Research On The Causes And Impacts Of The Failure Of The Performance Compensation Agreement Of Dongfang Precision’s M＆A Of Beijing Pride

Since 2013,with the rise of the capital wave,more and more companies have begun to expand their scale and seek new development through mergers and acquisitions.Due to the risks of mergers and acquisitions,in order to protect the interests of both parties and reduce uneasy factors,the two parties will sign a performance compensation agreement.However,during the performance period,it is easy to cause the agreement to lose its effectiveness due to reasons such as failure to meet the performance commitment,which will have a negative impact on the acquiring party and damage the interests of the listed company’s small and medium shareholders.Therefore,this article studies the reasons and effects of the failure of the performance compensation agreement during the performance commitment period of Dongfang Precision’s acquisition of Beijing Pride,and aims to point out the unreasonable points through in-depth study of this case,and provide corresponding information for subsequent mergers and acquisitions.This article starts with combing the relevant research of the predecessors and introducing the theoretical basis used,and makes a basic introduction to the situation of both parties to the transaction and the underlying assets.Based on the analysis of the reasons and effects of the failure of the performance compensation agreement,relevant suggestions are finally given.The study found that the performance compensation agreement failed mainly due to the following reasons: Affected by policy changes and intensified industry competition,Pride failed to maintain good operating performance.Relevant departments have looser supervision and weaker punishments,reducing the binding effect of the agreement.Before the merger,the two parties made high valuation and high performance commitments.There are hidden dangers in the setting of the commitment period.The acquiring party has no control over the performance compensation agreement,which leads to an increase in the risk of agreement failure.In addition,Beijing Pride relied too much on related parties,and the goodwill of the underlying assets was greatly impaired,which caused Dongfang Precision’s improvement of performance standards,which in turn caused disputes between the two parties,resulting in the invalidation of the performance compensation agreement.After the performance dispute is arbitrated,the responsible party has not received excessive punishment,which will further weaken the effectiveness of the performance compensation agreement.The failure of the performance compensation agreement has many impacts on the acquirer.Based on this case and the current status of my country’s acquisitions,it is proposed to improve the agreement regulations,improve the punishment and supervision mechanism,and strengthen the restraint;correctly evaluate the value of the underlying asset,and make reasonable Performance commitment;when the agreement is in effect,the merger and acquisition party should strengthen management and control recommendations.By studying the case of Dongfang Precision’s merger and acquisition of Beijing Pride’s performance compensation agreement,it hopes to make some suggestions for other related companies to reduce the risk of performance compensation agreement failure,so that the performance compensation agreement can better serve M＆A activities.