There is no synergistic effect in M&A. How should material enterprises do post-investment management well？
Text: Fan Chuxue
introduction
In 2021, the property acquisition and merger market continued the lively and extraordinary scene in the past, and it became more and more intense, with the transaction scale and transaction amount hitting record highs. Since the beginning of 2021:
Country Garden Service has successively acquired Blu-ray Garbo Service for 5.432 billion yuan and Fuliang Global for 10 billion yuan to set a new record for industry mergers and acquisitions, and then acquired Color Life Neighborhood Music for 3.3 billion yuan;
Longhu Smart Service is uncharacteristically acquired this year, and has been included in four property enterprises: Yida Service, Kailin Commercial Service, Wharf Property and Happiness.
In addition, a number of material enterprises frequently acquire information, and regional enterprises and growth enterprises also actively join the queue of mergers and acquisitions.
Based on this, we believe that the property industry is experiencing the moment when "growth period" changes to "maturity period" in the "industry development cycle". At this stage, the integration of enterprises is accelerating, the concentration of industries is rising rapidly, and at the same time, the market’s requirements for quality service, brand building and service efficiency are constantly improving.
On the whole, the driving force behind the accelerated integration of the property industry mainly comes from three aspects:
Policy promotion: On January 5, 2021, the Ministry of Housing and Urban-Rural Development and other departments jointly issued the Notice on Strengthening and Improving Residential Property Management, which mentioned: improving the quality of property services, supporting the merger and reorganization of property service enterprises, promoting the scale and brand management of property services, and improving the overall service level;
Capital assistance: a large amount of funds flow to the market, which pushes up the enthusiasm for mergers and acquisitions between enterprises;
Real estate liquidity pressure: In order to alleviate the financial pressure, affiliated real estate sells assets to save itself, and promotes the climax of mergers and acquisitions from the supply side.
From the perspective of industry development, the integration and merger between enterprises is the only way to achieve high quality, and will also accelerate the transformation and upgrading of the industry to a great extent.
It can be predicted that in the current development environment of the property market, whether based on the consideration of pursuing scale expansion and business expansion, or out of the demand of withdrawing funds from related real estate, "acquisition and merger" will be the main tone of the property industry in the next 2-3 years.
However, it is undeniable that at present, there are still great deficiencies in post-investment management of property enterprises. These enterprises either follow the trend, or try to "eat fat in one bite", blindly pursuing scale growth and ignoring the integration and operation management after the merger, which ultimately not only makes the merger effect unsatisfactory, but also fails to meet the original development expectations of the enterprise, and instead becomes the resistance to the development of the industry.
Color life is a typical example of "throwing and not caring". As the "first share of property", Color Life enjoys the dividend of capitalization development of the industry, and is naturally the "originator" of property acquisition. Since 2013, Color Life has initiated 102 acquisitions and merged into 35 companies in one year at the peak of the acquisition. However, in this process, the color life gradually lost its original intention, regardless of the quality of the target, and the post-investment management was ineffective, which led to the deterioration of the business situation.
In September 2019, Color Life completed the last acquisition;
In 2020, after the acquisition of Color Life was stopped, the revenue regressed for the first time, which was 6.5% lower than that in 2019.
It can be seen that the previous mergers and acquisitions only brought a simple "digital accumulation"; After the "addition" calculation is stopped, the "multiplication" within the color life is completely invalid.
At this time, the color life seems to wake up from a big dream, and it is determined to pick up the goal of building quality again and carry the banner of "second venture". However, the management problem of years of siltation cannot be solved overnight, and the performance of color life in the first half of 2021 shows a retrogression trend again.
