Combination of enterprises. Associations and unions. Types of business combination

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Combining enterprises, as many modern analysts believe, is a global trend. There is an opinion that in the coming decades, most of the world's companies (which in total will provide about 70-75% of the planet's GDP) will be consolidated within just a few hundred transnational holdings. Russian business, according to economists, will also be affected by this trend.

There are two main mechanisms by which business combinations can take place. Within the framework of the first, we can talk about changes in the legal status of a company that arise as a result of mergers or acquisitions. In this case, the controlling stake or the predominant share in the authorized capital passes from one group of persons to others; the name of the brand (and sometimes the industry) where the company operates may also change. The most common types of associations of enterprises in this category today are concerns and holdings. Trusts, cartels and syndicates are among the obsolete, but of great historical importance for Russia.

Another mechanism that also fits under the concept of "combining enterprises", in turn, is not related to changing theirlegal status. It implies consolidation of an associative type - with the aim of exchanging experience between entrepreneurs or state managers (if we are talking about state-owned companies), jointly solving urgent problems, mastering new prospects by combining knowledge and resources. The main types of associations of enterprises of this type today are associations and unions.

Before examining the peculiarities of each of the mechanisms for the consolidation of companies, let us study the aspect that reflects the actual expediency of the centripetal trends in question.

Why are businesses merging?

There is an opinion among economists that small businesses are expanding their presence in the market in one way or another. At some point, the company reaches a level in its development when further business expansion is possible either only through the absorption of other businesses (most often competitors), or by merging with them in one form or another. Of course, it is possible and very likely that the business itself will be absorbed, in turn.

On average, a company operates for about 3-5 years before the question of merger procedures arises. The need for consolidation may also arise due to market conditions. As a rule, this state of affairs is typical for periods of crisis (both economic and political nature).

Benefits of joining

Combining enterprises is a process that in most cases benefits each of the entities involved in it. Key Benefits of Consolidationbusinesses may manifest as follows.

Firstly, when companies unite, as a rule, they form a certain commonality of databases: customers, suppliers, partners. This almost always increases the revenue of each of the firms that make up the association.

Secondly, companies tend to record cost reductions in many areas - for example, in relationships with the same suppliers. It often happens that a company, having received new counterparties at its disposal, finds that the goods or services supplied by them are cheaper than those received from previous partners. Also, the costs associated with brand positioning and advertising are usually reduced.

Third, firms pool not only information, but also financial resources. This allows, first of all, to count on attracting more qualified specialists to the staff. Personnel is the most important component of the success of any business. Likewise, more financial capacity equals better equipment. This is especially important when there is a merger of industrial enterprises - their main competitive advantage lies in the technologies used in the production of products.

We learned why businesses need consolidation. Now let's take a closer look at the forms of business mergers that we have identified as the most common in Russia.

Concerns

Let's start with concerns. This type of business consolidation implies a fairly large independence of the participants. As a rule, the interaction of companies is limited to the exchange of technologies (patents, licenses), in some casesfinancial management mechanisms are unified.

A concern can be both an association of enterprises in the same industry, and consolidation within firms operating in quite dissimilar segments. But as a rule, its participants are somehow interconnected. For example, within the framework of a concern, companies can be combined in one production chain - suppliers of raw materials, processing plants, as well as factories that produce the final product.

As a rule, companies that form a concern (examples from Russian business largely confirm this) remain legally independent. A controlling stake in each or a predominant share in the authorized capital usually does not belong to the parent structure. And this is the main difference between concerns and holdings (we will consider their features a little later). However, as we said above, the management of financial flows, as well as strategic decisions in the field of management, are applied at the level of the top management of the association. In this regard, the legal independence of companies, according to many experts, may not play a significant role in terms of the development of firms as separate business units.

Organizations belonging to the same group may be included in such types of business combinations as associations or unions. This does not affect their legal status and governance mechanisms. But they do not have the right to be part of other concerns. Otherwise, there may be discrepancies with the strategic priorities of the consolidated business structure.

Concerns inRussia

How does this type of association as a concern function in Russia? Examples of businesses consolidating under this form, of course, are found in the Russian Federation in a very large number.

There are, in particular, state sectoral concerns. Among such experts include one of the largest and most famous Russian companies in the world - Gazprom. It often happens that a concern is an association of state enterprises in the defense industry.

The term "concern" in Russia and in the world

The question arises whether the term "concern" has the same meaning in our country and abroad. It all depends on the particular state. Let's look at a few examples. In particular, it is customary to call concerns in Russia such companies as Volkswagen, Siemens, Allianz. In turn, in the country of origin - Germany - these organizations are referred to in exactly the same way, Konzern. If, in turn, we are talking about companies such as General Motors or Boeing, which have an American residence permit, then in Russia they are also considered to be concerns. But in the US, no. There they are called "public company".

