Synergy Effect Analysis On Merger Of SYWG Securities And Hong Yuan Securities

With the rapid development of our country’s market economy, the competitions from all kinds of industries intensified. Corporations are looking for a variety of ways to expand the business scale, to consolidate its position in the industry as well as to improve the comprehensive strength of their enterprise. Mergers and acquisition, as an efficient way to expand the scale of enterprise in a short period of time, can enhance the market share of a certain company, which made companies begin to lay more and more attention to M&A, while the capital market usually gives high valuation to certain transaction. In the background of revolutionary reform of the financial system, and the implementation of the new securities law, the security industry will go into an era of rapid development. However, opportunities and threats coexist, the competition in this industry will be increasingly fierce. The security industry has experienced three waves of mergers and acquisitions based upon administrative factors, and now it will witness the forth wave of M&A based on market competition factors. The merger of SYWG and Hong Yuan Securities is likely to become a inflexion point of this new round of mergers and acquisitions.Mergers and acquisitions happen due to three kinds of goals, firstly, to expand the business scale and market share by implementing horizontal merger; secondly, to extend the industrial chain, reduce operating cost and improve operational efficiency by implementing vertical merger; thirdly, to relocate business risk and implement diversity strategy by conducting mixed acquisition, while the M&A synergy effect usually happens in the former two kinds of transactions. In order to achieve the merger synergy, corporations need to meet the following four aspects of conditions: strategic perspective, business strategy, system integration, rights and culture. Enterprises should spare no efforts to conduct analysis and research in order to promote the process of M&A and realize synergy. Besides, synergy effect is mainly influenced by four kinds of factors: macroeconomic factors, industry development factors, enterprise’s own factors and transaction characteristic factors. The synergy effect is embodied from three aspects: operation, management and financial conditions of a certain company. Operation synergy effects arise from scale economy and reconstruction of the value chain. Management synergy effects come into being when management resources transfer from one company to another, and new management mechanism become mature. Financial synergy effects arise from the allocation of free cash flow, capital synergy and tax saving. Generally, we can utilize the net increase free cash flow analysis and EVA to efficiently measure and evaluate the financial synergy effect of a certain case.This article selects the case of merger of SYWG Securities and Hong Yuan Securities to carry out the detailed analysis on synergy effects from three aspects: operation, management and financial conditions. Then it evaluated financial synergy effect under the perspective of net increase free cash flow and EVA separately. Finally, it comes to the conclusion that the transaction generally realized the synergy effect, but it is mainly embodied from operating synergy, while, synergy from management and financial conditions have not been fully reflected in the short term. Besides, the author of this article put forward some tips to promote mergers and acquisitions successfully completed and realize synergy effect better.