Research On The Causes And Countermeasures Of Failed Performance Commitments In M&A

As China’s economic development has entered a new normal,the optimization process of economic structure has accelerated and the market competition has become increasingly fierce.In the increasingly fierce market competition,many enterprises have been pursuing the goal of enhancing the core competitiveness of enterprises,increasing the market share and realizing the diversified development of business,and merger and reorganization has become an important means for enterprises to quickly achieve these goals.As a valuation adjustment mechanism,performance commitment agreement is conducive to alleviating information asymmetry and encouraging the acquiree to fulfill its performance commitment,so that both sides can make efforts to improve the efficiency of M&A.To a certain extent,performance commitment can not only protect the interests of investors,but also help the merger and acquisition parties to reduce merger risks and play the synergies of merger,so it is widely used in merger and acquisition.However,in recent years,with the increasingly apparent problems of "high valuation,high premium and high commitment" in the M&A market,the phenomenon of performance failure is also common.Performance loss not only damages the performance and reputation of the acquirer,but also damages the interests of investors,which is not conducive to the healthy development of the capital market.Thus,it can be seen that it is an important subject for both theoretical and practical circles to explore the causes and countermeasures of performance failure in M&A and reorganization,help the M&A party to correctly use performance commitment agreement,prevent performance failure and scientifically make M&A decisions.In this thesis,the traditional machinery and equipment enterprise Dagang Holdings merger and acquisition of hazardous waste disposal enterprise Zhongde Environmental Protection case,to study the reasons and countermeasures of performance loss.Throughout the capital market,performance commitment agreements are more widely used in cross-industry M&A transactions,but because the information asymmetry of cross-industry M&A is higher than that of other types of M&A transactions,the performance commitment performance situation is not optimistic.The market gap of the hazardous waste disposal industry where the acquired company Zhongde Environmental Protection is located is large,and the industry barriers are high.More and more enterprises choose to enter the market through merger and acquisition,and performance commitment agreement has become a common means,but performance failure occurs from time to time.Therefore,the case study on the causes and countermeasures of performance failure is more typical and has a certain universality.This thesis combines theoretical research with case studies.First of all,based on the summary and review of performance commitment and performance failure related literature,this thesis defines the relevant concepts of performance failure in M&A,and expounds the relevant theories of performance failure in M&A.Secondly,it introduces the basic information of the two parties,the motivation and process of the merger,the terms and conditions of the performance commitment,and the economic consequences of the loss of the performance of Zhongde Environmental Protection to Dagang Holdings.Thirdly,based on the background of Dagon Holdings’ acquisition of Zhongde Environmental Protection and the signing and implementation of the performance commitment agreement,the reasons for the performance failure of Dagon Holdings’ acquisition of Zhongde Environmental Protection are explored from three stages of preparation,formulation and implementation of the performance commitment agreement.Finally,the thesis puts forward corresponding countermeasures for M&A enterprises according to the reasons of three stages: in the preparation stage of performance commitment agreement,fully assess the industry risk and investigate the target enterprise;In the formulation stage of performance commitment agreement,reasonably determine enterprise value and optimize the terms of performance commitment;In the performance commitment agreement implementation stage,enhance the ability of merger and integration,strengthen cost management,improve the management system.