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Financial risk and prevention of mergers and acquisitions in the

Author: XiaoNing GuoMingZuo From: www.yourpaper.net Posted: 2010-06-01 02:57:23 Read:
[Keywords] M & a financial risk prevention
[Abstract] M & A is a modern enterprise system innovation.A late start of M & A in our country, due to various reasons, there are a lot of risk in the process of mergers and acquisitions, among which financial risks are the most prominent.Financial risk throughout the M & A activities always, is important influence factors to the success of M & A.This article mainly from the value assessment of target enterprise formation and influence of four aspects of risk, financing risk, liquidity risk and payment risk analysis of financial risk, and specific preventive measures put forward on how to avoid financial risk.
a, M & a significance of
Merger and acquisition is a mergers and acquisitions among enterprises, is the enterprise to obtain the goal of enterprise of part or all of the control rights, control rights to purchase and use their own enterprise can control the assets and therefore makes the position of target enterprise disappear or legal entity to change behavior caused.Effective merger and acquisition activity to overcome existing assets efficiency of the enterprise is low, optimize the allocation of resources, has an important significance in improving asset utilization efficiency.
The presence of two, the financial risk of M & A
(a) the enterprise value assessment of risk
The target enterprise is determined, the merging parties most concerned about is the foundation of sustainable management to reasonably estimate the value of the target enterprises, reasonable valuation is the basis of the success of M & A, the target enterprise valuation depends on M & a business to its future earnings expectations for size and time, and to assess the value of target enterprise may be skewed by the prediction of improperly, resulting in a valuation of risk.Valuation risk depends largely on the information distribution and quality.For example, in the acquisition of Thomson TCL TV business failures, it is because of wrong estimation of the business of the expected return.Since the acquisition of Thomson's TV business, TCL continuous internal restructuring and adjustment, in order to deal with the problem of the integration of follow close on succession.However, the cash-strapped situation is day after a Et.Collaborative Value of M & A is far lower than expected.A very important reason is, from the acquisition of TCL Thomson CRT (cathode ray tube) TV production equipment obsolete.In TCL before and after the acquisition, color TV industry is experiencing rapid development of LCD tv.But the TCL did not anticipate, the new technology of color TV market changes should be so fast.Although Thomson has can use color TV 34000 patents, the vast majority of TCL group but the production line and technology are out of date, the CRT display technology based on.In the alternative process of CRT TV, LCD TV, this part of the assets is not only to the company profits, will also give the company formed a huge financial burden.This is because the value assessment of target enterprise M & a failure caused by risks.
(two) the financing risk
In the process of mergers and acquisitions often require a large amount of financial support, and the source of funds in addition to a small number of its own funds, mainly to financing.Enterprise merger and acquisition finance risk mainly refers to the enterprise can timely to raise funds and funds raised by merger and acquisition of enterprises after merger and acquisition.Merger and acquisition of enterprises need a lot of money, but because of China's current capital market development is not perfect, the bank and other intermediary organizations also failed to fully play its due role in mergers and acquisitions, the merger and acquisition of enterprises face greater risk of financing.
