Case Study On Performance Commitment Of Xinyangzhou M&A

As the Chinese capital market keeps developing,M&A has become an important strategy that helps enterprises to enlarge economic scale,gain competitive advantages and achieve rapid growth.In recent years,M&A has been favored by many listed companies.While the approach offers exciting opportunities,it may also bring challenges.Because of some reasons such as information asymmetry,shareholders of the target company want to get the highest consideration,while the acquiring party wants to own more shares with the lowest cost.In order to speed up the completion of the deal,the target companies are likely to make commitments to future operating performance,which is often too good to turn out true.This common behavior would be problematic because that,firstly the exaggerated performance commitments affects the stability of the capital market and the interests of the company itself and its minority shareholders.Secondly,the chaotic performance commitments would make it more difficult for regulatory supervision.Thirdly,the performance commitment technically relates to the valuation,goodwill and financial issue problems.In the climate of the M&A trend,this study takes the case of CNFCoverseas fishery's(000798,SZ)acquisition of Xinyangzhou,by means of literature research,case analysis,statistical description and comparative analysis,to demonstrate the importance of the content,fulfillment and compensation of performance commitment in the process of M&A.The case study reaches the conclusion that the performance commitment of the target company Xinyangzhou is unreliably high,and analyzes the reason behind.The high consideration of M&A has led to the inflated performance commitment and the high valuation,which exceeded the actual profitability of the target company.Therefore,the performance commitment turned to unachievable.It is apparent that there are other reasons that contributed to the lacking of performance outcome.For example,the actual controller's misappropriate action of funds,merger and acquisition integration problems,poor management and deterioration of its business environment.Finally,it ended up with failure and the target company entered into the bankruptcy liquidation procedure.The defeat from both of the two sides of the M&A left the experience and sobering lessons behind.This case brings a lot of insights.As for both parties involved in the acquisition,it is significant that necessary due diligence should be in place,so that to understand the counterparty objectively and comprehensively.Beware of the risks of high valuation,high premium and high performance commitment,and respect rules of the capital market.For the investors,it is important to keep rational and objective mind because performance commitment is the target company's future vision,which contains many uncertainties so the investment risk still exists.As for the regulators,we should establish the industry benchmark as reference for valuation,formulate the laws and regulations on payment of M&A consideration and guidance,improve the supervision on M&A performance,so as to encourage the healthier development of Chinese capital market.