Source: Jiahe Jiaye Property Cloud
In September 2021, Color Life disclosed the sale of its Neighbourhood Music Holdings, which included core assets such as Vientiane Beauty Property, Vientiane Beauty Residence and Kaiyuan International, all of which came from the early acquisition of Color Life. It can be seen that Color Life failed to achieve the expected results in these acquisitions, and this swallowing and spitting not only wasted the pre-emptive time advantage of Color Life, but also dampened the vitality of the enterprise and cast a shadow over its development prospects: after nearly one month of suspension, the stock price of Color Life fell sharply by 35.57% on the first day of the resumption on October 27, and the road to "returning blood" as the first share of the property was long.
Therefore, this paper will discuss the following three issues around the post-investment management of property enterprises after merger and acquisition:
Why is post-investment management so important?
What are the problems in the post-investment management of current enterprises?
How to do a good job in post-investment management?
It is hoped that through the analysis of the above problems, property enterprises can pay more attention to post-investment management and help enterprises achieve the expected goals and effects to the greatest extent in mergers and acquisitions.
one
Why do you need post-investment management?
The normal investment process is divided into four parts: "raising, investing, managing and withdrawing", in which "managing" is the longest step, and it belongs to the post-investment management period after the investment is implemented until the project is withdrawn. Usually, the work of post-investment management mainly includes project execution, project tracking, project management, value-added services and so on.
The special feature of property enterprises’ merger and acquisition is that in more than 90% of the transactions, the acquirer will acquire 51% or more of the shares to obtain the controlling stake, and the ultimate goal is to integrate the business and technology of the acquired party into the group system. Few enterprises will choose to withdraw from the project after making profits. Therefore, compared with ordinary investment, material enterprises should pay more attention to the importance of post-investment management in order to better absorb each other’s high-quality resources to empower themselves, improve the efficiency of mergers and acquisitions, and achieve a win-win goal. Specifically, the necessity of post-investment management includes the following three points:
Control project risks and reduce development uncertainty: track enterprise operation and reduce trial and error costs;
Fully integrate the advantages of resources and enhance the long-term value of enterprises: to maximize the strengthening or complementarity of advantages;
Forced to improve pre-investment management and optimize investment logic: provide more targeted suggestions and references to help M&A transactions.
1. Control project risks and reduce development uncertainty.
For the newly merged enterprise, its daily operation, financial management, personnel composition and other aspects have a process of adjustment, so it is necessary for the acquirer to implement risk control after the investment is completed, track the changes in the internal and external environment of the enterprise, and provide timely guidance to reduce the potential trial and error costs.
Operational risk: there are differences in work processes between the two parties, which are not adjusted in time or lead to low efficiency in daily operation; The business of the acquired party can not be quickly integrated into the original business system, so that it can not produce synergistic effect; Or the acquired enterprise is easy to face the risk of selling after undergoing great changes.
Financial risk: whether the acquirer can effectively control the financial affairs of the acquired party; In order to increase the consideration of M&A, the acquired party does not disclose the hidden debt, which may have a serious negative impact on the subsequent development of the enterprise, and even create a great risk of goodwill impairment in future operations. Therefore, the acquirer needs to focus on the liabilities of the other party.
Risk of organizational structure change: streamlining or adjusting the core personnel of the acquired party may affect the stability of the team, and the loss of core personnel will greatly weaken the competitiveness of the enterprise; After the change of senior staff, there will inevitably be problems of inconsistency between the old and new management concepts, management rights and objectives, which will lead to management confusion and low decision-making efficiency.
2. Fully integrate resource advantages to enhance the long-term value of enterprises.
As mentioned above, property companies want to empower their own development more when acquiring and merging, and whether the long-term value of enterprises is improved is an important criterion for the success of mergers and acquisitions. Only by efficiently integrating the superior resources of both parties and maximizing the reinforcement or complementarity of advantages can it be called effective merger and acquisition; This can also be seen in some acquisition cases of listed companies:
Country Garden Service: In July, 2020, Country Garden Service acquired the elevator advertising operator City Zongheng. After fully integrating resources and stimulating the synergy effect by the team, the operational efficiency of the enterprise in the field of community media was greatly improved, and a community integrated marketing plan was created for several brands. In 2020, Country Garden’s revenue from community media services increased by more than 200%; In the first half of 2021, the revenue of this business rose by over 500% year-on-year, making it one of the most bright businesses in the community value-added service sector.
