When it comes to choosing strategic partners, there are 10 common misconceptions that often prevent businesses from developing partnership opportunities.
1. When an institutional investor buys shares of a company, they become a strategic partner of that company.
It is important to distinguish between financial investors and strategic investors. Financial investors usually only invest capital in your company, and in some cases, depending on the ownership ratio, they can send representatives to the Board of Directors of the company but do not participate more deeply in the activities of the business.
Financial investors are also more, if not only, interested in profits. They are usually investors with a 3-5 year vision, and are ready to withdraw capital when they have achieved the expected return on investment (ROI).
One of the most popular types of financial investors today is private equity funds. These funds often try to improve the operational efficiency and financial reporting system of the company they have chosen to invest in with the aim of maximizing the value of the company when they withdraw their capital.
Therefore, these private equity funds are also not a perfect substitute for strategic partners who actually help companies grow with longer-term visions.
Strategic investors, on the other hand, when they have invested a certain amount of capital to own a significant proportion of your company, will try to improve the company's capacity and competitive position. Therefore, it is not correct to say that institutional investors who own less than 5% of the total shares in a company are strategic partners of that company.
Typically, strategic investors can contribute to your company with modern technology, intellectual property rights, management skills, marketing, access to new markets, new customers, etc. By doing so, they expect your company to be able to achieve profits that are superior to those of other companies in the industry, and they will share in those achievements with you.
2. My company is doing well. Therefore, I don't need a strategic partner.
It’s true that you don’t need to find another strategic partner right now. But think about it: what if tomorrow, one of your competitors forms a strategic partnership with an international company and expands into your market? Do you have the ambition to make your company “better than good”?
If you are stumped by the first question and answer yes to the second, you should consider forming a strategic partnership with another company that can contribute to your company not only capital, but also valuable technology and expertise.
3. The more strategic partners a company has, the better.
Having multiple strategic partners at the same time means that a company is pursuing multiple strategies at the same time. This spreads the company's resources too thinly, and may lead to failure in pursuing those strategies.
In addition, if there are many strategic partners, it is very likely that the strategies that the partners want the company to pursue are contradictory. Therefore, the number of strategic partners should be considered by the company at an appropriate level, and the “quality” of those partners should be considered more than how many strategic partners the company needs.
4. Only when they fail do people sell their businesses.
Although there have been failed companies that have been acquired by other companies, in reality it is very difficult to sell such companies. On the contrary, companies with good business models, good management teams, and high profits are always sought after by many investors to own a part of.
So, if you can sell your company for a good price, you have successfully created a profitable business! You can be proud of that.
5. Buying and selling a company is like buying and selling any other type of goods.
In some ways, buying and selling a company is similar to buying and selling other types of products. However, the complexity of the process, the amount of time and the expertise required to buy and sell a company well are much greater than buying and selling other products. That means that not everyone can do this job well.
6. M&A (mergers and acquisitions) is a way for foreign companies to “swallow” Vietnamese businesses.
In the event that you sell your entire business, your company will typically disappear and be merged into the acquiring company. In other words, your company will be “swallowed up” by the other company.
However, if you sell only part of your company to a strategic partner, you will not only have more capital to invest, but also gain the partner’s technology and expertise. You can completely protect your interests in the company and the worry of being “swallowed up” will no longer be your main concern.
7. M&A is not good for Vietnam because companies often lay off employees en masse after completing the transaction, causing unemployment to increase.
There are many motivations for mergers and acquisitions. In most cases, the typical reason for undertaking an M&A transaction is to increase the value of the acquired business by making it more viable.
Studies have shown that M&A actually creates jobs, and helps improve the overall efficiency of the economy by improving the performance of businesses.
In addition, there are also cases where M&A is carried out with the aim of eliminating competitors and reducing supply because the supply in the industry has far exceeded the market demand. This motivated transaction is often followed by the closure of factories and mass layoffs of workers.
However, these types of transactions only occur in certain industries, certain markets, at certain times because they are very costly, such as the automobile industry in Western European and North American markets in the late 1990s.
In Vietnam, an emerging market, most of the mergers and acquisitions in the past, and at least in the next five years, are not for this purpose. Therefore, mass layoffs following M&A transactions that lead to increased unemployment are not a concern for the Vietnamese economy in the current situation.
8. Selling additional shares to strategic partners is simply a way to raise additional capital.
Yes, selling additional shares to strategic partners is a way to raise more capital, but it has certain accompanying effects that you need to be aware of before doing so. For example:
- After the additional shares are issued, who will have control of the company? Is it as you expected?
- What is the financial structure of the company after the transaction is completed? Typically, companies try to optimize their financial structure to maximize the value of the company.
- If the buyer is a strategic partner, you need to make sure that you share the vision and strategy that the partner intends to apply to your company.
9. Offering shares to the public through auctions is the best way to raise capital because auctions always bring the best selling prices.
When a company needs capital to finance its operations, there are many options to choose from depending on the characteristics of each company, the situation of the capital market, the debt market at that time, and other goals of the company, such as maintaining control of the company, improving the company's credit rating, etc. Therefore, there is no single financing option that is best for all companies at all times.
However, when the stock market is down, selling shares to a strategic partner is a better option than issuing shares to the public.
First of all, in addition to capital, strategic partners can also contribute to the company new technology, advanced management and marketing skills, access to new markets... which individual investors are not able to do.
Next, strategic investors are often willing to pay a higher price than the market price, because they expect the synergistic benefits achieved after the transaction.
10. Investors love companies that are diversified. The more diversified a company is, the better.
Professional investors always prefer companies that are not diversified and only focus on their core business, the business that they can do best. The reason is very simple, as an investor, if they want to diversify into a certain industry, they can always find another company specializing in that industry to invest in.
That way, investors can diversify their portfolios themselves, and ensure that their investments are always placed in the hands of the best companies in the industries they want to invest in.
In Vietnam today, many companies diversify into too many industries, even those that are not their core competencies. This makes it more difficult to find strategic partners, because potential partners only want one of the industries that domestic companies are operating in, and do not want the other industries because they do not have the specialized skills in that industry.
(According to TBKTSG)