In some cases, the largest companies from the US in Russia in the Russian media or in specialized literature are referred to as concerns only in order not to inadvertently mislead the reader. The fact is that many American companies, for example, the automotive giant Chrysler, are nothing more than "LLC" (in English - Limited Liability Corporation). The Russian layman will never believe that "OOO" is capable of growing on such a scale: in our understanding, this is a very average company. It is easier for him to realize what an enterprise is - a concern.

Holding

As we said above, the most common forms of business mergers in Russia are also represented by holdings. This type of business consolidation, according to experts, is very close to concerns (moreover, some economists identify both terms). What are the distinguishing features of holdings? And what, in turn, is common between them and the concerns?

The most important sign of a holding is that it is an association of organizations, enterprises with a mandatory condition: the concentration of a controlling stake in all firms in the ownership of the head structure. Whereas in concerns, it is assumed (although not always the case) that the majority share in the business is owned by the founders of the firm or outside shareholders.

By most features (purpose of creation, type of management, etc.) holdings are generally very close to concerns. They can also be associations within one or more industries, be a consolidating structure for businesses in terms of organizing the production chain. As in the case of concerns, the enterprises included in the holding, as a rule, have legal independence and generally conduct independent economic activities.

But the key management decisions are still made by the head structure. Her core competenciesare as follows.

Firstly, it develops the conceptual framework for the development of the entire association. Thinks over a strategy for attracting and distributing investments and profits. Financial management, according to many experts, is the main component of the work of the head structure of the holding. Funds can be distributed, including within the framework of internal loans.

Secondly, the head structure of the holding, as a rule, is responsible for key management decisions at the level of management of the companies included in the association.

Third, the parent organization represents the interests of all subordinate firms in the cross-industry space and in foreign markets.

In many holdings, by the way, there are restrictions on the ownership of shares of the parent structure for companies participating in the association (as well as for managers and owners of shares).

Let's now consider the historical forms of association of organizations that played a significant role in the economy of Tsarist Russia and the USSR.

Cartels

A cartel is understood as a structure that consolidates the businesses of one industry. The purpose of creating such forms of associations is to conduct joint activities in the aspect of marketing (less often - production processes). Within the framework of cartels, as a rule, it was easier for companies to sell manufactured goods due to agreements on prices, quotas, and the use of sales channels shared with other businesses. Cartel companies retained full legal and economic independence.

Syndicates

If the activities of companies consolidated undercartels, focused on sales channels as such (and not on the production side), then entrepreneurs could agree to create a syndicate - a single structure for all businesses responsible for selling products at uniform prices and channels.

That is, the function of individual firms was limited to production. The sale was carried out, as a rule, exclusively by the syndicate created by them. In some cases, the sales structure was not created separately, but was formed on the basis of the resources of one of the companies included in the association.

Trusts

If cartels and syndicates were usually created in order to optimize the channels for the sale of goods, then trusts - in order to consolidate efforts just the same within the production part (but in many cases marketing divisions were also combined). Associations of this type were formed by businesses that, unlike cartels and syndicates, did not retain legal and economic independence. As a rule, the head structure of the trust was created (approximately the same as in a holding company). But there have been precedents for firms to sign M&A agreements. Typically, trusts implied the consolidation of all production processes that are part of a single structure of firms, as well as the resources related to them. Often, businesses from different industries became participants in such communities. In them, just as it happens in the concerns discussed above, a production chain was built. As a rule, in trusts there was an institution of joint ownership of those resourceswhich were involved in the release of goods (as well as finished products).

Cartels and syndicates at the same time were more characteristic of the times of Tsarist Russia (when the institution of private entrepreneurship existed without significant restrictions). And the second was much more. Cartels were, it must be said, quite rare. In the USSR (before the moment when commercial relations were prohibited), trusts were more popular.

Associations and Unions

Having considered the current and historical forms of company consolidation in the framework of mergers and acquisitions, let's consider the second type of business associations - associations and unions. Immediately, we note the fact that these two terms, as a rule, can be identified. It's just that "association" means "association", "union", only in a foreign manner. Businesses themselves determine how to name themselves within the framework of a consolidated structure.

Associations and unions are associations of organizations (private or public) not for the purpose of consolidating financial and managerial resources, but for protecting interests and mutual coordination of various areas of work. Almost always these are structures of a non-commercial type. That is, if we talk about the legal status, it is, as a rule, an NPO. Firms that are members of an association or union retain absolute legal and economic independence.

The scale of these kinds of organizations can be very different. For example, the Association of Restaurateurs and Hostels. On themany people hear such an association - the Union of Industrialists and Entrepreneurs. There are also international and political structures (the purpose of which is to establish business ties). Among them is the Customs Union.