Research On The Financial Risk Of Runbang’s Acquisition Of Zhongyou Youyi

Economic globalization has driven the rapid development of various industries,and competition among enterprises has become increasingly fierce.As one of the ways for enterprises to achieve efficient and rapid development,mergers and acquisitions are favored by enterprises.Both parties involved can effectively integrate resources and optimize resource allocation,so as to achieve mutual benefit and win-win results through the use of synergies,accomplishing the purpose of rapid expansion.From 2012 to 2020,the volume and total value of M&A transactions in our country have shown a clear upward trend.The number of mergers and acquisitions has increased from 1946 to 10,651.In 2020,the total transaction value reached RMB 8,037.25 billion,which is about 6 times of that in 2012.In the past four years,the number of mergers and acquisitions each year has exceeded 10,000,and the upsurge will continue.However,M&A started relatively late in our country,and the first M&A transaction took place in 1984.After more than 30 years of development,the research on M&A and the establishment of the system have achieved fruitful results,but there are also many models needing to be further enriched and improved.The financial risks caused by M&A still have serious impacts on the benefits and value creation of mergers and acquisitions.Financial risks may come from all stages of M&A,from the company’s decision to implement mergers and acquisitions,the selection of the merged company,to the completion of the merger transaction and the completion of all the integration work between the companies,affecting the final merger.Therefore,the control and prevention of financial risks should be implemented in all stages of corporate mergers and acquisitions.Runbang Co.,Ltd.was originally a listed company mainly engaged in high-end equipment manufacturing business.In order to realize its strategic layout to enter the environmental protection field,it invested three times in 2017,2018 and 2020,respectively,in the leading hazardous waste enterprise Zhongyou Youyi,realizing its100% holdings.By this time,Runbang successfully broke through barriers in the hazardous waste disposal industry,and expanded its business to the hazardous waste industry.The acquisition not only increased the market share of Runbang shares in the hazardous waste disposal segment,but also achieved a higher level of profitability through the acquisition of high-quality assets and a synergistic effect.This article takes the case of Runbang’s acquisition of China Petroleum Youyi as the research object,ploughing through domestic and foreign literature,deeply analyzing the possible financial risks in the transaction,and finds out the reasons for the risk.Combined with Runbang’s financial risk response strategy,corresponding suggestions on the prevention and control of financial risks in mergers and acquisitions were put forward.When selecting CNPC Youyi as the target company,Runbang not only inspected its various financial indicators,including indicators of poor performance,analyzed the causes,but also judged its future development potential and the degree of matching with its own strategy.To choose the target company prudently means to reduce the risk of target selection.When determining the transaction pricing,Runbang Co.,Ltd.analyzed the valuation results by basic asset method and the income method,and finally chose the income method result which is more representative of the target enterprise value as the pricing basis.The valuation process is relatively rigorous,reducing the possible pricing risks that may be caused by wrong selection of method and a large value-added.During the M&A process,Runbang’s first two transactions used its own cash to pay for the transaction price,and the last transaction used non-public issuance of stocks as a financing payment method.This step-by-step M&A transaction format made the acquirer avoid the financial risks caused by information asymmetry,and the combination of different methods also reduces the financing and payment risks in mergers and acquisitions.After the completion of the transaction,Runbang has effectively integrated the personnel,organizational structure,financial system,and corporate culture of CNPC Youyi in an all-round way.Synergies exert positively between the merger and acquisition parties,promoting the development of each other.