Research On The Causes And Risks Of High Premium In M&A

In recent years,high premium M&A occurs frequently in the market,and the problems have gradually become the research hotspot.High premium M&A involves a variety of industries,most of which are high value-added enterprises,but there are also some traditional manufacturing industries.The upsurge of high premium M&A in the market is getting higher and higher,and the traditional industry is an important economic source of national income.Studying the high premium M&A behavior of traditional manufacturing industry is helpful to explore the causes of high premium except for the characteristics of "light assets",and highlight the high premium factors such as irrational factors.This paper studies the high premium M&A behavior with the case of Yong'an Forestry's acquisition of Senyuan furniture We find the factors that influence the high premium of M&A and the risks it can bring.This paper reviews the literature and theory related to high premium M&A,introduces the basic situation of the industry where the case is located,the situation of both sides of the M&A and the general situation of the transaction,and studies the case of high premium M&A in traditional industry-Yong'an Forestry M&A of Senyuan furniture.In the research on the causes of high premium,it is found that: 1.The profit motive can form a high premium,which is mainly from the perspective of synergy effect,from the perspective of asset evaluation;2,The risk prevention mechanism supports the promotion of premium,which is mainly from the perspective of performance commitment and payment method;3,Irrational factors lead to high premium,which mainly includes managers' overconfidence and anchoring effect;4,Macro factors influence high premium.In the study of high premium risk of M&A,it is found that high premium M&A is easy for the owners and companies to acquire non-performing assets,It will bring risks to its financial situation,which is reflected in the difficulty in obtaining performance compensation after merger and acquisition,the risk of weakening profitability due to the influence of subsidiaries,the risk of tight liquidity and the risk of goodwill impairment;After high premium merger and acquisition,listed companies will also face the risk of horizontal competition and a series of policy change risks,especially for traditional manufacturing industry,which is more affected by policies.The target company may become a non-performing asset unable to make sustainable profits in the future due to policy changes.It is concluded that the traditional manufacturing industry without core competitiveness is not suitable for acquisition at a high premium,the valuation of the target company is too high,and the performance will change after the acquisition.The risk prevention mechanism can enhance the premium but not necessarily guarantee the expected high income,and the synergy effect is expected to be too high,which is easy to pay too high premium.This paper aims to achieve the following objectives through research: First,to provide reference for enterprises to make premium decision and judge the rationality of premium in value evaluation;Second,to sound the alarm for managers who want to acquire traditional manufacturing industry at high premium,traditional manufacturing industry is difficult to form patent barriers,and the expected revenue is variable;Third,to conservatively look at the role of risk dispersion mechanism such as performance commitment.Finally,make the managers understand the role of their own irrational factors correctly to prevent these psychology leading to decision-making mistakes.