About SME financing issues related to mergers and acquisitions analysis

As most of China's capital markets are underdeveloped financing problem faced by SMEs, M & A as a way of integration of resources can play a role as a corporate finance M & A is the effective path of rapid development of SMEs is to upgrade China's industrial structure. Out of the homogeneous competition. Achieve economies of scale to achieve superior business community the only way in eliminating bad
First, the design of SME financing mergers and acquisitions
1. The composition of financing
(1) equity capital financing. The main source of equity financing is an advantage the enterprise's internal funds or shareholder investment, the number of basic requirements is to achieve absolute control of the target company or the relatively holding companies that are dominant fundamental requirement for M & A activity. Other sources of equity financing include purchase warrants, venture capital, the target company's management and other internal or external investors.

Card financing options is a new financing tool, the object can be a dominant financing business and the target company's management or employees, or a business outside investors. Share options permit some of the financing of SMEs in China, especially the Small high-tech enterprises has been applied. The feature is a long-term option. to give permit holders of share options at a specified price during a set number of shares to buy the rights, it can be said of a stock options listed in the enterprise when the realization of future profits. investors driving force comes from the enterprise market expectations and the expectations of profit. In the share warrants are exercised, the debt issued by the original company has not yet recovered, while the new shares means the new financing, the company's capital increase. the source of risk capital more widely, for example, various domestic and international venture capital company, venture capital funds, venture capital funds. venture capital access to the target company's assets and future earnings as collateral .

(2) debt capital financing. Debt capital mainly refers to bank loans, as the acquisition of both sides, you can pledge as much as possible to find some means of security, access to bank loans. Since bank loans difficult to obtain, this part of the funds in the debt capital in a subordinate position.

These are related to mergers and acquisitions of small and medium enterprises financing channels when the composition of the basic considerations. On this basis, or may have other sources of financing, but must amount to finance an appropriate scale and advantages of the target company's holding company status as a precondition.

2. Design of financing
(1) the use of acquisition funds financing of SMEs. From the narrow channels of acquisition financing for SMEs the reality of the government departments should take the lead in the establishment of SME financing or M & A Fund. The fund property rights trading market as the main area of ​​investment, specifically for business capital expansion or re-adjustment of financing and related services. by the Fund and the relationship between the invested enterprise funds can be divided into participatory M & M fund buyout funds and non-participatory. promising SMEs in the implementation of the M & deserves the support of the Government because of mergers and acquisitions in favor of local small and medium enterprise structure and industrial structure adjustment, is conducive to regional economic development.

(2) the use of unsecured loan financing. Unsecured small loans is a specialized form of loans for SMEs, is the financial institutions to provide credit for the general small business loan products. The demand side of financial institutions to provide loans for capital support, not needs required for normal commercial loans to fixed assets, bills of lading and other security or guarantee. Since unsecured loans are high risk, so a higher threshold for loans to business requirements, less unsecured loans in the country, mainly in Shanghai and other capital market more developed regions.

Domestic demand for unsecured loans by SMEs is quite strong. Current and medium-sized enterprises can use "mortgage + credit" in the way of access to bank loans, large enterprises can also capital market. But for small businesses is often neither collateral can not find a guarantee, make it difficult to obtain financing from banks. out of concerns about the risk, domestic banks have been prohibitive for unsecured loans. And in the international arena, "credit" is a rather popular way. Recently, Standard Chartered Bank in China launched unsecured loans. no mortgage business both in the success of many emerging markets, such loans bad business loans than the average high rate, but lower than consumer loans. no collateral loans to business prospects attention higher level features to enable them to meet the financing needs of SMEs. SMEs should regulate corporate governance, financial systems and corporate charter, operation, unsecured loans to meet the conditions for successful financing when necessary.

(3) seller financing. Seller's credit in the United States called "vendor finance" (SellerFinancing), means that the seller who made the acquisition of a fixed commitment to the future payment obligations. In the United States, often in poor profit company or business unit, the seller anxious To dispose of the case, resulting in favor of this method of payment buyers. For M & A fixed-price seller in case of credit, the operation of the process is relatively simple. M & M both based on the terms and payment provisions of the existence of a clear claims and liabilities, mergers and acquisitions business how the target company after the M & A success or failure is the acquisition of enterprises should bear the responsibility, not without reason remove or change this debt payment. For M & A price is not fixed, the price depends on the M & M after the operation performance situation, there is change in credit and debt problems, the basic approach is the beginning of the acquisition, the buyer paid in cash part of the acquisition price, the remaining post-merger performance of the price adjustment to the amount of debt paid in installments. In general, the installments Q l ~ 3 years when the more common, no more than 5 years, or changes in market conditions affecting the company performance, extremely detrimental to the shareholders of target companies.

