M & A: one solution to growth of SMEs - the case of gateway securities and Morgan Stanley Singapore : Luận văn ThS. Kinh doanh và quản lý : 60 34 05

VIETNAM N ATIO NAL UNIVERSITY, HANOI
S C H O O L OF BUSINESS

Vu Minh Tuan

M&A: ONE SOLUTION TO GROWTH OF SMEs - THE
CASE OF GATEWAY SECURITIES AND MORGAN
STANLEY SINGAPORE

Major: Business Administration
Code: 6 0 3 4 05

MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisors: Dr Ta Ngoc Cau

ĐAI H Ọ C Q U Ố C GIA HA NỘI
T R U N G Ĩ Ã M T H C ' N G TIN THƯ V I Ệ N 1

I

A - l ơ / 65
......... ...
f

Hanoi - 2010


TABLE OF CONTENTS
C ON TE N TS

Pages

ACKNOWLEDGEMENT

i

A BSTRACT

ii

TÓM TẮT

iv

TABLE OF CONTENTS

vi

A BBREVIATIONS

ix

LIST OF FIGURES

X

INTRODUCTION

1

1. Necessity o f the Thesis

1

2. Research Purpose

1

3. Research Scope

2

4. Methodology

2

5. Contribution o f the Thesis

2

C H A P T E R 1 - L IT E R A T U R E R EV IEW

3

1.1. G E N E R A L C O N C E P T O F M E R G E S A N D A C Q U IS IT IO N S .

3

1.1.1. Mergers and Acquisitions Definitions.

3

1.1.2. About Synergy

4

1.1.3. Typ es o f Mergers and Acquisitions.

5

1.1.4. How to perform M erg ers and Acquisitions transaction.

7

1.1.5. O verview abou t M er g er s and Acquisitions transactions.

11

1.2. M E R G E R S A N D A C Q U I S I T I O N S M O T I V A T I O N FOR

15
SMEs.
1.2.1. Small and M ediu m Enterprises (SM Es) definitions.

15

1.2.2 Enterprise growth strategy and methodology.

15

1.2.3. Problem s o f SM Es.

16

1.2.3.1. Problem within SM E s.

16

1.2.3.2. Problems associated with financial institutions.

17

1.2.3.3. Limitations associated with financial policy.

17

1.2.4. Mergers and Acqu isitions motivation for SMEs.

18

CHAPTER 2 - THE CASE OF G A T E W A Y SECURITIES

21

AND M ORGAN STANLEY SINGAPORE.
2.1. I N T R O D U C T I O N S A B O U T S E C U R I T I E S IN D U S T R Y AN D
21

G A T E W A Y S E C U R I T I E S J S C (2007).

2.1.1. Vietnam E con om y.

21

2.1.2. Introduction o f Vietnam Securities Industry.

23

2.1.3. G atew a y Securities Introduction.

25

2.2. M & A A N D T H E C H O I C E O F G A T E W A Y S E C U R I T I E S ’S

28
STRATEGY TO DEVELOP.
2.2.1. External and Internal analysis in Securities Industry to

28
define Opp ortu nities and Threats.

28

2.2.1.1. External Analysis in Securities Industry.
2.2.1.2. Internal Analysis in Securities Industry - Five

37
Forces model.
2.2.2. Value chain analysis for G a t e w a y Securities.

46

2.2.3. Sum m arization.

54

2.2.4. Mergers

& Acqu isitions - The choice o f G atew ay

Securities.
2.2.4.1 M o rg an Stanley Singapore Introduction.
2.2.4.2 T h e Merger s

56

& Acqu isitions Transaction.

CHAPTER 3 - EVALUATE THE RESULT OF MERGER

56

&

58

vu


ACQUISITION TRANSACTION

3.1. Strategy o f Morgan Stan ley/Gateway Securities - effects to

58

o perating fields.
3.1.1. Strategy o f M organ Stanley/Gateway Securities.

58

3.1.2 Effects to operating fields.

59

3.1.3. Ev aluation key success factors o f Morgan
Stanley/Gateway Securities.
3.1.3.1. Strength o f Morgan Stanley as a Leading

61
Investment Bank and Securities Firm in the World.
3.1.3.2. Key success factors o f Morgan
Stanley/Gate way in comparison with

64

other

company.