Sunac Service: In May 2020, Sunac Service completed the acquisition of Kaiyuan Property. At that time, the average PE of listed property companies comparable to Sunac Service was in the range of 30x~40x; On November 19, 2020, Sunac Services officially landed on the Hong Kong Stock Exchange, and closed at 85 times P/E ratio on the day of listing, ranking first in the property sector that day. From this aspect, it can be seen that Sunac Service has achieved the common promotion of enterprise value through good integration and coordinated development with the acquired party.
3. Forced to improve pre-investment management and optimize investment logic.
Pre-investment management and post-investment management complement each other, and the pre-investment department needs continuous tracking and analysis by the post-investment team to complete the investment work; In the process of management, the post-investment team can find the flaws in the pre-plan more intuitively, and feedback from the cause. In this way, through feedback and adjustment, the investment logic and investment calculation model of enterprises are continuously optimized, which is convenient for enterprises to provide more targeted suggestions and references for the next investment layout, and is also helpful for the development of future mergers and acquisitions.
As can be seen from the acquisition announcements of some enterprises, in addition to setting requirements on fundamentals such as finance and performance, enterprises will also attach a number of provisions on personnel appointment, asset disposal, equity incentive plan and so on. To some extent, enterprises constantly optimize the setting of investment agreements according to the post-investment feedback of early transactions, so as to protect the long-term interests of both parties to the greatest extent.
Table: Conditions for Announcement of Acquisition of Some Enterprises
Source: Jiahe family business arrangement
two
What are the problems in the post-investment management of enterprises at present?
The importance of post-investment management has been expounded in the previous article. However, looking at the enterprises that are active in the M&A market at present, there are very few enterprises that can really implement post-investment management. More importantly, their own funds are wasted or development opportunities are missed due to their inability to properly digest the M&A targets, and even the original progress of enterprises is dragged down.
Especially in 2021, the M&A market showed many "big fish eat big fish" or even "small fish eat big fish" transactions, such as purchasing more than 80 million square meters of Cedar Zhilian in Hejing Youhuo with a management area of only over 20 million square meters, and using over 50% IPO to raise funds; Country Garden Services acquired the Blu-ray Garbo service, involving an area of 130 million square meters, and the transaction amount of acquiring Fuliang Global reached 10 billion.
It is these increasingly large-scale mergers and acquisitions that put forward more demands for post-investment management. On the whole, the weak points of current post-investment management of enterprises focus on strategic positioning, brand building, organizational structure adjustment and cultural differences.
1. For the sake of expansion, the strategic goal is not clear.
At present, the industry is still in the development stage of "the bigger the scale, the higher the status", and expanding the scale is a necessary means for enterprises to enhance their influence. However, due to the unclear strategy and unclear objectives, some enterprises have fallen into the "scale-only theory" under the influence of industry trends, and only pay attention to the superficial digital growth after the merger, ignoring the long-term positioning of the merged party and the overall development of the enterprise.
Taking Color Life as an example, among the 102 M&A transactions initiated by it, the target enterprises are distributed in 23 provinces and cities, and the project density is extremely low. Property enterprises all hope to achieve economies of scale, and enhancing the project density is a necessary condition. Therefore, the unplanned "scattered" acquisition of Color Life will not only fail to form a scale, but will increase management costs.
Source: Jiahe Jiaye Property Cloud
2. The management of the acquired party is in a dilemma.
According to the statistics of Jiahe family business, at present, more than 80% property companies will choose to streamline or adjust the senior staff of the acquired party when implementing mergers and acquisitions. "Dramatic" management innovation may lead to team instability, but also easily lead to brain drain; Reflected in the business, it may cause the goal and strategy of the enterprise to be discontinuous and affect the operation of the enterprise.
