Research On The Choice Of Corporate M&A Payment Methods

Mergers and Acquisitions had shown a gradually rising trend in our country in the last decades.Some corporates usually expect to achieve synergies and economies of scale through mergers and acquisitions.Some other corporates need to survive and change their main business by M&A in the increasingly fierce competition in the market.According to CSMAR M&A database,the mainstream payment method has persistently been cash payment since the original M&A happened in China.However,there was a big change about the quantity of payment methods in recent years.The overall payment structure shows that mixed payment was showing a rising trend in the last three years.Among the mixed payment,“ stock + cash" mixed payment is the main way of incremental mixed payment composition.Based on the above background,this paper puts forward the following questions: what factors lead to the "stock + cash" mixed payment model in recent years more popular? What are the advantages and disadvantages of this mixed payment method compared with the other two main methods of payment in our country? How to set up the analysis system of payment method to analyze and select the payment method for the enterprise?After summarizing the merger payment theory and previous research literature,this paper build up a comprehensive analysis system of payment which is trying to put the theory to practical application of M&A activity in the choice of payment method.Based on both background of acquirer and target corporations,this paper used the payment system to carry on the analysis on case that A company acquired N in 2013.According to the results of comprehensive evaluation,this paper argues that the payment method suitable for A company is a "stock + cash" mixed payment method,which is consistent with the actual payment method chosen by A company.There were reasons in this paper why A company choose neither cash payment nor stock payment in this case.The first reason is that both two methods are unable to meet the needs of shareholders of acquirer and target firm.Secondly,cash payment mode will cause too much financial pressure on enterprises,which can lead to negative impact on future investment activities.Third,the single stock payment cannot meet the company's financial investors out of demand,and will severely dilute the original shareholders equity,the introduction of new shareholders and threatens the merger of the original shareholders holding rights.“Stock + cash" mixed payment showed an outstanding "deployment flexibility" in the case,which made the acquisition of both sides have great spatial coordination in the negotiations and to meet the needs of different shareholders of both acquirer and target corporations;in addition,the mixed payment can significantly reduce the financial pressure among cash payment and can effectively prevent the risk of dilution.