Case Study On Risk Identification And Causes Of Tianguang Zhongmao Diversified M&A

Mergers and acquisitions are an important form of external expansion of enterprises,and they are the transfer of ownership and control of enterprises.In the 1990 s,the world-wide M&A boom began.Due to the unique reasons of history,M&A activities started late,but after the reform and opening up and rapid economic development,M&A behavior has become increasingly popular.However,due to the underdeveloped capital market in China,the information asymmetry is serious,the financing channels are scarce,and the failure rate of domestic M&A has increased frequently.Therefore,this paper selects one of the companies,Tianguang Zhongmao,as a case.The company started frequent mergers and acquisitions in 2015.Restructuring activities,a stock crash occurred in 2018.Tianguang Zhongmao is the first private enterprise to obtain the qualification of manufacturing fire-fighting equipment since the reform and opening up.With the reduction of market entry threshold and the increasing demand for fire-fighting products,Tianguang Zhongmao faces greater market competition.Therefore,in order to develop the company in the future,it is decided to expand the scope of business and diversify business risks through mergers and acquisitions.However,the occurrence of mergers and acquisitions has brought a series of risks to the company.The collapse of stocks indicates the failure of mergers and acquisitions.This article uses this as a case to identify the risks of mergers and acquisitions,as well as the formation of risks,and to provide reliable recommendations and preventive measures.This paper believes that the risk of M&A is mainly pre-merger,M&A,and M&A.Before M&A,it is mainly the strategic risk and value assessment risk brought by information asymmetry.Tianguang Zhongmao is absorbing and combining Zhongmao Bio and Zhongmao Garden.After the company,it lacks an accurate evaluation of its own company and intends to continue to promote the M&A strategy.When the two companies are merged,the merger consideration of Tianguang Zhongmao is much higher than the net book value of the target company,causing the company to export a large amount of unequal funds.Forming large amounts of goodwill;M&A is mainly financial risk,and Tianguang Zhongmao has a large financial risk.This paper analyzes the five aspects of profitability,operational capability,solvency,development capability and cash flow.The data analysis of the indicators revealed that after the occurrence of Tianguang Zhongmao's M&A activities,the profit indicators increased sharply,the operating conditions declined,the development prospects were unclear,the cash flow was under greater pressure,and there was a risk of financial breakage.The problems reflected by these indicators were further investigated to find out the specific reasons for the formation of the situation,mainly caused by the inflated income,the pressure on the capital chain,the impairment of goodwill and the reduction of major shareholders.The risk after merger and acquisition is mainly Business integration risk,the majority of enterprises to diversify the purpose is to form a synergistic effect,the integration of the company and the original company resources,to achieve 1 +1> 2 effect,but Tianguang Zhongmao did not actively integrate resources after the merger To understand the operating model of the new industry,which led to the failure of the merger.Based on the situation of Tianguang Zhongmao,this paper gives suggestions on the risks that may be encountered in diversified mergers and acquisitions: first,in the selection of M&A strategy,it should be thorough and thorough;Second,conduct accurate value assessment of the enterprises being merged;Third,the real-time monitoring and correction of the company's operating conditions after the merger.This paper also gives prevention and control measures from a macro perspective.When the market responds to frequent merger failures,it must take certain prevention and control measures,broaden financing channels,reduce corporate financial risks,and increase the monitoring of mergers and acquisitions.Constraints that disrupt the order of the capital market.