A Study On Financial Risks In M&A Of State-owned Enterprises

With the rapid development of economic globalization and the information revolution, enterprises production factors are turning rigidly from centralization to dynamic diversity. To deal with the complex and competitive environment in the past decades, enterprises expanded their scale and enhanced comprehensive strength. For our country, the State-owned enterprises are required to take charge of the economic reform, and play an important role in economic policies and macro-control. Therefore, the trend for China’s State-owned enterprises to adapt the development of modern business is inevitable. International industrial upgrading and integration of advanced management are the main task confronted by the State-owned enterprises. There is no doubt that mergers and acquisition make State-owned enterprises rapidly stronger and obtain effective means to manage substantial capital. Although the merger and acquisition activities of China’s State-owned enterprises maintain upward trend, the success rate of mergers and acquisitions is still less than 30%. The failure mainly lies in the process of integration of those companies after merger and acquisition. Therefore, the study on financial risk management in State-owned enterprises mergers and acquisitions is of great theoretical and practical significance.This paper mainly addresses finance risk management of merger and acquisition of State-owned enterprises, based on the process of enterprise merger and acquisition and analysis of several methods of financial risk management strategies. By the study of characteristics and causes of State-owned enterprise mergers and acquisitions and ways of prevention of financial risk, the article reaches a conclusion that the financial risk management is one of the most critical factors that influences the outcome of the mergers and acquisition. Then the article adopts the Delphi Technique to analyze the financial risk measurement, and addresses ways of financial risks prevention method on the different stages of the mergers and acquisition process. Finally, the article refers to China Worldbest Group Co. Ltd M&A Case, analyzing the financial risks in this case. Those risks come mainly from:Firstly, on the issue of merger and acquisition strategies, investors are influenced by different risk preference. Secondly, under the different ways of financing, financing-costs risk is relatively caused by financing-payment risk. Key issues will be resolved in this article:(1) Explore how to measure financial risk in State-owned enterprises merger and acquisition process, in order to improve financial risk management in mergers and acquisitions, providing theoretical basis and practical guidance for future cases. (2) Explore how to guard against financial risks at all stages in the State-owned enterprise mergers and acquisitions. Based on the State-owned enterprises merger and acquisition process, the Chapters of the article separately discuss evaluation of target enterprise, financing payment methods, and financial integration after mergers and acquisitions. (3) Explore strategies to merge target enterprises in different cases, making use of appropriate methods of target company evaluation.