Research On M&A Risk Prevention Based On Payment Structure Design

With the continuous improvement of our country's capital market,M&A activity is becoming more and more active,but M&A is a highly complex and uncertain transaction,which faces various risks.The payment structure is a crucial part of the M&A strategy.Different payment structure designs will have different effects on the M&A results.More and more companies are aware of the important role of payment structure in M&A risk prevention.However,our country's innovative payment structures are still scarce at present.It's significant to study how to rationally design payment structure,especially the use of innovative payment structure.The literature research methods case study method and event study method have been used in this paper to study the risk of mergers and acquisitions risk by rationally designing payment structure.The paper based on the information asymmetry theory?real option theory?goal setting theory and dilution of control theory.Study on the acquisition of Hangzhou Fenghe by Shenkai Shares,starting from the internal and external factors arising from the risk of mergers and acquisitions,through the effective design of payment structure to correct and control these risk factors,reduce the adverse effects of these factors on mergers and acquisitions,aiming to explain the enterprises M&A risks can be prevented by rationally designing payment structure.Shenkai Shares is one in a million which used the earnouts in M&A payment structure in our country,and its payment structure is extremely tightly designed,which reflecting a strong awareness of M&A risk prevention.Shenkai Shares completed the acquisition of Hangzhou Fenghe in advance with only 51%of the expected price,and obtained a positive cumulative excess return when the payment structure was executed,in the meantime Hangzhou Fenghe's performance was excellent after the acquisition,which verified the rationally design payment structure is an effective way to prevent the risk of mergers and acquisitions,especially use earnouts to prevent M&A risks is more effective.However,there are some flaws of Shenkai Shares payment structure has led to poor prevention of some M&A risks.Firstly,the imbalance of risk allocation and the over-cured contract,which made the operating results of Hangzhou Fenghe management offset by systemic risk.Secondly,the full progressive condition promotes short-sighted behavior.Thirdly,plenty of contingent payment makes the listed company's debt level reach the peak in recent years,which leads to financial risks.Here comes some suggestions are the dynamic assessment system can be introduced into the payment structure to balance risks,and the excess progressive could be designed,then the appropriate proportion of preferred stocks could be considered for financing.The enlightenment of this paper is that when enterprises face the serious risk in M&A,they can actively introduce earnouts to prevent risks.At this time,market investors should treat their rationality.Finally,our country should improve relevant laws and regulations to encourage enterprises to use earnouts.To promoting the improvement and innovation of China's M&A payment structure and improve the efficiency of China's M&A market.