66

3.2. Analysis financial performance.
R EC O M M ENDATIO N AND CONCLUSION

71

REFERENCES

72

V I 11


ABBREVIATIONS
For the purpose o f this thesis, the following abbreviations apply:
M&A

: Mergers and Acquisitions

SMEs

: Small and Medium Enterprises

FDI

: Foreign Direct Investment

SOEs

: State Owners Enterprises

I IoSTC

: Hochiminh Securities Trading Center

HaSTC

: Hanoi Securities Trading Center


LIST OF FIGURES
Names

Figure 1.1: M&A Process
Figure 1.2: Strategic Planning and Organization
Figure 1.3: Identifying the Targets process
Figure 1.4: Negotiating a Definitive Agreement process
Figure 1.5: M &A transactions in the world
Figure 1.6: M&A Supplier - follow industry (up to Q l-2008)
Figure 1.7: M &A transactions in Vietnam industries (%)
Figure 1.8: Typical M&A transactions in Vietnam
Figure 2.1 : Asean Economic Statistics —2007
Figure 2.2: Vietnam’s GDP by sector
Figure 2.3: Top subscribers holder
Figure 2.4: Top trading volume implementer
Figure 2.5 : Gateway Securities Structure
Figure 2.6: GDP and real GDP Growth rates o f Vietnam
Figure 2.7: Annual inflation rate o f Vietnam
Figure 2.8: Saving rate comparing with real GDP
Figure 2.9: FDI in Vietnam Overview
Figure 2.10: Market capitalization o f Vietnam

Figure 2.1 1: SOE reforms are strengthening the private sector
Figure 2.12: Number o f registered trading account
Figure 2.13: Some typical securities firms
Figure 2.14: Increasing in number o f companies
Figure 2.15: Formal markets - trading overview


Figure 2.16: fixed cost in comparison with other competitors

39

Figure 2.1 7: human resources demand o f hot field for Q4/2007

41

Figure 2.1 8: human resources supply o f hot field for 04/2007

42

Figure 2.19: Requirement capital according to Securities Law

44

Figure 2.20: Services providers’ comparison

46

Figure 2.21: 2007 - Securities companies ranged by Chartered Cap

47

Figure 2.22: 2007 - Revenues from operation activities in VND mill

51

Figure 2.23: Compare G atew ay’s activities with competitors

54

Figure 2.24: M&A Transaction history'

57

Figure 2.25: Capital Structure o f new company - Morgan
57
Stanley/Gateway Securities
Figure 3.1 : capacities o f new company compare with other providers

66

Figure 3.2: Morgan Stanley/Gateway Income Statement

67

Figure 3.3: Financial Performance within industry on 2008

69

Figure 3.4: Financial Performance within industry on 2007

70

XI


IN TR O D U C TIO N

1. Necessity o f the Thesis

Vietnam Economy as other emerging economies has transformed in two
decades o f rapid. It has opened its door to the outside world and liberalized its
economy. There emerge high competition within industry, between domestic
enterprises and foreign enterprises.
How to win in competition, to exist and develop in the high competitive
environment as Vietnam? This is the problems with every Vietnamese firms,
especially with Small

and

Medium

Enterprises, who

lack o f capitals,

resources, technologies... in compared not only with bigger domestic but also
with foreigner companies, that are strongly penetrating into Vietnam economy.
My thesis will analyze the case o f Morgan Stanley/Gateway Securities JSC,
the mergers and acquisitions transaction result between Morgan Stanley
Singapore - one official member o f Morgan Stanley and Gateway Securities

one mall securities enterprise, to explain why Gateway has chosen mergers and
acquisitions as their way to growth and comment how this strategy affected on
it.
2. Research Purpose

This thesis based on the strengths and weakness, the opportunities and threats
that Gateway have to face, to find that mergers and acquisitions is one o f good
ways to implement their problem in operation in a emerging and high
completion market like securities industry o f Vietnam.
My analysis o f Morgan Stanley/Gateway Securities JSC leads me to the
conclusion that with a small and medium company in emerging market like
Vietnam, mergers and acquisitions is the good choice to help company growth
by taken full advantages o f one bigger company that have strong resources.