(4) management of finance. At the edge of corporate mergers and acquisitions of target companies in the financing structure, corporate management from the target is an important part of the capital. To the target company is a diversified financial management, debt financing can give management capital level of debt stable interest income, equity capital financing can give management a more generous allocation of profits. For the target company's management, owning shares, which have a corporate voting rights and profit distribution rights, which to them is a great deal of encouragement. to give management some of the shares, it gives them some control over the company and profit distribution rights. Once the business equity management, corporate interests are the interests of management. visibility, management layer of the importance of financing is not the funding itself, but rather to establish a kind of equity-based incentives.

Chucizhiwai, because the target company's management in business experience accumulated a lot through the allocation of equity to attract excellent management and technical talent to maintain Mubiao business management and business continuity and stability, and, also enhance the sense of belonging to the enterprise management, thereby creating a loyal corporate management.

3. Financing Strategy
SME financing in the process of mergers and acquisitions, strategic options are also very important, specific strategies are as follows:
(1) internal potential, companies do not make full use of non-financial tangible assets. Acquirer to use with the machinery and equipment, plant, land, production lines, departments and other non-financial assets as a means of payment to achieve the target company's mergers and acquisitions.

(2) the continuous success of mortgage strategies. For little of SME assets, the general situation of getting loans, can be first used in the financing process advantages of enterprise assets as collateral to the bank for the appropriate number of loans, such as mergers and acquisitions successful, then the target company's assets as collateral to banks for new loans.

(3) venture capital portfolio Strategy. This combination Strategy includes a combination of sources of risk capital and debt capital, equity capital of the portfolio. Source of portfolio investment means the company received from a number of risks, this combination can not only reduce the individual risk of an investment company amount of financing, reduce the difficulty of financing, and venture capital firms may be due to the different strengths to the enterprise focus on a wide range of help and support. debt capital and equity capital is not only a combination of debt capital primarily from venture capital and equity Capital can also be in part from venture capital, so you can use risk capital in the debt capital and equity capital in the different level of participation, a lot of risk capital, venture capital can be in business management, management, marketing and technical aspects of , improve the management level, the value of M.

(4) installment Strategy. The general practice is the advantage of holding companies to obtain the status of the target company at the same time, in installments, the payment within a certain time, so to a certain extent, reduce the size and financing difficulty, as soon as possible acquisitions.

(5) "plus the sweetness of the time difference." Access to debt capital, interest rates and so can be more concessions to the creditors, but in exchange for repayment in the long period of time, this can reduce the M & A is followed debt burden.

(6) International Finance. Advantage of SMEs can obtain funds through the introduction of foreign capital, foreign capital-rich companies can ensure the rapid development of mergers and acquisitions. If Suntech Group, December 14, 2005 successfully listed on the Nasdaq Stock Market in New York, fund-raising nearly 4 billion U.S. dollars. reposted elsewhere in the Research Papers Download http://www.hi138.com (7) strategic partner. SMEs in the acquisition process, the introduction of strategic partners by way of raising funds. optimistic about the enterprise prospects for a strategic partner not only in financial support for the target businesses, but also provide management expertise, market information, protection of completed mergers and acquisitions business integration.

Of course, the actual operation should be based on the specific business situation, to adopt a different Strategy. However, these strategies should aim to reduce the amount of financing and financing costs, lower debt pressure to ensure the realization of effects-based merger and acquisition
Second, M & A payment choice for SMEs
M & A, you can pay by cash, conversion payment, the assumption of debt (zero-cost acquisitions) and debt payments, etc. to complete mergers and acquisitions.

1. Payment Types
(1) M & A transactions in the cash payment is the easiest way to pay the price. Once the target company's shareholders have received interest on its cash, the company no longer has ownership of the target and all other rights derived. The advantage of cash transactions simple, fast. but cash will cause short-term advantages of enterprise spending large sums of cash, if not by other means to obtain the necessary financial support, will form a large enterprise financial pressure and may even be a result of cash outflow caused by too much operational difficulties, and the target company receives cash, carrying a large sum of investment income appears to increase the corporate tax burden.

