The Impact Of Leveraged Buyouts On The Business Performance Of Firms

With the gradual acceleration of the pace of China’s economic opening to the outside world,many companies have set their sights on overseas in order to expand their markets and find a stable supply of raw materials,hoping to consolidate and enhance their industry position by means of overseas M&A.However,the amount involved in cross-border M&A is relatively large,and domestic companies often face the dilemma of insufficient acquisition funds.Therefore,domestic companies generally consider using leveraged buyouts in order to achieve their acquisition objectives.Although the companies use leveraged funds to achieve the acquisition purpose,it may have certain impact on the company’s business performance.This paper first explains the rationale for the case selection and provides the necessary descriptions of the acquisition parties’ profiles,mainly including the business status and the shareholding structure.In addition,the specific process of the leveraged buyout is sorted out and the details of the acquisition process are analyzed.Next,the reasons why the company chose the leveraged buyout strategy are explained in detail,and the intrinsic motivation of its leveraged buyout is elaborated.Finally,the case study focuses on the company’s short-term market performance and long-term comprehensive financial performance.The short-term market effect of the leveraged buyout is examined using event analysis,and the comprehensive financial performance of Tianqi Lithium in the industry is analyzed using principal component analysis,and the impact of the leveraged buyout on the company’s business performance is explored in a more comprehensive manner.This paper finds that the leveraged buyout event did have a significant effect on Tianqi Lithium’s short-term market performance,with an excess increase in the company’s stock returns.However,the company’s long-term consolidated financial performance is significantly reduced by the acquisition event,and its ranking in the industry’s consolidated financial performance shows a significant decline.Therefore,taking into account Tianqi Lithium’s specific acquisition strategy and acquisition process,this paper concludes that Tianqi Lithium should use a leveraged acquisition strategy with caution and assess acquisition risks comprehensively.At the same time,it should grasp the development trend of the industry and reasonably choose the timing of acquisition in its acquisition strategy.