I


3. Research Scope

Thesis only centers to analyze the existed problems o f Gateway Securities JSC
as the reason lead the managers o f company choose mergers and acquisitions
as a way to develop and growth in competitive environment o f industry,
economy and results after followed this way.
4. Methodology

The methodology will be base on by collecting data as: statements, reports...
from newspapers, magazines, and announcements o f companies and other state
departments like General Statistic Office or State Securities Commission and
Ministry o f Finance.., reviewing all the studies related to competitive
strategies.

5. Contribution o f the Thesis

The student hopes this thesis will contribute one significant thing to other
students who are interested in researching on the competitive strategy in future
and choice one suitable strategy for company.


C H A P T E R 1 - L IT E R A T U R E REVIEW

1.1 G E N E R A L C O N C E P T O F M E R G E S AND A C Q U IS IT IO N S .
1.1.1 M ergers and Acquisitions Definitions.

Mergers & acquisitions (M &A) refers to the management, financing, and
strategy involved with buying, selling, and combining companies, they are one
o f the popular topics in business today [Michael E.S.Frankel, 2007].
Mergers & acquisitions is a commonly used term however its meaning can
vary

depending on the context.

Often

the term

are

incorrectly

used

unchangeable or the group name M &A is used.
The key principle is to create shareholder value over and above that o f the sum
o f the two companies. Two companies together are more valuable than two
separate companies - at least, that's the reasoning behind M&A.
This rationale is particularly alluring to companies when times are tough.
Strong companies will act to buy other companies to create a more
competitive, cost-efficient company. The companies will come together
hoping to gain a greater market share or to achieve greater efficiency. Because
o f these potential benefits, target companies will often agree to be purchased
when they know they cannot survive alone.
Distinction between Mergers and Acquisitions.
Mergers

A merger takes place when two or more firms combine to form a single
enterprise, owned by a single set o f stockholders to a single management staff.
Mergers are classified according to how the merger takes place,

the

m anagem ent’s attitudes toward the merger and relationships between the
3


m erging parties. The two major means by which firms merge are the sales o f
assets or the sale or exchange o f stock. Mergers may increase profitability by
reducing costs, improving cooperation, removing ineffective management or
eliminating competition.
Acquisitions

An acquisition is the purchase by one company o f a substantial part o f the

assets or securities, normally for the purpose o f restructuring the operations o f
the acquired entity. The purchase may be a division o f the target firm or a
substantial part o f the target’s voting shares. Bids are sometimes directed
towards the acquiring firm ’s own shareholders, as in a minority buyout or in a
leveraged buyout (LBO). For example, where a group o f investors, typically
involving the firm ’s own management, acquires all the outstanding voting
shares.
1.1.2. A b ou t Synergy.

Synergy is the magic force that allows for enhanced cost efficiencies o f the
new business. Synergy takes the form o f revenue enhancement and cost
savings. By merging, the companies hope to benefit from the following:

•

S taff reductions - As every employee knows, mergers tend to

mean job losses. Consider all the money saved from reducing the
number o f staff members from accounting, marketing and other
departments. Job cuts will also include the former CEO, who typically
leaves with a compensation package.
Economies o f scale -

For example, whether it's purchasing

stationery or a new corporate IT system, a bigger company placing the
orders can save more on costs. Mergers also translate into improved
purchasing power to buy equipment or office supplies - when placing
4

larger orders, companies have a greater ability to negotiate prices with
their suppliers.
•

Acquiring new technology - To stay competitive, companies need

to stay on top o f technological developments and their business
applications. By buying a smaller company with unique technologies, a
large company can maintain or develop a competitive edge.
•

Improved market reach and industry visibility - Companies buy

companies to reach new markets and grow revenues and earnings. A
merge may expand two companies' marketing and distribution, giving
them new' sales opportunities. A merger can also improve a company's
standing in the investment community: bigger firms often have an easier
time raising capital than smaller ones.
1.1.3. Types o f Mergers and Acquisitions.
Varieties o f Mergers

There are some types o f mergers that are distinguished by how the merger is
financed. According to Chiu, X.C.,(2000) each has certain implications for the
companies involved and for investors:
Purchase Mergers - As the name suggests, this kind o f merger occurs
when one company purchases another. The purchase is made with cash or
through the issue o f some kind o f debt instrument; the sale is taxable.
Acquiring companies often prefer this type o f merger because it can provide
them with a tax benefit. Acquired assets can be written-up to the actual

purchase price, and the difference between the book value and the purchase
price o f the assets can depreciate annually, reducing taxes payable by the
acquiring company. We will discuss this further in part four o f this tutorial.


