Research On The Financial Risk Of State-owned Enterprises Merging With Private Enterprises

China has witnessed the active merger and acquisition events of enterprises in recent years and the number of mergers and acquisitions,as well as their size,continues to create record highs.With the deepening reform of state-owned enterprise,merger and acquisition and reorganization has become an effective means for optimization of the structure and layout of state-owned enterprises,the utilization rate of assets improvement,and excess capacity reduction.However,it is not optimistic that serious merger and acquisition risk problems occur in Chinese companies.However,financial risk matters most and also runs through the whole enterprise merger and acquisition,which largely affects its results.The research on the financial risk of M & A is beneficial to the discovery of risk prevention and control measures,the development of M & A and high level of financial management.The stock market plummeted in 2018,which caused many small and medium-sized listed companies to suffer severe market value loss and insolvency.As a result,some state-owned enterprises are now acquiring such private enterprises to enhance their strength and lay out their future development as well.This paper uses the case study method to take Shanghai Electric's successful acquisition of Tianwo Technology as the research object,and conducts an in-depth analysis of the financial risk issues in the case of state-owned enterprises' merger and acquisition of private enterprises.According to the real information of this case,this paper divides financial risks into three categories from the perspective of merger and acquisition process:Firstly,the risk of valuation before M&A,including the risk of information asymmetry,the risk of operation,the risk of management and the risk in the future development of Tianwo Technology.There exists great operational risks in Tianwo Technology.In recent years,its operating income and net profit have fallen sharply.Although Tianwo Technology has abundant orders in hand,its excessive debt volume makes it lack sufficient funds to manage these orders.Secondly,the payment risks in M&A,including Shanghai Electric's cash payment risk and cash flow risk.Shanghai Electric uses its own funds to pay for M&A expenses,which may cause certain cash flow risks.Thirdly,the integration risks after the merger,including the integration risks of financial management,business activities and human resources.At the beginning of 2019,many senior executives,including the chairman of the board in Tianwo Technology resigned.Most of the positions were replaced by the former Shanghai Electric employees.In the next management process,there was a large risk of human resource integration.According to the actual risk points,Shanghai Electric has taken some prevention and control measures against the financial risks of mergers and acquisitions: Firstly,the company should do due diligence before the merger and establish a financial evaluation system.Secondly,the company should design the optimal payment structure,select the payment method flexibly,reduce the financial impact of mergers and acquisitions and maintain a reasonable capital structure.Thirdly,the company shall set up a reasonable financial organization structure after the merger and acquisition,maintain relatively independent operation,avoid horizontal competition,and pay attention to the integration of financial actors.This paper argues that in the context of bring leverage down,the acquisition of private equity cases by state-owned enterprises will increase in the future,which not only reflects the change of state-owned enterprises' operational thinking,from asset management to capital management,but also helps private enterprises to improve efficiency through the state-owned enterprise platform.From a higher perspective,by allowing state-owned enterprises to concentrate more on key industries,key areas and superior enterprises,we should optimize the layout and structural adjustment of the state-owned economy,improve the allocation and operation efficiency of state-owned capital,and better serve the strategic needs of the country.