(2) Conversion mergers and acquisitions, the owner of the target company of its net assets, goodwill, business conditions and prospects of considering its converted into shares based on the ratio of investment as the capital stock, thereby becoming the new company after the shareholders of M & M way . convertible acquisition allows both companies holding each other, form a community of interests, while mergers and acquisitions do not involve large amounts of cash, to avoid the income tax expense. but the convertible mergers and acquisitions will result in dispersed ownership structure, may be detrimental to the enterprise system ~ operations and management. It should be noted that the way countries deal with the convertible, more and more of their share of the total increased significantly in 1990, cash transactions in the total number of global M & A projects account for 94% of the total amount of 9l%, to 1999, the amount of the total amount of convertible 68% in 2000, the United States shares or paid in cash and stock accounts for 72% of the part, while the ratio in Japan has risen to 67%.

(3) the acquisition, also known as zero-cost debt obligations, that is, assets and liabilities in the case of equivalence, in order to take advantage of business conditions of the target company to accept debt as a way of its assets, to achieve zero cost acquisition. Zero cost is generally the object of acquisition lower net assets, operating businesses in poor condition. competitive enterprises do not have to pay the acquisition price, but companies often have to undertake to assume all debt and all the staff placement business, mergers and acquisitions in China this is especially common. zero-cost benefits of the acquisition is to provide a low cost advantage of expansion opportunities, competitive enterprises through the injection of capital, technology and new management approach, utilizing an inefficient enterprises. Meanwhile, local governments often enact incentives to encourage competitive enterprises to receive loss-making enterprises, resettlement enterprise workers, therefore, the acquisition cost of zero can enjoy some of the additional preferential policies to promote the business development of competitive enterprises. However, the acquisition cost of zero also has its drawbacks: First, debt is often greater than the assets of the target company, the actual the cost is not zero, but in the insolvent company to accept a second, one-sided emphasis on staffing, resulting in an oversupply of labor, but drag the edge enterprises.

(4) debt payment type, that is dominant enterprises have their own claims on the target company's M & A transactions as the price. This operation is essentially a target company assets to offset debt. Claims payment of benefits is to find a good solution of the original acquisition means both credit and debt, mergers and acquisitions and pay off the debt to be organically integrated. on the edge enterprises, while in the recovery receivable can expand the scale of enterprise assets. In addition, sometimes the profitability of assets of debtors likely to exceed debt interest, the development of competitive enterprises is relatively favorable.

2. Small M & Payment
SME M & A can take one of the payment, you can choose several combinations to use. Due to the current limited financing channels for SMEs, to raise limited funds, so a full cash payment should be carefully considered, but for shares, which do not immediately pay in cash payments in a manner to make use of.

M & A in which investors are not convertible to cash as the medium of the target company mergers and acquisitions, but added the company issued shares to replace shares of newly issued shares of target companies. Equity M & A practice also includes two forms, namely, assets and stock to buy the stock with the stock exchange. Convertible to avoid paying large amounts of cash outflow from the enterprise, which is difficult for SMEs to raise capital is especially important. merger is completed, shareholders of the acquired businesses will not lose their ownership, but such ownership by the enterprise to be transferred to the acquisition of enterprises, so they expanded the business to become the new shareholders. In other words, M & A is completed, the acquired companies were included in the acquisition of companies, mergers and acquisitions to expand the scale of enterprise. expanded business M & A business owner from the original shareholders and the shareholders of the acquired companies together form, but the former shareholders of acquired businesses and the right to be in operational control of the dominant.

At present, China is in the development of many enterprises want to expand rapidly through acquisitions, but acquisitions financing of their development bottleneck. For these businesses, if we adopt the conversion approach can effectively solve the problem of lack of funds acquisition. For M & M shares will benefit both sides. First, the conversion from M & M size restrictions, does not involve cash or only small amounts of cash involved. For M & A enterprises, financing and cash payments to avoid the pressure, and to corresponding cash flow into the normal production and operation, is conducive to the new company or the existence of the company's development, and secondly, the target company, can make the target company's shareholders automatically become a new company or surviving corporation's shareholders, to continue enjoy the new company after the merger the surviving corporation or the additional revenue, for the main and promising enterprise, the use of stock acquired more than cash received by the target company shareholder support, and finally, the acquisition of enterprises and establishment of the original shareholders of the target company ties since the relationship between equity, not only for the future development of the target company's business foundation, and in some cases also for the acquisition of related business enterprises to provide support. brought in to give M & M interests of both sides, the case of effect of M , the two companies to take the convertible will be more feasible way of mergers and acquisitions. If the merger on both sides are able to target long-term development after the merger, from the growth in the share of long-term business interests, from business development approach to mergers and acquisitions after management, mergers and acquisitions can be avoided in the convertible issue. Links to Research Papers Download http://www.hi138.com