Research On The Risk Prevention And Control Of Performance Commitment In Dongfang Precision’s M&A Of Pride Power

Nowadays,with the continuous development of China’s capital market,as an importat way to develop and transform enterprises,M&A is widely used by listed companies,strategic layout and integrate resources.In 2008,in order to reduce the risk of M&A valuation and protect the interests of small and medium sized investors in the capital market,CSRC introduced performance commitment mechanism in the management measures for major assets reorganization of listed companies(order 53 of CSRC),which stipulates that in M&A transactions,the M&A party adopts valuation methods based on future earnings expectation to evaluate the target enterprises,The acquired party shall guarantee the profitability of the next three years after the merger.Performance commitment,a new type of merger contract system,on the one hand,helps to protect the interests of investors,on the other hand,it helps to maintain the orderly development of capital market.Therefore,it is recognized by many parties of M&A transactions.However,with the increasing number of M&A transactions,the risk of performance commitment gradually emerges.The phenomenon that the target enterprise cannot achieve the performance commitment is frequent,which not only damages the interests of the M&A party,but also hinders the healthy development of the M&A market in China.It is of great significance to study how to prevent the risks brought by M&A performance commitment to the acquirer,and make the performance commitment become the positive driving force of M&A,whether it is for the promotion of the sound development of financing market or for the healthy development of listed companies.This paper takes Dongfang Precision,a listed company as a case company,to analyze the risk and risk causes of the performance commitment of M&A,the selected case company has some typical characteristics.First,the valuation of the M&A——Dongfang Precision uesd is the market use of the more common income method.Second,the non post deduction net profit is regarded as the agreed performance evaluation index in the performance commitment agreement between the two parties,which is also a common indicator to measure whether the performance commitment is achieved.This paper focuses on the case study of the acquisition of praid by Dongfang Precision,and wish to explore the risk prevention and control of M&A performance commitment.Before case analysis,this paper combines the existing relevant literature,summarizes the research achievements of domestic and foreign scholars,and then,combine with the actual situation of the case,determines the basic framework of this paper.The thesis consists of six parts: the first part is introduction,which introduces the research background of this paper.This paper mainly analyzes the research results of performance commitment in M&A based on the existing domestic and foreign literature,including three aspects: motivation,risk type and risk prevention and control of performance commitment in M&A.The second part is the theoretical overview,mainly focusing on the performance commitment of M&A and risk prevention and control,which is the theoretical part of this paper.Based on the existing theories,the concept and characteristics of performance commitment,the motivation of signing performance commitment agreement in M&A and the risk types of performance commitment in M&A are described.The third part is the case overview of the acquisition of praede by Dongfang Precison,which is used to describe the case in this paper.This paper mainly introduces the basic situation of both parties,the motivation of signing performance commitment agreement,the design of performance commitment scheme and the performance of performance commitment.The fourth part focuses on the analysis of the types of performance commitment risk of the M&A of Pride Power,including the risk of valuation of enterprise merger,the market environment risk of the target enterprise,the risk of setting and implementing the performance commitment,and the risk of operation and management.The fifth part analyzes the causes of the performance commitment risk of the M&A of the former from the internal and external environment of the target enterprise.The sixth part,based on the case analysis,puts forward the specific countermeasures for the prevention and control of performance commitment risk in M&A.This paper mainly uses literature research method and case study method to analyze.Through collecting and consulting the relevant literature of domestic and foreign scholars,this paper summarizes the relevant literature of domestic and foreign scholars from the aspects of motivation and related risks of performance commitment in M&A,and makes theoretical preparation for the research of risk prevention and control of performance commitment.At the same time,from the perspective of case analysis,the paper first introduces the basic situation of both parties,the motivation of signing performance commitment agreement,the design of performance commitment scheme and the performance of performance commitment.Secondly,the paper analyzes the risk types and causes of performance commitment during the acquisition of praede performance commitment by Dongfang Precision.Through analysis,it is found that the risk of M&A valuation in the process of acquisition of praid performance commitment is due to the improper selection of M&A valuation methods and asset evaluation institutions.The environmental risk of the target enterprise market is caused by the frequent phenomenon of fraud and compensation,which leads to the decline of subsidies.The continuous development of the industry has intensified the competition of the market.The reason for the establishment and implementation risk of performance commitment is that the performance commitment agreement is not reasonable,which is reflected in the single performance evaluation index and unreasonable performance compensation terms.After M&A,the failure of Dongfang Precision to control the target enterprises effectively and lack of effective supervision of the management of the target enterprises led to the emergence of management risks.Finally,through the above analysis,the paper puts forward corresponding measures for the prevention and control of performance commitment risk in M&A:(1)before M&A,the acquirer should carefully select the asset evaluation institution,and reasonably evaluate the value of the target enterprise in a combination of various evaluation methods;(2)The M&A party should also fully investigate the target enterprise and market before M&A,and pay close attention to the new policies and development trend of the industry after the merger;(3)In order to set and implement the performance commitment risk,it is important to set up the performance objectives reasonably and flexibly and establish the corresponding performance compensation guarantee mechanism in addition to enriching the performance evaluation index;(4)In view of the management risk,the M&A party needs to know the operation and management of the target enterprise in advance,but also needs to strengthen the integration of the management and management of the target enterprise and the business,and improve the incentive and supervision mechanism of the management of the target enterprise.