•

Consolidation Mergers - With this merger, a brand new company is

formed and both companies are bought and combined under the new entity.
The tax terms are the same as those o f a purchase merger.
From the perspective o f business structures, there is a whole host o f different
mergers. Here are a few types, distinguished by the relationship between the
two companies that are merging:
Horizontal Merger - Two companies that are in direct competition and
share the same product lines and markets.
•

Vertical merger - A customer and company or a supplier and company.

Think o f a cone supplier merging with an ice cream maker.
Market-extension merger - Two companies that sell the same products
in different markets.
Product-extension merger - Two companies selling different but related
products in the same market.
•

Conglomeration - Two companies that have no common business areas.

Acquisitions

An acquisition may be only slightly different from a merger. In fact, it may be
different in name only. Like mergers, acquisitions are actions through which
companies seek economies o f scale, efficiencies and enhanced

market

visibility. Unlike all mergers, all acquisitions involve one firm purchasing
another - there is no exchange o f stock or consolidation as a new company.
Acquisitions are often congenial, and all parties feel satisfied with the deal.
Other times, acquisitions are more hostile.
In an acquisition, as in some o f the merger deals above, a company can buy
another company with cash, stock or a combination o f the two. Another
possibility, which is common in smaller deals, is for one company to acquire

6


all the assets o f another company. Company X buys all o f Company Y's assets
for cash, which means that Company Y will have only cash (and debt, if they
had debt before). O f course, Company Y becomes merely a shell and will
eventually liquidate or enter another area o f business.
Another type o f acquisition is a reverse merger, a deal that enables a private
company to get publicly-listed in a relatively short time period. A reverse
merger occurs when a private company that has strong prospects and is eager
to raise financing buys a publicly-listed shell company, usually one with no
business and limited assets. The private company reverse merges into the
public company, and together they become an entirely new public corporation
with tradable shares.
Regardless o f their category or structure, all mergers and acquisitions have one

comm on goal: they are all meant to create synergy that makes the value o f the
combined companies greater than the sum o f the two parts. The success o f a
merger or acquisition depends on whether this synergy is achieved.
1.1.4. How to perform Mergers and Acquisitions transaction.

The acquisition or merger o f businesses is a complex process which should be
understood by all parties involved. It is essential to have a qualified team in
place, working with company owners and managers to develop the objectives
and strategy for that company.
It is also important to bear in mind that a buyer and seller do not need to be at
the same stage in this process when they first enter into communication.
Sellers and buyers may identify and approach target companies which are not
actively pursuing the possibility o f acquiring or being acquired.
There are four main processes to run Mergers and Acquisitions transaction,
which both the “buyer” and “seller’’ have to consider.

7


Figure 1.1: M & A Process
Strategic Planning and Organization
B uvers

S e ile r s

D o th
♦ A ssem b le M & A T eam
♦ D e f in e S tra te g ic O b j e c t i v e s

♦ D e f in e A c q u i s i t i o n S t r a te g y

• D e f i n e S e lli n g S t r a t e g y

♦ D e f in e A c q u i s i t i o n C r ite r ia

• •D e f in e B u y e r C r ite r ia
♦■FVepare S e lli n g M e m o

Figure 1.2: Strategic Planning and O rg a n iz a tio n

Companies need to determine their strategic objectives very early, as they form
the foundation for all that follows.
For buyers, M&A is nearly always a strategic, a.s opposed to a financial,
decision. They typically desire to strengthen their competitive position by
acquiring products, technology, distribution or in-place customers. Sellers may
desire to exit their company for financial purposes, o r they may determine that
they cannot continue on a desired strategic path witlhout combining resources
with an acquirer.

