Risk Analysis Of Enterprise M&A Based On Performance Commitment

With the development of China’s economy,market competition has become increasingly fierce,more and more enterprises through mergers and acquisitions to expand.In 2018,28567 mergers and acquisitions were completed in China’s capital market,with a total transaction value of 4699.362 billion yuan.With the rapid development of mergers and acquisitions in the Chinese market,in order to reduce the risks brought by mergers and acquisitions,more and more enterprises use performance commitment in the process of mergers and acquisitions.Performance commitment in 2018 has been applied in many industries,and has gradually extended from the past growth industries to many traditional industries.Performance commitment exists to prevent and control the risk of M&A.However,with the popularity of performance commitment in China’s M&A market in recent years,it often fails to be fulfilled in the process of application.While performance commitment controls the risk of M&A,it also produces certain risks.Therefore,how to identify the risk of performance commitment in the process of mergers and acquisitions,and how to effectively avoid the risk are practical problems to be solved.This paper is based on real option theory,information asymmetry theory,tunneling behavior theory of major shareholders,irrational behavior theory of managers and risk management framework of M&A.Through the analysis of the two M&A cases of Star Technology,the M&A risks of enterprises based on performance commitment are analyzed from the aspects of M&A process and risk nature,and the corresponding suggestions are put forward.This paper finds that performance commitment runs through the whole process of M&A,and the impact of performance commitment is accompanied by M&A risk.Taking Star Science and Technology as an example,enterprises have different strategic motivations before mergers and acquisitions.Because the two sides of mergers and acquisitions signed performance commitment compensation agreements,the management neglects the actual value of the underlying assets when making decisions,which has a certain impact on the strategic choice of enterprises and increases the strategic risk.In the process of merger and acquisition,because of the existence of performance commitment,the future performance is guaranteed to a certain extent,which makes the enterprise have a high expectation of the future profitability of the underlying assets,and improves the valuation risk of the enterprise.At the same time,it sets a higher target performance according to the predicted future profitability,which brings the risk of setting performance objectives.After mergers and acquisitions,there is a risk of failure of performance commitment.When mergers and acquisitions are conducted,the two sides raise the stock price through high valuation and high premium.When performance commitment fails to meet the standard,large shareholders use information asymmetry to reduce their holdings and cash,which damages the performance of small and medium-sized shareholders.At the same time,high goodwill caused by high valuation has the risk of impairment in the future,which is not conducive to the long-term In view of the risks in different stages of M&A,this paper puts forward specific measures to deal with the current risks,so as to improve the completion rate of performance commitment,make performance commitment play its own role,achieve the effect of controlling M&A risks,and enable enterprises to better use performance commitment to achieve M&A.