The Effects Of Earnouts On Acquisition Performance

In recent years,the a-share market has seen frequent "goodwill thunder",and the root cause is that "high performance commitment" in mergers and acquisitions resulted in "high valuation",which led to "high m&a premium" and eventually formed A huge amount of goodwill.Large amount of goodwill impairment not only affects the performance of mergers and acquisitions,but also causes losses to investors.How to reduce the valuation risk in mergers and acquisitions has become an urgent problem to be solved.The frequently used performance promises in practice have such problems as "low performance","performance expiration change face" and "performance compensation difficult to recover".Domestic theorists began to advocate the introduction of Earnouts in mergers and acquisitions to solve the drawbacks of performance commitment Earnouts is a commonly used valuation adjustment mechanism in foreign M&A market.It can reduce adverse selection and agency costs in M&A by screening high-quality target companies and generating incentive effect,thus creating value for the acquirer.However,there are only a few mergers and acquisitions in China's merger and acquisition market,and the academic study on the case study of the application of Earnouts in China's merger and acquisition market only stays at the level of introducing the terms of Earnouts,with little research on the impact of Earnouts on the performance of mergers and acquisitions.Therefore,the research question of this paper is what effect of Earnouts will have on the performance of M&A in China's M&A market and why the application effect of Earnouts is not as good as expected.In this paper,the study object is nine Earnouts mergers and acquisitions in China's M&A market,and the data enveloped analysis method is adopted to analyze the Earnouts performance.Then,the Newegg acquisition case with Earnouts application effect less than expected is selected as the study case to analyze the reasons behind it.In this paper,it is found that the M&A performance of most acquires has been improved,while that of some acquires has been decreased in the M&A events in which Earnouts is applied in China.In mergers and acquisitions where there is a large gap between the two sides,the use of Earnouts cannot have a positive impact on the performance of mergers and acquisitions.In China on the basis of the significance of this study was to use Earnouts M&A cases and Earnouts application effect is not as good as expected case analysis,research Earnouts effect on the performance of M&Aand Earnouts the cause of the application effect is not as good as expected,the study of the theory of the rich can Earnouts,and the ability to choose the suitable for enterprise in M&A valuation adjustment mechanism to provide some thinking and Suggestions.