8


These strategic objectives lead directly to the next planning step. A potential
buyer should develop acquisition criteria which define what kind o f target
company will help them meet their strategic goals.
Similarly, a seller should define the characteristics o f a desirable buyer, and
develop a selling plan to guide them in approaching potential buyers.
identifying the Targets
B uvers
♦ D is tr ib u te A c q u is itio n C r i t e r i a

S elle rs

B o th

♦ D is tr ib u te S e lli n g M e m o
♦ Id e n tif y P o te n tia l ta r g e ts
♦ E v a lu a te S tra te g ic Fit

♦ A c c o m p l i s h Initial
A cquisitio n S creen

♦ A c c o m p l i s h Initial
B uver Screen
♦ P rio ritiz e T a r g e t s

Figure 1.3: Identifying the Targets process

At this point in the process both the buyer and seller will distribute their
respective acquisition criteria or Selling Memorandum through their contacts
or those o f their agents. Depending on the strategies chosen, this initial
distribution may be very widespread, or limited, pending identification o f high
priority targets.
It is important for both buyers and sellers to require binding (on themselves
and any outside advisors) confidentiality agreements concerning any data
which is released, both now and later in the process.
The buyer and seller, as well as their agents, will then go through the process
o f identifying potential buyer or seller “targets” , using established networks, as
well as searching through the vast mountain o f available information which
modern technology has created.

Approaching Potential Targets

9


Executives o f buying and selling companies may contact the identified priority
targets directly or through an agent, which may have several benefits.
For a selling company, using an agent has the obvious advantage o f
maintaining the confidentiality o f their com pany’s availability on the market,
thus maintaining the internal morale o f the company through some o f the early
exploratory discussions.
Buyers will be gathering available public information on any companies they
wish to approach, as well as analyzing the available selling material from their
target. Typically a buyer will want more information on a target company than
the seller wants to release, resulting in early negotiations and discussions
centered on access to information.
Negotiating a Definitive Agreem en t
B uvers
♦ A c c o m p lis h I n -D e p th D u e

B oth

S e lle r s
♦ S u p p o r t In -D e p th D u e
D ilig e n c e

D ilig e n ce
♦ P lan O p e r a tio n a l I n te g r a tio n
♦ P rep a re D e ta ile d V a lu a tio n
♦ A d d re s s L egal

k

T ax Is s u e s

♦ N e g o tia te D e f in itiv e A g r e e m e n t
♦ C lo s e

Figure 1.4: Negotiating a Definitive Agreem ent process

Negotiation o f a Definitive Agreement can be time consuming, and will
typically divert senior management attention from the running o f their
respective businesses, which should remain their highest priority. It is helpful
for both buyers and sellers to have a “quarterback” for this phase, who can
handle team coordination, and can optimize the time use o f senior executives,
who must remain involved. This “quarterback” (who may be internal or
external) can also facilitate negotiations by proposing “straw-man” options and
positions which

might not be appropriate for the respective company

principals.

10


When a definitive agreement has finally been negotiated to the satisfaction o f
the buyer and seller, a formal “closing” will normally be held. Often the final
financial terms will not be known exactly at that time, and the agreement will
specify how the settlement will be affected by a strict accounting taken as of

that date. Deals have been broken at the closing table, so the teams should be
prepared to respond to issues even at this point. After closing is complete, and
the signatures are dry, the acquiring company must then build on the
foundation o f the Definitive Agreement to build a healthy and profitable new
expanded operation.
1.1.5. O verview about Mergers and Acquisitions transactions.
Mergers and Acquisitions in the world.
total in num ber

Trading value (U S D mil)
2007

2008

%
change

2007

2008

%
change

In the
world

4,169,287

2.935.960

-29.6%

43,817

39.597

-9.60%

United
States

1.570.848

986.283

-37.2%

11.296

9,165

-1 8.90%

China

75,390

104,253

38.3%

2,587

2,983

15.30%

Asean

75,675

75,176

-0.7%

2.001

2,065

3.20%

Vietnam

1,719

1.009

-41.3%

108

146

35.20%

Figure 1.5: M & A transactions in the world

Source: Price Waterhouse Cooper

11


Industry

Tratling value

Ranking

(billions USD)