Some enterprises choose to keep the core staff of the original management after considering the factors such as operational stability and team mood after the merger of the target, but there may be differences in business philosophy or management methods between the personnel stationed by the acquirer and the original management of the acquired party, resulting in low decision-making efficiency; Even being jointly overhead by the other party is not conducive to the long-term development of enterprises.
3. Corporate culture differences are hard to eliminate, lacking deep driving force.
Property is a labor-intensive industry with a large number of employees, and the importance and differences of corporate culture are more prominent. For two enterprises with different development history and cultural atmosphere, the understanding of things and the ways and methods to deal with problems are different, so it is difficult for enterprises to form a unified internal driving force, and the sense of identity and belonging of employees will be significantly reduced.
Take regional physical enterprises as an example. The scale and team of these enterprises are usually relatively small, so the structure is more flat, and the communication and implementation of processes rely more on years of tacit understanding and habits. Therefore, when they have to abandon the original working mode and integrate into the perfect organizational structure of large enterprises, they may show very strong inadaptability or even rejection, and their work enthusiasm and self-motivation may be greatly reduced.
4. Neglect of brand building, brand synergy is weak.
In the era of high homogeneity in the property industry, brand has risen to the core competitiveness of enterprises. Brand not only represents the strategic direction of enterprise’s future development, but also is the comprehensive expression of enterprise image and enterprise spirit. Therefore, a good brand building can build a clear strategic pillar for the enterprise, and can establish a unique value outside the enterprise, so as to enhance the visibility of the enterprise and drive the business with the brand.
However, in the 40-year development process of the property industry, it was not until 2019 that enterprises began to pay attention to their own brand building. Up to now, the overall brand building is still in the primary stage, and only some head enterprises are in the transitional stage, not to mention incorporating the business and positioning of newly merged enterprises into the brand connotation during the acquisition and merger stage to form brand synergy. For listed property enterprises, the goodwill has surged after the merger, and it is easy to face the risk of goodwill impairment and even the risk of performance storm in the later stage of poor management.
three
How to do a good job in post-investment management?
In view of the problems existing in the post-investment management of material enterprises at present, through combing the post-investment management methods of many enterprises, Jiahe Jiaye puts forward the following four suggestions:
Clear strategic objectives, precise positioning and precise force.
Create service quality and focus on the long-term development of enterprises
Attach importance to the management of core personnel and ensure the continuity of enterprise operation
Promote team communication, empower business vitality.
1. Clear strategic objectives, accurate positioning force.
For some enterprises, there are some problems in post-merger management, such as lack of planning for future business blueprint and clarity of team goals. Enterprises should make clear their own strategic direction, formulate clear development paths before merger and acquisition transactions, and provide clear goals and guidance for post-investment consolidation. At present, the head enterprises are more mature in this respect, such as Country Garden Services focusing on the acquisition of commercial operation-related enterprises, and Ya Life acquiring a number of urban service-related enterprises.
Shimao Service: In April 2020, Shimao Service officially entered the university property by acquiring Zhejiang University Xinyu. In May, Zhejiang University’s Xinyu Huanxin brand image was released, and at the same time, the industry’s first "Yulin Campus Service Ecology" developed for campus logistics services was released. Since then, Shimao Service and Zhejiang University’s Xinyu have opened a new era of campus service. In the first half of 2021, Shimao’s campus value-added service revenue was 222 million yuan, making it one of the enterprises in the industry to provide college property services.
Ya Life: In February 2020, Ya Life acquired Zhongmin Property, which has a leading position in public construction, and thus entered the role of "city service provider". In 2021, Ya Life successively acquired five sanitation enterprises, and won the bid for the first maritime sanitation project and several municipal sanitation projects with an annualized contract amount exceeding 10 million, extending the city service industry chain to professional market segments.
