Debt M&A And Corporate Financial Risk

With the development of enterprises,when enterprises encounter bottlenecks,they will make M&A decisions in order to achieve breakthroughs.According to domestic and foreign research on M&A decisions and various practical cases,most enterprises achieve expansion of enterprise assets and increase of operating profit through M&A decisions,or form synergistic effect or scale effect by integrating upstream and downstream industrial chains or related industries to improve enterprise operation efficiency.However,in the process of M&A,because of the financing dilemma such as single financing method and difficult financing,the financial risk of enterprises increases,and the enterprises that cannot effectively cope with the corporate financial risk may even go bankrupt.This paper takes the bankruptcy reorganization of HNA,the largest domestic bankruptcy reorganization ever,as the starting point to analyze the corporate financial risks brought about by HNA’s M&A with mainly debt financing and to explore how enterprises should prevent the financial risks brought about by M&A.This paper compares the literature of domestic and foreign scholars related to the research topic of this paper,including the theory of M&A motivation based on synergy effect and management confidence;the theory of financing constraint;the theory of M&A financing based on MM theory,trade-off theory and optimal order financing theory and the literature related to the study of M&A financial risk.The debt M&A model is described from three aspects: the characteristics of debt M&A,the difference between M&A debt and other debt financing,and the reasons for debt M&A.Based on the financial risks brought by M&A,we analyze how M&A with debt financing can affect corporate financial risks.The equity structure of HNA Group,its development history and investment and financing during frequent mergers and acquisitions are briefly introduced.The case study of HNA Technology’s merger and acquisition of Ingram Micro International is focused on,and the short-term performance of HNA Technology’s merger and acquisition of Ingram Micro International is evaluated through the event analysis method,and the synergistic effect and financial effect of HNA’s debt mergers and acquisitions are evaluated through an article-by-article analysis of the financial risks brought about by this merger and acquisition.Finally,based on the theoretical analysis and case study of this paper,conclusions and insights are presented.The results of the study show that adopting debt financing for M&A allows for the selection of larger scale M&A projects.Given the availability of options,management’s self-confidence as well as from its own profitability perspective may motivate management to push companies to do larger M&A.Under these two basic conditions,debt financing brings higher gearing to the firm,which creates the risk of reducing the firm’s ability to sustain financing,and the pressure of debt service from high levels of debt also brings liquidity risk to the firm.At the same time,for the M&A party,there are operational management challenges in trying to integrate the acquired party with a larger volume and broader scope of business than itself,which may not achieve the expected returns of the enterprise at the time of the M&A in the long run.Combined with these risks,an M&A with debt financing may pose more complex and interacting financial risks to the company.