Application Of Earnout In Cross Border M ＆ A Of Resource Enterprises ——Take The Acquisition Of FMDRC By Luoyang Molybdenum As An Example

Under the background of rapid economic development,the complete domestic demand system has maintained sufficient driving potential for China to cope with international competition,but it also leads to huge consumption of domestic resources.M ＆ A has become one of the effective ways for resource-based enterprises to break through the internal resource constraints and overcome the negative externalities of the market.In view of the non-renewable nature of resources,some resource-based enterprises choose cross-border M ＆ A to strive for overseas resources.However,the lack of transaction protection mechanism and the relatively single M ＆ a payment scheme limit the implementation efficiency and expected results of cross-border M ＆A of resource-based enterprises in China to a certain extent.The increasingly large transaction scale has an urgent practical demand for the design and specific application of investment tools.Earnout is often used in cross-border M ＆ A contracts.It originated in the United States,the United States and other countries.It refers to the way of splitting the transaction consideration,paying a fixed amount at the completion of the merger,and selectively paying the remaining consideration according to the specific conditions.In recent years,in view of its ability to effectively reduce the risk of M ＆ A,a series of practical cases such as Xiwang food’s acquisition of Kerr and HNEV’s acquisition of BBHI have emerged in the domestic cross-border M ＆ A market.However,due to the short introduction time,the relevant practice and research abroad are abundant in China.As a package payment plan,its original application scenarios mainly focus on resolving the valuation differences between the two sides of the merger and acquisition due to the natural information asymmetry.However,in the case of resource-based enterprise M ＆ A with basically symmetric information,there is still a gap in the application of existing theories to earnout.This paper selects FMDRC M ＆ A of Luoyang molybdenum as the research object,which is the first successful application of earnout in cross-border M ＆ A of resource-based enterprises in China.First of all,this paper sorts out the transaction parties,background,motivation and payment scheme design of the merger and acquisition.Secondly,in the main part of the paper,using the research method of grounded theory,following the sampling principle of problem-oriented theory,through the three-level coding of open coding,spindle coding and selective coding,the obtained data are qualitatively analyzed.After sorting out,a total of 42 concepts are obtained,and 11 sub categories are summarized,including "seller’s expectation","buyer’s expectation",and "buyer’s expectation".On the basis of the four main categories of "extended pricing range" and "preset price expectation",the core category of "differential income sharing" is condensed,and the SPD model is constructed to solve the pricing divergence of cross-border M ＆ A of resource-based enterprises.Finally,this paper summarizes the specific application path of earnout in the case,and compares it with the application path in mainstream application scenarios.The research contributions of this paper are summarized as follows:（1）Based on the coding results,this paper constructs the SPD model to solve the pricing divergence of cross-border M ＆ A of resource-based enterprises,and holds that earnout is a bargaining tool with the core category of revenue sharing.Its application path is based on the differences in asset pricing between the two sides of the merger and acquisition.It allocates the expected income in advance by setting up contingent payment terms with different trigger difficulties,so as to facilitate the smooth implementation of the merger and acquisition transaction,and at the same time,to reduce the actual final price to be paid as far as possible.Earnout can play the role of differential income sharing in the process of M ＆ A of resource-based enterprises,including the existence of upward expectation of commodity price cycle and the decoupling of enterprise value from the subsequent contingent payment terms.（2）This paper finds that earnout plays a different role in the M ＆ A of resource-based enterprises and in the subsequent stage.In the interim stage,earnout mainly plays a role in facilitating transactions and protecting enterprises,while in the post event stage,it reflects the function of signal transmission.（3）The different risk components,the follow-up effect of the agreement content,the signaling direction and the subsequent impact of the unfulfilled commitment are the main reasons for the change of the application premise and application path.The results of this paper expand the application scenarios of earnout,enrich the relevant research literature and knowledge system,in order to provide reference and inspiration for its specific application in practice.