Comprehensive Study Of Financial Risks Arisen In Mergers And Acquisitions

The past two decades have witnessed rapid expansions of private corporations as well as state-owned enterprises.Through mergers and acquisitions,a company manages to consolidate resources both vertically and horizontally.It has been well-conceived that large market share is the ultimate guarantee for stable multilateral relationships with suppliers and customers.However,due to various reasons,most of these M&A cases both,domestic and international,failed to meet expectations.Through further case studies,we conclude that most of the M&A failures arise from financial risks during the merging process.Thus,a comprehensive study of financial risk during M&A process is indispensable for future M&A success in our country.In this paper,we combined theories with case studies.Based on modern enterprises mergers and acquisitions theories,we reexamined key definitions,motives for M&A,and categories of various of risks.Based on these fundamentals,we proposed corresponding financing strategies from three perspectives: enterprises valuation,financing and payment,and consolidation after M&A is completed.We mainly focus on case of Kainuo Technologies and Heilan Home.We analyzed pre-M&A financial risk arising from Kainuo Technologies,mid-M&A risk arising from financing activities,and post-M&A risk arising from consolidated financial reports.Combined with the theories we quoted in the previous sector,we summarized well-developed and practical solutions for similar M&A cases.Parties of M&A activities have to address financial risk.Based on our analysis,we proposed multiple solutions.First,before M&A,due diligence must be carried out faithfully by capable third parties.Accurate and comprehensive evaluation before M&A is the first and most important step towards future M&A cases.Second,during the M&A process,both parties should choose the most suitable solutions based on their financial conditions.Third,from the payment perspective,both parties of M&A should emphasize on cash payment.Also proper ratios of stock conversion is crucial.Comprehensive payment is less risky than single payment.Fourth,after M&A is completed,both parties should pay more attention to financial resources consolidation and internal regulations conversion.The ultimate goal of success M&A is the combination of corporate cultures,visions and employees.