2. Create service quality and focus on the long-term development of enterprises.
Post-investment management methods cannot be generalized, and material enterprises should "apply laws according to their materials" according to the actual situation of both parties. According to different target enterprises, different integration or management methods should be adopted in the post-investment stage; At the same time, it uses its own operating system to track and guide the acquired party in detail.
However, fundamentally speaking, the essence of property is an enterprise that provides services, and its development will ultimately fall on the quality of service. Furthermore, the current market has gradually changed from simply focusing on performance to comprehensively considering the service content, service quality and market reputation of enterprises. Therefore, enterprises should put an end to "regardless of collection", strictly control the service quality of each project, build a service team in a refined way, and ensure the consistency of service quality and professionalism, for example, by building benchmark projects and then copying and promoting them to promote the long-term sustainable development of enterprises.
3. Pay attention to the management of core personnel and ensure the continuity of business operations.
Top management is the central figure of a company’s decision-making, and it is also one of the core competitiveness of the company. Therefore, enterprises should avoid large-scale changes in core personnel and organizational structure reform in a short period of time to ensure the continuity of their daily operations and decision-making.
In addition, the enterprise can regularly organize the core personnel of the team to exchange and train; At the same time, the incentive mechanism is introduced in the acquired party, and the business responsibility and performance reward are clearly defined, so as to bind common interests and enhance employee motivation.
Country Garden Service: Country Garden Service disclosed in the announcement that if the compound annual growth rate of non-net profit deducted by Manguo Kangjie reaches the set conditions, its core management team can get corresponding cash or share rewards.
Photo: The core employee incentive plan announced by Country Garden Service’s acquisition of Manguo Kangjie
Image source: Country Garden Service Announcement
Hejing Youhuo: After the acquisition, Hejing Youhuo combed and empowered talents in time, conducted a good two-way communication mechanism with the other party, regularly participated in its management meetings, set up a profit sharing mechanism, and encouraged employees and management to work together to achieve the goal of deeply binding the interests of management and team.
4. Promote team communication and enhance business vitality.
M&A pursues 1+1>2, but it is not a simple 1+1. Property companies need to realize that the most important thing in the reorganization of different teams is cultural exchange and integration, so as to unify ideas with culture and promote integration with culture. Enterprises can help new members to deeply understand the strategy and culture of enterprises by preaching the strategy and corporate values; Or organize activities to promote members’ exchanges, promote mutual trust and integration, and finally realize the improvement of business vitality.
Taking Hejing Youhuo as an example, after the acquisition, we actively promoted the integration of new members and the group through the rooting of corporate culture. Hejing Youhuo guides employees with "six-dimensional values", and strengthens personnel training through at least monthly communication and business mining linkage and cooperation to ensure the stability of the team and the vitality of the business.
For example, Hejing Youhuo acquired Guangzhou Runtong Property, enhanced the sense of belonging and identity through empowerment and training, and realized the deep integration of the employees of the invested enterprises within the Hejing system. At the same time, it controlled and stimulated the member enterprises based on the large platform. In the first half of 2021, there were more than 20 new expansion projects of Runtong Property.
tag
Is 1+1>2 or 1+1 finally achieved by M&A?<1，投后管理是关键。由于忽视或缺乏良好的投后管理，行业中曾出现过许多并购失败的典型案例，这些企业往往出现并购后管理混乱、丢盘、业绩增长乏力的情况，最终以再出售项目草草收场。
However, the upsurge of M&A will never stop because of this. At this critical period when the concentration of the industry jumps, enterprises need to think more about how to do a good job in post-investment management, so as to fully enjoy the efficient and accelerated scale economic development of enterprises brought about by M&A.
This article was first published on WeChat WeChat official account: Jiahe Family Property Service Research Institute. The content of the article belongs to the author’s personal opinion and does not represent Hexun.com’s position. Investors should operate accordingly, at their own risk.