will exceed the total score of self-employment. In other words, the synergy can be expressed as the receipt by the added economic value created by buying other companies. Often the effect is also called the rule "2 +2 = 5", and this is one of the most common myths synergy. We must try. They talk about a lot of synergy and beautiful, and evaluate it in terms of money often can not. Achievement of positive synergy as a target M & A transactions voiced most often, but statistics show that this is what the vast majority of cases can not be achieved. Numerous studies show that at least 60-70% of mergers and takeovers are ineffective. That is, the combined companies together generate less cash flow than they could individually. As a result, instead of the desired identity of the "2 +2 = 5" get a much less pleasant "2 + 2 = 3". Fable of the Swan, Pike and Cancer - a classic example of negative synergies from the integration. "From tripping over themselves and the cart still no go!" - Not surprising, because the objective elements of the system do not always coincide with the goals of the system. For example, the absorption of Iron and Steel (Swan) mine (Cancer) of the initiator of the transaction management wants to increase its efficiency by reducing transaction costs associated with the acquisition of the ore. A guide to mine the maximum employment of staff is important, because mine is the main enterprise and over the mass dismissals of his Pike (local administration) utyanet into the water so there and eat. As a result, the center of the initiatives related to increasing productivity and reducing staff in place successfully sabotaged "But things are there." A common misconception associated with the synergistic effects of integration, is the myth of the objectivity of their appearance. Actually, not quite so simple. The integration provides a synergistic effect in two forms: - initial synergies obtained in the short run directly through the integration - the hidden synergies obtained in the long run by implementing appropriate managerial measures integrated corporation. McKinsey study showed that in the short run is attained only about 15% of the possible synergistic effects of integration. The remaining 85% of the effects will not be available, if integrated management of the corporation does not see the sources of their formation and do not make efforts to achieve them. Uniform distribution. Where does the synergy and how it manifests itself? Synergistic effects can be caused by a variety of reasons, but they appear to be, in the end, or to increase revenue or cut costs in an integrated corporation with respect to income and expenses separate operating companies. The nature of the first phenomenon is the more efficient use of available resources, the second - to increase the flow of resources into an integrated corporation. In the activities of enterprises allocated operating, financial and investment components. Under the first to understand the operations that are the main source of revenue for the company, as well as other non-investing and financing activities. Financing activities includes the processes leading to changes in volume and structure of debt and equity. Investment related to the purchase or sale of long-lived assets, which are resources that provide the cash flow in the future. Instance, industrial production and sales companies own output will relate to operational, obtaining Loans and Credit - financial to and building new production facilities - to investing activities. Accordingly, it is logical to single out three main activities to achieve synergistic effects of integration: 1) operating, 2) financial and 3) investment. Achieving operational synergies can be carried out by five main ways: - reducing the cost per unit of output, which is achieved by scaling up. The value of the fixed costs of the company is relatively stable, and they are reduced per unit of production by increasing production volumes. Thus, a doubling of output due to the absorption of the new company licensing costs will remain the same at lower volumes - reducing production costs through more efficient utilization of equipment. If the separate existence of the companies in one of them may be a shortfall due to lack of orders, and the other - overproduction due to lack of capacity. For example, because of the urgency of ordering the machine is working at top speed while consuming more resources per unit of output. After the integration may be possible dozagruzit idle equipment - reduce transaction costs. In the interaction with the environment the company will inevitably spend money on search vendors, customers and information, contracting, negotiation. When you combine the buyer and seller in an integrated corporate transaction costs on the interaction between elements of the structure of the newly formed company to decline - cost reductions in staff by eliminating duplicate functions of administrative personnel and to reduce its staff. Integrated corporation may liquidate a part units engaged in marketing, finance, accounting, office administration, strategic management of the acquired company and transfer their functions relevant parts of the company has absorbed - increasing sales through better management, which is achieved by using the corporation the most effective available marketing techniques, quality control systems and the like. It can be both a system previously used in corporations and previously used in the associated company. General Electric Corporation in implementing its own system of the absorbed companies improve management efficiency, thus improving their efficiency. At the same time all the best achievements of the absorbed companies in this field are used to improve the system. No longer crashes. Financial synergies can be expressed as follows: - reducing the cost of supply by exerting pressure on suppliers. Large integrated corporations is much easier to achieve discounts and deferrals of payments. Is achieved both by increasing total purchases and acquisitions thus possible to use the additional discount, and by a direct threat to change supplier. The same applies to capital markets: ceteris paribus a large corporation can borrow at a lower rate, thus reducing the overall cost to raise capital - tax optimization. Consists of optimizing the effects of indirect and direct taxes (page 53) - to receive government support. A large integrated corporation creates many jobs, including because the state is interested in the stability of its work. During the recent financial crisis, the principle of too big to fail («too big to fail") appeared in full in the U.S. banking sector. Synergistic "dividends" for the size of the state may represent a direct subsidy or placement of state orders, since the restructuring of tax payments - increase share value of an integrated corporation as compared with the sum of the capitalization of the combined companies individually. Arises because of market expectations regarding the implementation of other synergies. Finally, investment synergy is embodied, as a rule, in reducing the volume of necessary investments in the development of an integrated corporation. May be due to the following factors: - the same equipment can be used in technological processes of several companies within the integrated corporation, which reduces the number of purchased units. For example, the integration of wholesalers and retail outlets may fall in the necessity of building their own warehouses for retail purposes - use of results of scientific research, the following-to-va-tor-tion and development activities throughout the corporation. In addition, R & D units, can be merged into a single research center - the acquisition of the necessary resources at a price below the potential of their creation. Investment in the purchase of a going concern may be less than the cost of construction of new buildings, facilities and equipment. It is characteristic of situations where the company has absorbed the "negative goodwill". Dispelling the myth. Direction of synergy is not exhaustive, moreover, some effects may not occur in specific mergers and acquisitions. Integration of each transaction must be preceded by careful analysis, for which, in turn, should follow the economic evaluation of potential synergistic effects, as well as costs associated with their achievement. This in itself does not guarantee the detection efficiency of integration. The deal makes sense only if arises due to the additional cost synergies exceed the costs of integration. Otherwise, the myth, "2 +2 = 5" will remain a myth. * Author - Ph.D., assistant professor of "Economics, Management and Investments" South Ural State University.