M a rk et

Number of

share

transactions

(% )

C u st o m e r Product

141.14

Deutsche Bank AG

28.83

1

20.4

JP Morgan

23.89

2

16.9

5

Credit Suisse

18.12

3

12.8

6

J Finance

518

8

944

119.39

Goldman Sachs&Co

41.36

1

34.6

25

JP Morgan

33.86

2

28.4

17

33.37

3

28.0

23

Citi
L

_________________

Power

94.94

651

UBS

24.52

1

25.8

9

Deutsche Bank AG

23.42

2

24.7

10

Citi

20.38

3

21.5

10

Materials

89.91

Citi

16.93

1

18.8

11

UBS

15.80

2

17.6

14

1,036

12


Lehman Brother

15.13

High tech

78.79

Morgan Stanley

16.48

1

15.5

2

Goldman Sachs&Co

3

16.8

3
1,278

20.9

12

19.6

11

18.7

6

1

Lehman Brother

14.75

3

Figure 1.6: M & A Su pp lie r - follow industry (up to Q l- 2 0 0 8 )

Source: Thomson Financial - 2008
Mergers and Acqu isitions in Vietnam .
4 5.0%
4 0 .0 %
35.0%
30.0%
2 5.0%

2 0 .0 %
15.0%
1 0 .0 %

5.0%
0.0%

ij

I J h
k^ ^X X
________

________

________

■

m m

m m

v<>^

■

^

■ 2007

________

■

n$>

m

i

-2 0 0 3

-cr

<.0
^

j yc>>
o°

Figure 1.7: M & A transactions in Vietnam industries (%)

Source: Price Waterhouse Cooper -2008

13


Buyer

Date

Aulac Securities JSC

3/2008

Technology e x

3/2008

RUB Investment Bank - Vietnam

2/2008

Industry

Seller

Securities

Malaysia

JS C (V S E C )

Golden Bridge Securities

Click

and Investment Company

Securities JSC

and

Securities

Securities

Call

Securities

Gateway

Securities

Ltd

2/2008

Morgan

7/2007

Stanley

Vietnam

(Singapore) Holdings Pte

Securities JSC

indochina Capital

Hoang

Quan

Real-

Real - estate

estate JSC

6/2007

HSBC

5/2007

VinaCapital

Finance

Techcombank

Bank

Omni Saigon Hotel

Restaurant

Company

4/2007

Anco JSC

Nestle Milk Factory

Food

2/2007

Deutsche Bank

Habubank

Bank

Bao Minh Insurance

Insurance

;

1/2007

Daiichi

Vietnam

Insurance Company

12/20061 Citigroup Inc

Company
East Asia Commerce

Bank

Bank
Figure 1.8: Typical M & A transactions in Vietnam

Source: synthesize - 2008

14


1.2. M E R C E R S AN D A C Q U I S I T I O N S M O T I V A T I O N FOR SM Es.
1.2.1. Small and Medium Enterprises (SM Es) definitions.

Small and Medium Enterprises (SMEs) is one important group o f companies
in national, they could be defined or distinguished from the other by number o f
employees that they used or by their capital level.
There are deferent criteria to define type o f SMEs in each country, each
region.
For example, according to European Commission, one company that called as
medium when they have 50 to 250 employees and their balance sheet total o f €
10 to 43 millions.
In Vietnam they defined SMEs follow number o f employees, as in definition,
small enterprises: engaging up to 49 employees, medium size enterprises:
engaging up to 299 employees.
Now, SMEs become are socially and economically important in each economy
by their contributions to entrepreneurship and innovation, prov iding jobs,
sharing to Gross Domestic Product (GDP).
1.2.2. Enterprise growth strategy and methodology.