Financing way will affect the financial risk.Such as the use of seller financing leveraged buyouts, mergers and acquisitions of enterprises must implement a high rate of return to benefit, or it may be due to the deterioration of capital structure, debt ratio is too high, can not afford to pay the principal and interest and bankruptcy.Such as the use of equity financing for mergers and acquisitions, corporate financing through capital increase Kuogu manner.Although through the issuance of stocks can be quickly raised a lot of money, but also ordinary shares as a non fixed-income securities, there is no fixed maturity date, there is no limit cash, capital risk is small, but the equity financing has its limitations.First of all, our country stock financing requirements more stringent, securities law, management, securities listing Corporation listing Corporation shares on issue of new shares to inform the work of the company law and on the
IPO, allotment of shares, additional made strict rules, but shares of the application materials to the layers of approval, the consumption of time is long, is not conducive to seize the merger and acquisition opportunities.Secondly, the stock financing will inevitably change the ownership structure of enterprises, dilution of large shareholder control right of enterprise, there may even be a main and large shareholders lose control of risk.Such as mergers and acquisitions with debt financing for mergers and acquisitions, corporate mergers and acquisitions through debt to raise the funds needed.The cost of debt financing is lower, because the funds raised by debt, the interest cost in pre-tax expenses.And debt financing is not diluted share, procedures are much simpler, this is the reason why the main and side often prefer to use debt financing.But in our country, one is the enterprise debt rate is very high, the average debt of state-owned enterprises has reached 65% ~ 70%, and borrowing power co..Or even go into debt, after the merger of enterprises because of too much debt, capital structure deterioration, but also at a disadvantage in the competition; two is the debt due to debt service, financial burden is heavy, if improper arrangement, enterprises will fall into the financial crisis.For example: "Huayuan" crisis in 2005, over the years with huge borrowers to achieve rapid expansion of Huayuan, at this time is not any twists and turns.According to "finance and economics" disclosure, "one of the Huayuan crisis" fuse, 2005 - September Shanghai bank due to Huayuan a loan of 180000000 yuan.The loan is for the acquisition of the drug group in Huayuan and credit, because the event at the beginning of the finance ministry, and the overall tightening of bank credit, as one of the largest banks in Shanghai Huayuan Huayuan not owing on the loan banks worry, hence to loan.The Bank of Shanghai is not only one of the biggest Huayuan Group lending banks, at the same time by holds 7.765% of its equity, the fifth large stockholder.Shanghai bank "Dun", resulting in Huayuan bank loans overall loan, and caused many lawsuits, Huayuan Group under many listing Corporation equity have been frozen, which eventually led to the 2005 September due to banks for payment of a debt crisis and the outbreak of "huayuan".This is due to the decline in deterioration, capital structure of M & A financing risk caused by excessively high debt ratio and ability to repay, happen eventually led to the crisis.
(three) liquidity risk
Since the merger takes resource flow in large enterprises, thereby reducing the rapid response to external environment change of the enterprise and the real-time adjusting ability, increase the daily business risk.The liquidity ratio is a measure of a company's assets to debt financing debt security an important indicator of the extent of the M & A activities, requirements and have strong immediate cash payment ability, liquidity risk is big.When the debt maturity, if the enterprise can not successfully financing, or cash flow is arranged properly, the flow rate will decline, the short-term solvency will deteriorate, liquidity risk.
(four) the payment risk
In the M & A and M & A are determined, the choice of payment method is also very important.M & A has four main methods of payment: cash, stock payment, mixed payment and leveraged buyouts.Different choice of payment method of payment risks for the final performance of the pay structure is irrational, cash paid too much and makes the integration of operation funds during the pressure is too large.
Cash is the most convenient way of M & A, but is not the best choice, because of its advantage is obviously, first of all, the use of cash payment tool, is a huge ~IJUI, cash burden, pressure, the cash is high; secondly, the use of cash payment, transaction size is often affected by the capacity constraints; furthermore, from the point of view of mergers and acquisitions, will be unable to postpone recognition and transfer of capital gains realized capital gain, and thus can not enjoy preferential tax, equity and other reasons, can not have the new company, but not welcome cash, this will affect the successful acquisition opportunities, bring about risk.
Merger and acquisition, although the cost is relatively low, but the procedure is complicated.For the main and side, the exchange may be from the instant the pressure to pay, cash flow arising from the inputs into the production and operation of enterprises after merger; for by side, exchange can make its shareholders automatically become the new company or the company's shareholders, share after the merger of corporate profit growth, in addition, due to delayed recognition of income U1,1'~q, can delay the payment of capital gains tax.But the convertible merger also has some defects, such as changing the ownership structure of enterprises, dilution of large shareholder control right of enterprise, may be diluted earnings per share and net assets per share.If the master and the largest shareholder holding proportion is low, and the party was also more concentrated equity, may be the main and side by side and control of the situation.For example: Hongkong jade Lang international comics publishing company mergers and acquisitions, its leadership through times of the sale of shares, stock financing, securities investment and mergers and acquisitions, on the one hand, the original equity dilution, on the other hand also pose a risk to the capital operation, resulting in jade Lang international takeover.
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