Research On Performance Commitment Risk In M&A And Reorganization

As market competition has become increasingly fierce,in order to cope with the pressure of competitors,more and more companies choose to merge and reorganize to expand rapidly,in order to expand economy scale,and even continuous mergers and acquisitions are becoming more and more common.In order to deal with the risks of mergers and acquisitions,the signing of performance commitment agreements in mergers and acquisitions has become an indispensable part of continuous mergers and acquisitions.The original intention of the performance commitment is to prevent risks,it is to ensure that the acquired party has a good operating performance after the merger,to ensure the fair operation of the merger and reorganization transaction,to prevent the merger and acquisition parties from manipulating the valuation of the underlying asset,and to eliminate the impact of information asymmetry,protect the interests of small and medium investors.However,in my country’s capital market,there has been an abuse of the performance commitment system.In order to obtain a higher transaction price,the acquired party blindly and confidently set an excessively high performance commitment target,the acquirer also acquiesced to this phenomenon in order to increase the stock price,M&As and reorganizations that have led to the phenomena of“high commitment”,“high valuation”,“high premium” and “three highs” frequently occur.During the performance commitment period,the acquired party distributes the operating performance of the commitment period through the earnings management method to complete the performance commitment targets of each period,after the performance commitment period,the business performance of the company declines at a cliff,and the business performance “explosive” after the performance commitment period frequently occurs,the incident resulted in a large number of performance commitment risks during the performance commitment period,which violated the original intention of the performance commitment system to prevent risks.This article takes Hongda Xingye’s acquisition of Inner Mongolia Wuhai Chemical and Guangdong Plastics Exchange as a case to analyze the performance commitment risks faced by the acquirer.The first chapter is the introduction,which mainly introduces the research background,research significance and literature review of this article;the second chapter is related concepts and theoretical foundations,introducing the name concepts related to performance commitment,and the risk of performance commitment the analysis needs to use the theoretical basis;the third chapter is a case introduction,introducing the basic situation and business types of the acquirer and the two acquired companies,the process of acquiring the two companies,and the setting and completion of the performance commitment of the two acquired companies;the fourth chapter is the analysis of the setting of the performance commitment agreement,which analyzes the rationality of the performance commitment target setting and the valuation of mergers and acquisitions under the performance commitment;the fifth chapter is the analysis of the performance commitment risk faced by the acquirer,which will the analysis is divided into two parts,namely the risk analysis when the performance commitment is completed and the risk analysis when the performance commitment fails,such as earnings management risk analysis,performance compensation risk analysis,asset impairment risk analysis,market reaction risk analysis;the sixth chapter is the case conclusions and enlightenment,mainly introduces the relevant conclusions of the previous two chapters and the preventive measures to deal with the risk of performance commitment.Through the case analysis of this article,the following conclusions can be drawn:first,in the process of setting performance commitment,the acquiring party faces the risk of setting performance commitment targets and corporate valuation risks.The performance commitment target set by both parties to the merger and acquisition and the valuation of the company are too high;second,when the performance commitment is completed,the merging party faces financial fraud or earnings management risks and the merged company only focuses on short-term performance risks.In order to complete the performance commitment target,the acquired party whitewashes financial statements or operating accounting profits,and only pays attention to the short-term business performance of the company regardless of the long-term development of the company,the business performance “changes face” after the performance commitment period;third,the performance commitment fails under the circumstances,the acquiring party faces the risk of asset impairment,performance compensation risk and market reaction risk.The acquired party may refuse to pay performance compensation,and the acquirer’s stock price may fluctuate sharply.For the performance commitment risks faced by the acquirer,the following risk prevention measures are proposed: first,strengthen the ability to identify the target company to be acquired,fully investigate and understand the business development status of the acquired company,and attach importance to the preliminary corporate due diligence;second,design set a reasonable performance commitment target,and set a reasonable performance commitment target based on the historical operating performance of the acquired company;third,reasonably evaluate the asset value of the acquired company;fourth,strengthen internal supervision,improve internal control,and strengthen the acquisition corporate financial internal audit;fifth,try to coordinate the management of the acquired company,participate in important business decisions of the acquired company,formulate long-term plans,and urge the acquired party to recover the accounts in a timely manner;sixth,strengthen the comprehensiveness of the target assets of the acquired company Inspection and price evaluation;seventh,improve the performance commitment compensation agreement,and entrust some assets of the major shareholders of the merged company during the performance commitment period to ensure the implementation of performance compensation to prevent further litigation risks;eighth,proactively strengthen risk disclosure the implementation of the oriented information disclosure system will promptly announce the completion of performance targets to investors.