Risk Analysis Of The Use Of Gambling Agreement In Enterprise Mergers

Since 2015,my country’s capital market has set off a wave of mergers and acquisitions.In this increase,high valuations,high goodwill and high performance commitments have occurred frequently.As a valuation adjustment method,gambling agreements are widely used in mergers and acquisitions.The performance commitment period is generally three to five years.However,as time goes on,many mergers and acquisitions have gradually broken out problems and sequelae in recent years..Many companies face huge compensation payments because they cannot fulfill their performance commitment targets,and many companies cannot reach an agreement to initiate legal proceedings due to performance compensation issues.How to effectively use the gambling agreement to avoid risks in M&A activities has become an urgent problem that needs to be solved.The introduction of gambling agreements in my country is relatively late,and there are few related studies.Chinese scholars mostly study gambling agreements from the perspective of law or private equity.The cases studied in this article are aimed at the use of gambling agreements in corporate mergers and acquisitions,and can be better understood as well as Understand the gambling agreement,this article analyzes the causes of the goodwill impairment of the acquirer,the effectiveness of the gambling agreement to prevent the impairment of goodwill,and based on the gambling agreement,how to rationally use the pair in the merger and acquisition activities The gambling agreement puts forward specific suggestions to provide some references for better use of the gambling agreement in future mergers and acquisitions.Starting from the M&A market in my country,this article summarizes the related research on premium mergers and gambling agreements through literature analysis,and outlines the relevant theories about gambling agreements and merger premiums.Finally,through the analysis of the case of Fulin Transport’s acquisition of Zhaoyi Technology,the risk in the merger and acquisition case was summarized,and finally,systematic suggestions were put forward for the whole process of the gambling agreement.The findings of this paper are that through analysis,it is found that the main risks faced by corporate mergers and acquisitions under the gambling agreement are:(1)Due to the excessively high merger and acquisition valuation,in the case that the performance commitment cannot be completed,the high merger and acquisition valuation is converted into pressure.The operational capabilities of the acquirer.The main reasons leading to high M&A valuations are the use of the income method as a valuation method,the generally high valuation premium rate in the M&A market,and the existence of information asymmetry between the parties to the M&A.(2)Setting an excessively high performance commitment target.If the acquired party cannot meet the performance target,the acquired party will need to pay a huge performance compensation,and it will also affect the business status and future development of the acquirer.(3)If a complete performance compensation plan is not designed,the acquirer may not be able to obtain sufficient performance compensation to make up for the loss.At the same time,it is very likely that the two parties cannot reach a consensus and go to court.At present,the law related to the gambling agreement in my country is not perfect,and it is very likely that the performance compensation cannot be recovered.(4)High M&A valuations have caused high goodwill.On the one hand,the business scale and total assets of the acquirer have been rapidly increased,but at the same time,the proportion of goodwill in total assets has also greatly increased.If there is a situation where the performance target cannot be achieved,the acquirer needs to set aside a large amount of goodwill impairment reserves,which will offset the acquirer’s assets and ultimately affect the company’s net profit.At the same time,in order to ensure the correct and effective use of the gambling agreement,both parties to the merger and acquisition should use the gambling agreement cautiously,and due diligence is required before use;restrict corporate valuation and rationally evaluate corporate value;rationally design performance indicators and diversify performance indicators;strengthen the period Control and strengthen strategic coordination.