Analysis And Prevention Of Financial Risk In The Cross-border Mergers And Acquisitions Of Chinese Private Enterprises

With the development of China’s economic transformation of the way and the world economic integration, private enterprises have chosen overseas mergers and acquisitions to expand the market for more resources under the competitive pressures in the domestic and international markets. Affected by the financial crisis, abroad stock market shrink and asset price falls sharply. Such factors provide a rare chance for domestic private enterprises with strong economic strength to execute overseas mergers and acquisitions. However, enterprises also face a huge risk and resistance during the execution. Through the statistical results, there is a high failure rate for private enterprises to execute overseas mergers and acquisitions.Concluded from the failure cases, the financial risk is the most important factor for determining success or failure. In this paper, the financial risk was researched, which can offer a guide for private enterprises to guard against the risk during the mergers and acquisitions.This paper analyzes the motivations for overseas mergers and acquisitions. It also explained the connotation, characteristics and contents of overseas mergers and acquisitions.In temporal order, the financial risk can be divided into three parts: preparation stage,implementation stage and adjustment stage. In the preparation stage, the financial risk contains strategic decision risk target evaluation risk. In the implementation stage, it contains financing risk, exchange risk and payment risk. Whereas for the adjustment stage, it contains financial integration risk and operation risk. Based on the risk classification and actual situation, this paper analyzed the risk factors during the overseas mergers and acquisitions.This paper also pointed the shortcoming in the overseas mergers and acquisitions. That DyStar was merged by Zhejiang Longsheng was taken as the example in this study. Through analyzing the profitability, solvency and operating capacity, the financial risk and its causes was analyzed. By discussing the financial risk in three different stages, this paper analyzed how to innovate, predict and avoid risks by Zhejiang Longsheng. These successful experiences brought a deep consideration to the enterprises which want to expand theoverseas market. In the last part of this paper, avoidance strategies for different stages mentioned above were presented, such as improve self-assessment, establish mergers and acquisitions strategy, execute due diligence, improve information asymmetry, fully understand the limitations of the financial statements of the target enterprise, use the appropriate valuation methods, keep reasonable capital structure, broaden the financing channels, arrange the financing structure reasonably, use hedging tools rationally, reduce foreign exchange risk, choose the optimal integration mode, make optimal management policy, improve earning risk management.