The Impact Of Transaction Payment Arrangements On M&A Performance

With the adjustment and upgrading of China’s industrial structure and decentralization,the market for mergers and acquisitions is developing rapidly.However,in the process of merger and acquisition integration,often face a lot of risks and resistance.In order to reduce the risk of mergers and acquisitions,seeking better merger and acquisition performance,many enterprises will choose the "performance-to-be" approach to design the transaction structure.The target party is required to make a commitment to performance over the next few years and to make performance compensation if the commitment is not met as required.However,from the current market situation,after the merger can not all meet the performance commitments,often appear commitments can not be fulfilled,the buyer’s goodwill significantly reduced and other issues.Therefore,the "Earnouts" from abroad began to be gradually paid attention to by domestic scholars and practitioners and application and practice.Under the current wave of mergers and acquisitions of listed companies in China,more and more companies take the merger and acquisition strategy as the main strategy of their own company’s development,with a view to obtaining industry advantages,synergies and so on through mergers and acquisitions,and so on,to improve the value of the company.Blue Focus as the GEM’s " first stock of public relations ",for several years in a row to carry out largescale M&A,domestic and overseas at the same time to expand the market.At the same time of large-scale M&A,Blue Focus also signed a performance commitment agreement with the target company,and adopted the contingent payment method of "Earnouts" in overseas M&A.This paper analyzes two different performance commitment methods applied in the two M&A cases,the different risks faced,and the impact on the performance of M&A,so as to make recommendations for the selection of reasonable performance compensation methods and payment arrangements in M&A.Through the event study method to calculate the excess earnings of blue cursor M&A event window period,in order to evaluate the short-term M&A performance of Blue Focus M&A event,it is concluded that the two M&A events have achieved significant positive M&A performance,and the short-term effect of M&A of WAVS company is better than that of M&A of BOJIE Advertising Company.Through the financial analysis method to study the long-term financial performance of the Blue Focus after the merger,it shows that after the M&A in the successful completion of the performance target,the enterprise has brought better performance,and the loss caused by the substantial impairment of goodwill after the failure of performance commitment is also quite serious,which makes it difficult for the financial indicators of Blue Focus to recover to the previous high level.In comparison,under the contingent payment arrangement,when the performance target is not up to the standard,the "long-term payables" will be transferred to "non-operating income",and the amount of profit will be increased in the contrast.Even if there is a huge goodwill impairment loss,it can still play a buffer role in the loss of profit.However,under the traditional payment method,"non-operating income" can only be obtained when the performance commitment Party’s compensation is received,which may lead to the situation that the commitment party refuses to make compensation and increase the loss.And if the performance commitment fails to meet the standard,it will compensate for the risk that the payment cannot be received,and it will fall into legal proceedings,which will make even worse the impact on the company’s profits and operation.The contingent payment arrangement in the profitability payment plan can solve this problem,so the "Earnouts" can protect the interests of the acquirer more in the application.