Study Of Mergers And Acquisitions Of Financial Risk

During the last year, millions of merger and acquisition (M&A) cases were occurred, from which we can see that M&A must take plenty of money. (for example, at the beginning of 2000, American online used 1600 millions dollars to merge Time Warner. Only three months later, Vodafone broke this record, using 18500 millions dollars to merge Mannesmann.) Abundant capital is important for the company who intends to merge. While as we know, capital is limited for every company, the more the currency used the greater the financial risk. Exceedingly usage of capital will influence the financial status of acquiring firm badly. So it is significant for us to study how to use capital efficiently to decrease the financial risk in M&A.According to this question above, this paper tries to build a study system of financial risks in M&A. Based on the basic knowledge of this field, it analyzes some problems about financial risks in M&A first, then combines theory with practice to reach the conclusion: to go with the tide of M&A in the world, not only business but government must go into action immediately to controlling and avoiding financial risk in M&A.There are five parts in this paper as follows:Chapter one: A General study of financial risks in M&A.This part interprets several basic concepts in this paper. First, it analyzes M&A by comparing merger and acquisition, considering that M&A is the property transaction activity, which is conducted for the purpose of obtaining the right of target firm. Second, it gives the concepts of risk and financial risk in M&A. Then it points out that the financial risk in M&A is the probability of financial crisis, which is influenced by various factors in M&A. At last, three basic financial risks in M&A are introduced.On the basis of recommending the development of the M&A in the world, this part puts forward its opinion that to control the financial risks of M&A is very important for successful merge.Chapter two: Analysis of financial risk in M&A. This part analyzes the financial risks in M&A in detail. There are three kinds of key financial risks in M&A.Firstly, the risk of paying more money than the value of a target firm will put the acquiring firm in current difficulty. This risk is caused by factors, such as inaccurate estimated, inequity of the marketing, etc. And this risk will affect the stock price of the acquiring firm badly.Secondly, each way to raise money for M&A has different financial risk factors. If an acquiring firm can't choose a correct way to raise money, he will face serious financial crisis.Lastly, the accomplishment of merge is not mean to successful merger. After merged, acquiring firm must pay back the debts, rearrange the assets. If it can't solve these problems successfully, the acquisition plan will fail.Chapter three: A General Study of Controlling Financial risks in M&ABased on analyzing the financial risks in M&A in the second part, this part studies how to control and avoid financial risks in M&A.As an acquiring firm, it must adopt these measures as follows before acquisition. First, this paper gives two estimated models for an acquiring firm to estimate the risk of an acquisition plan. Then, this part finger out that in order to make a correct acquisition decision, the acquiring firm should analyze the financial status of the target firm and that of its own, such as capital structure, profit capability, and so on. After that, the acquiring firm must make suitable financial measures to analyze the profit and cost of the acquisition plan, so that it can decide which form of payment (cash or share) to use for the plan.These measures above are the basic measures to ensure an acquiring firm to avoid the financial risks in M&A.Chapter four: Particular Financial Decision to controlling financial risks in M&A.In accordance with each basic risk, this part advances some financial countermeasures as follows.First, this part introduces two usual estimated models to evaluate the target firm. The use of...