Are Policy Changes The Main Cause Of Merger Failure?

In recent years,China’s M&A market is relatively active,the number of M&A cases and related amounts are growing rapidly.Mergers and acquisitions can rapidly expand the scale of enterprises and accelerate the development of enterprises.However,behind the active M&A market,there are many failure cases of M&A,and the reasons of failure are worth studying.As a member of the general equipment manufacturing industry,on the basis of doing a good job in the existing main products,Company H has seized the national policy support for energy conservation and emission reduction,and expanded its business scope in the field of new energy power generation with the rapid development of nuclear,electricity,wind,light and other new energy power generation.In September 2016,Company H established a holding subsidiary specializing in the new energy field.In addition,Company H also invested in rooftop photovoltaic power generation projects and started to enter the field of photovoltaic power generation.The case discussed in this paper is its acquisition of the target company Company C in 2017 with a consideration of RMB 1.756 billion.At the time of merger and acquisition,Company H signed a Valuation Adjustment Mechanism with Company C,which stipulated that Company C’s accumulated net profit after deduction shall not be less than RMB 790 million during the three-year period from 2017 to 2019.However,the performance commitment was not realized in the end.H company believes that this situation is mainly affected by changes in industrial policies.The industry policy change refers to that in May 2018,relevant departments issued a notice on photovoltaic power generation,uniformly lowered the benchmark on-grid price and reduced the construction scale of photovoltaic power stations.In April 2020,Company H disposed Company C at a consideration of RMB 190 million,and finally Company H failed in the acquisitions of company C.By reading literature and using case analysis and contrastive analysis,and combining the domestic and foreign relevant analysis on the motivations of premium merger and acquisition and its economic consequences,the case of Company H’s high-premium merger and acquisition of Company C is taken as the object of study.Combined with the actual situation of the case,we analyzed the motivation of merger and acquisition.Through the financial analysis of this case,the main reasons for the failure of this merger were studied,and then the real reason for the failure of this merger was the failure of integration.Finally,through the analysis and summary of the causes of failure,the paper provides some references for similar cases that may appear in the M&A market in the future.