Law Articles
2015-08-18
MLM
An Insider’s Look at Mergers and Acquisitions in the MLM Industry
【Charlotte Wu, Partner, Zhong Yin Law Firm】
charlotte.wu@zhongyinlawyer.com.tw
The MLM industry is a different kind of animal compared to most industries, as the core value of any MLM industry is based upon a system of members (distributors) and bonus structures, therefore in the realm of mergers and acquisitions there are also many considerations that need to be given thought. As far as the operating stratum of an MLM enterprise is concerned, the involved operation and market aspects as well as the inclusion of law professionals, or combined specialty teams of recruited professionals must be absolutely cohesive to move forward with such a grand enterprise.charlotte.wu@zhongyinlawyer.com.tw
Before diving into the content below, please be advised that this article was written in brief and should not serve as a deep or thorough explanation of the matter.
Motivations of Mergers and Acquisitions in the MLM Industry
When MLM enterprises are acquired, the first consideration should be what are the motivations or goals of such an act. For example, let’s imagine we have similarly related products belonging to two different companies. In order to acquire and expand market share, the products of the two companies might at first glance appear to be totally different, but actually closely complement one another (ex. cosmetic and medical products) as to allow such products to cover more market territory. Otherwise, newly entered MLM enterprises could relatively quickly acquire special operating licenses or operating permits for contending in the domestic or foreign market. Concerning varying opinions related to adopting Merger and Acquisition models or contracts, it should be important to note all of the differing opinions on the subject matter.
The Importance of Integration of Mergers and Acquisitions in the MLM Industry
The most unique characteristic of the MLM industry is that the foundation is created through interconnecting relationships of people, selling products or services, and distributing bonuses to members, therefore in reference to acquisitions especially, the most important aspect to keep in mind is how to prevent the human capital from all of these companies, the lifeblood of MLM, from disappearing and to bring about even greater positive effects. In order to describe this in further detail, the following points regarding integration deserve the utmost attention.
1. Integrating a System Between Members and Bonuses
Are the bonus structures of the two companies on a binary system or a sunlight system? After the acquisition, what is the timetable to continue integrating, and how should one go about integrating? In accordance with original and member signed participation contracts, is the constituted change in contract necessary to say farewell to the procedure of related changed contracts? In view of the above questions, a pragmatic view is necessary to continue keeping members continually satisfied.
2. Integration of Products, Branding, Culture, and Training Regimen
After an acquisition is completed, the object of an acquisition should be the introduction of new products, as well as the addition of branding and integration, touching upon the way members feel about the quality of their sold merchandise, and developing a recognizable brand. Therefore, after an acquisition is completed, it is an absolute necessity to maintain a strong brand identity so as to avoid members believing the company’s efforts have been executed in vain due to being acquired. Integrating culture and an effective training regimen have the same reasoning in mind. Although these factors may appear to be unnecessary in scope, their influence over the future success of an MLM acquisition remains to be an important element.
Acquisition Contracts in the MLM Industry Relating to the Setting of Consideration
Because of the uniqueness of the MLM Industry, when referencing acquisition contracts, one should especially observe the following points.
1. Setting of Acquisition Consideration Structures
After the completion of an acquisition, the process of involving members, bonus structures, branding, and culture as well as other factors into the integration process can be a great challenge, as both parties must be capable of completely integrating all of these elements, as well as not allowing members to be led astray. These are all important factors to the success of an acquisition. Therefore, the consideration setting of acquisitions should possess an ability to be flexible and easily adjustable to reflect the above factors. For example, the setting of consideration structures perhaps should not be performed by using cash for the complete consideration, increasing company shares, or mostly calculating the annual sum of business by the distribution of rights being followed up by the consideration remuneration post acquisition, as well as other various methods. Finally, whatever acquisition consideration structure is most suitable cannot be generalized, as every case requires a continued thorough discussion.
2. The Obligations of Buyers in Regard to the Completion of the Acquisition
MLM easily identifies with company founders and managers, and is suitable for the appointment of acquisition contracts, selling stockholders, company founders or managers. Even if all company shares are sold off, there should still be a united working obligation to complete integration, as the fate of high level MLM leadership depends upon the success of the acquisition. Additionally, one should also bring the obligation of the selling stockholder into consideration, assisting in maintaining the morale of high level MLM leadership to allow the acquisition to finally have a great outcome for both parties.
If you should have comments or further interest in the above article,
please kindly contact Charlotte Wu, Esq.
charlotte.wu@zhongyinlawyer.com.tw
TEL +886 2 2377 1858 EXT 8888