Research On The Risks Of Performance Comensation Agreement In Enterprise M&A

With Chinese economy transforming to the technology economy,many enterprises begin with keening on M&A transactions.And the size of M&A transactions in China is 0.24 trillion yuan in 2008 rapid growth to 1.04 trillion yuan in 2015,with the average amount of each acquisition about 450 million yuan.M&A risk grows increasing,with the emergence of M&A high premium rate,and the "trust" of both parties reducing,affecting the M&A activities.In order to prevent and control the risk of M&A effectively,revise the valuation premium rate,motivate the management,the use of performance compensation agreement came into being.As an important institutional arrangement,performance compensation agreement was formally introduced in 2008.Then more and more companies have been applied it to M&A activities.Many enterprises have successfully applied the performance compensation agreement to protect their own interests.However,the performance compensation agreement makes a certain risk,meanwhile controlling M&A risk.In recent years,there have been a lot of companies in the market did not meet the performance commitments,that means performance compensation agreement is failed to use.The resulting in the consequences is from a simple loss of performance to a complex equity-dispute,changing business owners,etc.,regardless of the consequences both parties of M&A have a significant impact.In this paper,through the case of Kee Ever Bright Decorative Technology Co.,Ltd.acquisitive Yuhan Photoelectric Co.,Ltd,we use the HHM framework to analyze the M&A risk of performance compensation agreement from the aspects of M&A process and risk nature,and try to analyze the role of performance compensation agreement in the failure of M&A.This paper puts forward some countermeasures and suggestions for risk management in the capital market which hope to avoid the M&A risk by signing the performance compensation agreement.In this paper,we find that performance compensation agreement in M&A transaction will not only affect the conventional M&A risk,but also bring its own unique risks.We make the M&A process dividing into three stages,namely before the M&A,doing the M&A and after the M&A,respectively,to identify the risks faced by conventional M&A and performance compensation agreement peculiar risk.In the case study,when the strategic objectives of acquisition part Kee Ever Bright Decorative Technology Co.,Ltd.and to be acquired part Yuhan Photoelectric Co.,Ltd is not the same,the signed performance compensation agreement increase the M&A strategic risk,while improving the valuation risk.The existence of Performance compensation agreement,making Kee Ever Bright Decorative Technology Co.,Ltd.lags behind the integration,increase the risk of M&A after the integration.At the same time,performance compensation agreement also produced performance objectives of the risk,the form of compensation risks and compensation for accounting treatment of risk.In order to improve the success rate of the performance compensation agreement,the risk of mergers and acquisitions can be prevented to the greatest extent,and the interests of both parties can be protected to promote the healthy development of the M&A market.