Mergers and acquisitions: An attractive business alternative in times of economic recession

The fusions and acquisitions business (M&A, for its acronym in English) are mechanisms that seek to increase the value of a company, whether to continue growing, change its competitive position or face difficult times. In Peru, it has gained popularity in recent years despite the political situation and economic.

The behavior of the purchase and sale of companies maintained a positive behavior until April of this year. However, according to the latest Transactional Track Record (TTR) report, only four operations were carried out in May. In this sense, US$1,683 million have been mobilized, which represents a decrease of 30.36% compared to the last 18 months.

LOOK: The challenges facing companies in digital transformation

Despite this situation, Luis Fuentes, director of Estudio Fuentes, stated that in the context in which we find ourselves, it is favorable for mergers and acquisitions to increase. “This is due to the fact that when revenues decrease and expenses rise for most companies, they need to enter new markets through different mechanisms, such as mergers or acquiring other companies”he indicated.

He adds that Latin America has a special advantage since the markets are very similar. “The main benefit that we have found in this type of operation in the region is internationalization or entry into new markets”, held. Likewise, the specialist mentions that there are interesting alternatives such as branches, subsidiaries or even the formation of local companies from abroad that are also convenient, since a company can be operated from another country anywhere in the region without major problems, even no staff or physical location.

Luis Fuentes points out that, if a company wishes to carry out this type of operation, it needs to be followed up throughout the process, because in the price audit stage (Due Diligence) there are contractual, tax, legal and compliance aspects, among others, that must be get checked out

In addition, at Estudio Fuentes they act as intermediaries with financial entities for the leverage of operations and in the stages of integration, renegotiation and change of contracts. The specialist shares the process that the study has implemented to carry out this operation:

• Identify the characteristics of companiesas well as the determination of the value, the risks and all those variables that affect the future of the resulting company such as assets, liabilities, contracts, flow, fines, compliance, etc.
• Set the price of the operation, which implies in the case of mergers the valuation of the two companies involved and in the case of acquisitions normally only of the company to be purchased. It should be taken into consideration that the greatest difficulty in setting the price is in the valuation of intangibles that do not appear in accounting books, but are very important for the generation of income.
• Financing of the operation. Although there are many ways to do it, such as payment with shares between companies, capital increase, etc. The best formula is normally financial leverage, which consists of totally or partially financing the acquisition cost through the use of debt that is secured by the assets of the acquired company and its future cash flow.
• organizational integrationthis stage refers to the crucial role played by human resources, culture, values, identity, differences in organizational design, management style, leadership, organization chart, hierarchy and jobs, that is, everything related to organizational culture and human capital of a company.
• Integration of productive systems, here we see the possible duplication of assets, the restructuring costs of the resulting company due to relocation of activities or abandonment of facilities, elimination of surplus jobs with the consequent costs of dismissal and conflicts, among others.

If you are looking for legal advice, you can write to: [email protected]call 01 480 2660 and visit the website www.ef-legal.com/

RECOMMENDED VIDEO