In managing Small and Medium Enterprises (SMEs), a company can take
growth, stabilization or even extract strategy to influence its responses to both
external competitive advantage and internal strength.
The main two themes addressed here are as follows. After SMEs set their
development objective as a growth strategy, how should they choose the
appropriate method o f achieving this goal o f the growth. If SMEs decide to

meet their strategic goals by Mergers and Acquisitions (M&A), what mode of
M&A.
15


There are some factors behind mergers and acquisitions transactions that
involve and affect to com pany’s strategy, including:
G row th strategy: is when an enterprise aims at a much higher standard than

before, this targeted standard is market share or sales necessarily increase.
A firm could implement a growth strategy by developing internally or merging
with external businesses, according to three methods, including:
Increasing the number o f points o f sale to gain new customers;
Improving existing products or creating new but similar products to
maintain present customers and attract new' customers, and
•

Taking over a competitor or a forward/backward-related company

through a merger.
[Aldag Stearns, 1991. p 204]
Growth as improvement in the operation o f an organization, including more
revenue, increase staffing and market share. Growth can be achieved by direct
expansion, mergers with similar firms or diversification. Present/future
competitors cannot easily maintain alliances, especially when the two involved
parties differently value the relationship. Competition is always dynamic and
strategies should be similarly dynamic, allowing change in organization and
implementation.
A stability strategy: focuses on maintaining a company's market share. The
primary goal o f such a strategy is to strengthen the company internally. An

extraction strategy seeks to solve existing problems, increase management
efficiency and layoff workers or withdraw funds from certain business units.
1.2.3. Problems o f SIMEs.
1.2.3.1. Problem within SM Es.

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Capital shortage and weak financial structure: Most SMEs are familyowned businesses that cannot easily raise capital from capital markets and
external sources.
•

High private loan ratio, financially risky: SMEs loan ratio is as high as

25.5%, indicating relatively poor financial health.
Insufficient security: SMEs lack immovable property, and cannot easily
make a debt by movable property's guarantee. SMEs have no reliable source o f
help.
•

Weak accounting systems, incomplete financial reports: SMEs suffer

from a shortage o f accounting professionals. SMEs prepare two sets o f
financial reports for internal and external use to evade taxes.
•

Unable to gain complete information about loans: Owners o f SMEs tend

not fully to understand the channels through which loans are available, and
they miss out on soft loans.

•

Besides financial weakness as main problems them,

S M L ỈS

are known as

lacking o f resources like: human, technology, management, market and
productivity...
To Conclusion, most SMEs are small and owned/operated by families, so their
ability to raise capital is usually limited. Additionally, their internal accounting
systems are weak, and these companies do not provide complete financial
reports nor provide proof o f solvency. SMEs therefore tend to be able to obtain
less capital from the financial system than large enterprises. Accordingly,
SMEs always face the pressure o f raising capital and maintaining capital at an
appropriate level. The inability to raise capital and the limited channels to
external capital are serious problems faced by SMEs.
1.2.3.2. Problems associated with financial institutions.
ĐAi H Ọ C Q U Ổ C GIA HÀ M 0 :

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T R U N G T Á M T H Ò N G TIN THU V I c N j

-----—-------

,

N umerous loan items, a low credit line, and high cost o f credit: Banks
burden SMEs by requiring onerous applications to be made for small loans.
•

Conservative attitude towards loans because o f the high risk o f bad debt:

SMEs are limited by budget and audit policies, and the conservative attitudes
o f banks and financial institutions to lending money.
Insufficiency o f financial service branches: SMEs are nationwide, but
branches o f institutions that provide financial services are too few.
1.2.3.3. Limitations associated with financial policy.

Almost SMEs cannot raise money from the market. Many medium enterprises
have a strong potential to raise capital from the capital market, but are
prevented by financial policies from going public.
Limited capital, imperfect financial structure: The new security law allows
SMEs to go public through a reporting system that allows them to raise capital
from the market. Small com panies can obtain loans from banks, but when
middle-sized firms want to become large, they typically require more capital
than the bank can offer.
1.2.4. Mergers and Ac quisition s motivation for S M E s.

Mergers and acquisitions motivation theories are o f two kinds - value
maximization

and

non-value-maximization.

Theories

based

on

value

maximization include efficiency theory, information and signaling theory, the
market power hypothesis, and the financial motivation hypothesis; theories
based on non-value maximization include shareholder and managers and the
free cash flow hypothesis.
The motivation for M&A is to add value to the new com pany as compared
with the combined value o f the merged companies. The main purpose o f M&A
behavior is to gain economic benefit follows: the total value o f the new

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